Some of the world's biggest electronics parts suppliers and gadget makers could get a boost from an unlikely source: a new industry initiative to sell ultra-cheap cell phones to people in developing nations.
U.S. chipmaker Texas Instruments Inc. and Taiwanese electronics maker Compal Communications Inc., among others, are involved in the first stage of the initiative, which is supplying people in developing countries with 6 million phones that cost less than $40 each to produce, industry analysts say.
The program, called the Emerging Market Handset initiative, was begun by the London-based GSM Association trade group this year to bring mobile telephony to people who otherwise couldn't afford cell phones.
GSM stands for global system for mobile communications and is the dominant technical standard for wireless phones in Europe and much of Asia.
The low-cost phones, which are marketed by Motorola Inc., have already gone on sale in countries including India, where they were recently selling for about $46. The phones can cost more in other countries because of high taxes and distribution costs.
What is good for first-time phone buyers may also be good for corporate bottom lines. The initiative is expected to ramp up sales substantially in populous countries such as India, Bangladesh, Indonesia and the Philippines.
And seeing an opportunity for growth, other phonemakers besides Motorola are increasingly targeting the low end of the market. Many analysts believe they may have little choice, with most growth in cell phone sales now coming from poorer nations.
That could sharply increase revenue for electronics companies that make high-tech parts for the phones, including semiconductors, plastic casing and liquid-crystal-display screens, as well as for some mobile phone service providers in those countries, analysts say. In a report last month, investment bank Lehman Brothers Inc. said the trend to low-cost phones should benefit companies like Compal, which assembles phones from parts on behalf of other manufacturers; Taiwan Green Point Enterprises Co., which makes phone casings; China TechFaith Wireless Communication Technology Ltd., a phone designer; and Compeq Manufacturing Co., a Taiwan-based supplier of printed-circuit boards.
Phonemaking titans such as Motorola, Nokia Corp. and Samsung Electronics Co. use parts from some of these companies in their phones or outsource manufacturing to them.
For the phonemakers themselves, the picture is less clear.
Sales of inexpensive phones could boost revenue, but they are also likely to reduce average profit margins on overall cell phone sales. The phonemakers will "have to give up some of those lucrative margins you get from high-end devices," notes Brad Akyuz, an analyst at San Diego-based research firm Current Analysis.
Lowering the price of a phone by just $20 in many poorer countries could increase its affordability by 43 percent, according to Lehman. Put another way, it would take less than a month's average income for a person to buy a phone if it cost $30, compared with about 1.4 months' salary if it cost $50.
While some cell phones in developing countries are sold for as little as $50 or $60, the global average is about $130 to $140, according to Akyuz. Many people in the United States and Europe, however, pay less or even nothing for phones directly because those costs often are subsidized by phone carriers. But subscribers then usually wind up paying more in service fees or having to sign contracts with hefty cancellation costs.
Lehman expects handset sales to increase in many parts of Asia this year because of the low-cost-phone initiative; it now estimates 279 million phones will be sold in Asia this year, up 3 percent from an earlier estimate of 271 million.
In February, U.S. phonemaker Motorola won a GSM Association-sponsored competition to supply the first batch of phones that cost less than $40 to make.
The phones started shipping this spring. Motorola, aided by continuing advances in chip technology that have lowered costs and allowed more functions to be squeezed onto each chip, says it should be able to produce phones for less than $30 by next year.
Since June, several companies, including chipmakers Infineon Technologies AG of Germany and Royal Philips Electronics NV of the Netherlands, have independently announced new, low-cost components for ultra-cheap phones.
Both companies say they supply chip sets as well as other phone components to serve as "reference platforms" for manufacturers. A phone's chip set -- the core semiconductors that represent the brains of the phone -- makes up about 35 percent of a phone's manufacturing cost.
"The ultra-low-cost phone will not cannibalize the existing market. It will generate additional markets," says Peter Baumgartner, a Philips senior vice president in Amsterdam.
A New Delhi vendor uses his cell phone. Mobile use in developing nations is expected to grow sharply.