According to new data released this week by Gartner, Apple shipped some 7.04 million iPhones in the third quarter–up from just 4.72 million phones in the same period a year ago–for a 17.1 percent share of the market (see table below; click to enlarge).

That’s a 49.2 percent year-over-year increase in sales and it puts Apple (AAPL) in spitting distance of Research in Motion (RIMM), which also posted close to a 50 percent year-over-year gain to claim 21 percent of smartphone sales during the period.

With 39 percent of smartphone sales, Nokia (NOK) was the top seller during the period, and it’s clearly not ceding its spot any time soon. But RIM might, given the small gap between its market share and Apple’s.

In any case, RIM clearly has a fight on its hands as we head in the holidays, especially if Apple brings an 8GB iPhone 3GS to market in the next few weeks.

UPDATE: According to Apple’s last earnings announcement, the company said it shipped 7.4 million iPhones during the quarter. Why there’s a discrepancy between the company’s numbers and Gartner’s isn’t clear.

“The company is taking this action in a careful manner to ensure that there is no impact on the improved customer experience that has been reflected in much higher levels of satisfaction in customer surveys and in independent performance tests,” Sprint said in a statement. “Sprint has pledged to not waver on the company’s commitment to quality service and products….The impact on geographic locations will vary, and many impacted positions will be eliminated by Dec. 31, 2009.”

Nice. Just in time for the holidays, too.

“There’s room for three to five players in this space. We don’t have to beat each other to prosper.”

– Palm CEO Jon Rubinstein

Palm CEO Jon Rubinstein likes to say smart-phone makers “don’t have to beat each other to prosper,” but it’s beginning to look like they–or, rather, Palm–might have to. Because while the Pre may have put Palm (PALM) back in the game, it’s not clear how long it can keep it there. With competition in the emerging smart-phone market ratcheting up as we head into the holidays, some analysts are predicting that Palm’s quarterly sales may decline–sharply.

“[Palm’s] guidance of a sequential decline in revenues in the second quarter implies that Pre sales are not off to the races,” Needham & Co. analyst Charlie Wolf wrote in a research note today. “Although Palm did not say what Pre sales were in the quarter, they appear to have been around 600,000 units, about 100,000 above our estimate. Palm indicated that revenues could fall to $240 million to $270 million in the second quarter, a number that implies that Pre sales could fall to 500,000 units vs. our previous estimate of 750,000 units.”

Interesting that Wolf pegs Pre sales as being above his estimate, since Palm hasn’t yet broken that number out. Indeed, in a conference call with analysts yesterday the company was so quick to dodge questions about Pre sales that I assumed it’s not an impressive number. But if the company really did ship 600,000 units as Wolf contends, that would suggest it’s doing pretty well at market, though certainly not as well as the Apple (AAPL) iPhone or Research in Motion’s (RIMM) BlackBerry. Odd then, that Palm wouldn’t disclose a hard sales number.

“The Pre and its siblings running on Palm’s WebOS software platform appear to be a serious contender in the smartphone market,” Wolf concludes. “But it would be premature at this point to declare it a winner in view of the fact that the smartphone market will shortly be overrun with new phones from Motorola and others running on the Android platform as well as new BlackBerry models in time for the holiday selling season.”

Sure, there might be room for three to five players in the smart-phone space, as Rubinstein claims. But that space is currently occupied at least seven players–Apple, RIM, Nokia (NOK), Motorola (MOT), Samsung, Sony Ericsson and Palm. Which means somebody’s got to go. So while Palm might not have to beat anyone to prosper, it may have to, to survive.

“We think that the Pixie, which we believe is being geared for AT&T and has a different form factor than the Pre, is not likely to be available for the 2009 holiday season,” Morgan Joseph Analyst Ilya Grozovsky wrote in a research note to clients, adding that Palm (PALM) needs to push the Eos hard if the company hopes to hold its own against Apple’s (AAPL) iPhone–particularly its $99 model–at AT&T (T).

“We do not have significant unit assumptions for this product given the continued success of the iPhone at AT&T,” Grozovsky said. “Nevertheless, we believe that Palm needs all the unit help it can get to achieve profitability and a delay in incremental units at AT&T with the Pixie would be a setback to this goal.”

Palm declined comment on the Morgan Joseph note.

Incidentally, Grozovsky is among those analysts who believe Pre sales are slowing. According to his checks, Pre sales fell from 200,000 units in June to 100,000 in July. He expects them to fall even further in August. And should this occur, a price cut may follow.

Said Grozovsky: “Should sales prove to be in line with our checks, we believe price cuts may be looming going into the holiday season in an effort to spur holiday sales of the Pre. This could, in turn, hurt Palm margins as we believe that Palm will have to make price concessions to Sprint” (S).

And if the OS should fail to meet that quality bar and its release date slips? Well, hey, Vista taught us that lunar new year is the new Christmas, right? As Brad Goldberg, general manager with Microsoft’s Windows Client Product Management team, said in 2006, when the company revealed that Windows Vista wouldn’t hit the consumer market in 2006, but in January 2007: “January has emerged as almost a second Christmas, with gift cards, sales, etc. It’s a new trend.”

Awful, ugly news. That said, there is a silk purse to be made from this particular sow’s ear. Store closing sales begin on Wednesday, so this is an auspicious time for the employed to get a jump on the annual holiday consumer binge. Those who aren’t put off by this near-funereal assessment of the economy from Circuit City’s acting chief executive James A. Marcum.

“Since late September, unprecedented events have occurred in the financial and consumer markets causing macroeconomic trends to worsen sharply,” said Marcum. “The weakened environment has resulted in a slowdown of consumer spending, further impacting our business as well as the business of our vendors. The combination of these trends has strained severely our working capital and liquidity, and so we are making a number of difficult, but necessary, decisions to address the company’s financial situation as quickly as possible.”

Happy holidays, huh?

Circuit City shares are currently trading at around 38 cents.