Ultra-Low-Cost Handset Market Taking Off

The market for ultra-low-cost handsets has taken off, a trend that will continue for the long term, a Texas Instruments (TI) executive said Monday.

Ultra-low-cost mobile phones are taking up a much larger share of the overall mobile phone market, so much so that in the fourth quarter, TI expects it to hurt overall sales since the handsets cost far less than mobiles aimed at modern nations. The chips inside a handset make up the bulk of the cost of a cellular phone, and most efforts to reduce costs focus on the chips.

The impact of growing ultra-low-cost handset sales on TI, the world’s largest maker of chips for mobile phones, shows how fast the market is moving. The Global System for Mobile Communications Association (GSMA) has been championing the low-cost cause for developing nations, including hosting a competition last year to develop a sub-US$30 mobile phone. The key to winning the competition was cutting the cost of the chips.

TI downgraded its outlook for the fourth quarter based in part on the rise of low-cost handsets, which cut into its sales. The company predicted its fourth-quarter sales will range between $3.46 billion and $3.75 billion, down from third-quarter sales of $3.76 billion.

“The environment is shifting, and we’re entering a near-term period where we’re expecting less than seasonal growth,” said Kevin March, TI’s chief financial officer, during a conference call on TI’s third-quarter earnings.

TI’s stock fell 1.1 percent in after-hours trading due to the weaker-than-expected outlook, to $31.53.

The company also blamed rising chip inventories for its outlook, as well as a glut of third-generation (3G) handsets in Japan that will slow chip sales to the important market in the fourth quarter.

Over the long term, TI expects growth in the low-cost handset segment to continue along the same path as the trend seen for the fourth quarter, said March.

The trend is also affecting handset makers, including the world’s largest. Last week, Nokia reported that third-quarter profits were down compared to last year. It blamed an increase in the proportion of its sales that come from low-end phones.

Mobile phone subscriber growth has exploded in a number of developing countries where ultra-low-cost handsets are popular, particularly China and India. As of the end of August, the number of cellular phone users in China had reached 437.5 million, up from 393 million at the end of last year, according to the Ministry of Information Industry, its official statistics collector.

The Telecom Regulatory Authority of India reports that as of the end of September, there were 129.51 million mobile phone users in the country, a huge increase from the 75.92 million at the end of last year.

The ultra-low-cost mobile phones are likely to continue to draw a large crowd worldwide as handset makers keep driving down unit costs and increasing capabilities. The GSMA has already received tenders from 10 vendors in a low-cost 3G handset competition this year, although it’s not saying how much the handsets will likely cost.

In addition, a number of chip makers continue to reduce the cost of handset chips. TI said earlier this year that it was developing a chip that could push the cost of a GSM handset to below $20, while Infineon Technologies has said that its reference design and chips would push the bill of materials of a handset below $15.

-Dan Nystedt, IDG News Service (Taipei Bureau)

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• GSMA Gets 10 Bids for Low-Cost 3G Handset

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• Experts: Don’t Copy Web 2.0 Directly to Phones

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