Cell Phone Evolution Gets Tougher

According to In-Stat/MDR (http://www.instat.com), the last few years have been very good ones for handset chip makers, as new technology hasquickly been integrated into many handsets, prompting users to upgrade. This, combined with continued subscriber growth, worldwide, especially in emerging nations, means the number of new handsetsproduced each year continues to increase at a rapid rate. However, the high-tech market research firm finds that supplying components for this market can be challenging for handset chip makers,because not only can consumers’ tastes change at a rapid pace, but also because handset component content can vary greatly from one region to the next.

“The cellular handset has been going through a complete evolution in the last few years, keeping handset chip makers on their toes while they attempt to forecast what will be the next big thing,” said Allen Nogee, a principal analyst with In-Stat/MDR. “When a technology does take the fancy of consumers and carriers, history shows us that the content of a handset can change quickly. For example, cameras in phones went from zero to over 150 million in just two years. Other technologies can, and will, move just as fast.”

Behind the trends in handset components are the trends in the handsets themselves. These trends, in many cases, are not driven so much by what consumers are demanding in their phones, but by what carriers want consumers to have in their handset, so that the carriers can reap the services revenues from these features. At the very least, carriers want their handsets to be attractive to potential customers, so that these carriers can steal away business from their competition. “This ‘phone-feature tango’ has been very tough on both handset makers and handset chipset makers alike, since each carrier wants a list of features that are different from the features offered by their competitors,” said Nogee. “Since both chip makers and device makers lower their prices by standardizing a set list of features and producing them in high volumes, the carrier’s need to differentiate can be in direct conflict with the hardware maker’s need to standardize.”

In-Stat/MDR has also found that:

— The number of application processors used in handsets is expected to increase dramatically, from 18.725 million this year to 92.070 million in 2008.

— The MPEG-4 chip market for handsets is ripe for growth. With not only video and camera functionality driving demand, but, eventually, Direct Broadcast (DB) services will start to appear in handsets as well, MPEG-4 chips fill the need for those mid-tier handsets supporting these services.

— By 2008, roughly 56% of all handsets shipped will have Bluetooth capability.

— Overall, while unit numbers are steadily increasing, ASPs are dropping, and add-on components to the core handset chipset won’t be able to offset this decline.