Taiwan strategy seen making low-end phones even cheaper

Low-cost chips could bring down feature phone prices to as little as $40, a lift for users in China and India

A little-known Taiwanese semiconductor firm's ambitious plan to grow mobile phone semiconductor sales in China this year foreshadows what analysts see as boom in low-end handsets not only in the world's largest market but also in other countries where not everyone wants an iPhone.

MStar Semiconductor anticipates a boom in its handset chips by the second half of the year as the 9-year-old firm uses a rack of patents and its traditional made-in-Taiwan edge: low manufacturing costs that translate to lower prices for end users. That business will target China and "get big" this year, said Angela Luan, assistant to the CFO.

Poorer countries such as China and India, where young populations need phones but cannot always afford the latest US$300-$750 model, as well as wealthier regions of East Asia, where older people do not always want to master smartphones, are expected to increase demand for basic handsets.

It's no surprise that LG Electronics, Nokia, Samsung and smaller local handset makers are already making a move into the market, analysts say. Chip makers MStar and its Taiwan rival MediaTek are positioned to sell chips to non-branded makers of low-end phones.

"That’s a growth business and capitalizes on a huge market to fulfill basic needs," said Wai Ho Leong, regional economist with Barclays Capital in Singapore. "The market is growing explosively. A perception is that low end means not profitable, but that’s not true."

Mobile phone semiconductors now make up about 5 percent of MStar's revenue, the rest coming mostly from chips for monitors and digital displays.

Mediatek and MStar hold costs down by producing in bulk after perfecting a technology, a development process that so far has kept the field small, said a section chief with the Taiwan economic ministry's Industrial Development Bureau surnamed Tsai. "There's a definite level of difficulty, so not just any small company can break in," he said.

Those savings will translate into cheaper new phones, including feature phones with music players and cameras. Some handsets would cost as little as $40-$50 each, as consumers in less developed countries cannot afford much more, said Peng Chien-hang, an analyst with DigiTimes Research in Taipei.

China is a logical starting point because of its size. "It's the number one in terms of volumes," said Duncan Clark, chairman of the BDA China consultancy in Beijing.

Chinese mobile phone users number more than 800 million but because the country is relatively poor they have shunned more expensive 3G services and smartphones that cost more than US$300 apiece. Mobile phone users in India totalled about 750 million this month, with 100 million in rural areas.

MStar is set to release chips for non-3G Android phones, feature phones and smartphones, Luan said. It will seek the rights from Google for the Android phones, she said. Worldwide shipments of MStar mobile phone products are forecast to grow 40 to 50 percent this quarter versus the final three months of 2010.

As of 2009, chips from the larger MediaTek already powered most mobile phones in China. The firm has already stared pushing new chips with support for an application download store aimed at Chinese mobile subscribers.

Indeed, MediaTek has been behind a drop in mobile phone prices in China overall, and it's market share in the country has drawn partnerships with technology giants including Microsoft and Google.

Fresh competition with MStar should continue the drive to lower prices and better handsets for users throughout the developing world.

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Tags Mobile handsetsconsumer electronicsMediaTekPhonesMStar Semiconductor

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