May 17, 2010 / 2:19 PM / 8 years ago

Smartphones get cheaper for mass appeal

HONG KONG/PARIS (Reuters) - A new wave of cheap smartphones could soon do for the mobile industry what years of hype and investing in pricey 3G systems failed to accomplish -- combining must-have chic with affordable prices for data-hungry masses.

<p>A new HTC Android-based smartphone Legend is displayed during a news conference in Taipei March 24, 2010. REUTERS/Pichi Chuang</p>

Prices of smartphones are falling sharply as handset vendors use free software such as Google Inc’s (GOOG.O) Android and chip prices are also tumbling as semiconductor makers put baseband and application processors into one chipset.

Free software is significant since Microsoft Corp (MSFT.O) charges up to $15 per phone for cellphone vendors to use its mobile operating system.

China’s ZTE (0763.HK), which cut its teeth making cheap phones for emerging markets, aims to repeat that success in smartphones with a new model it is putting on trial for about $150 per handset, said He Shiyou, head of the company’s cellphone division.

The model, using Google’s Android operating system, is expected to start shipping next month and could be sold globally, he said at the Reuters Technology Summit on Monday.

ZTE’s phones will join a growing crop of cheaper but still intelligent phones designed to take on the likes of pricier traditional models such as Apple Inc’s (AAPL.O) iPhone, which costs more than $600, and Research in Motion Ltd’s RIMM.TO BlackBerry, which typically costs $250 or more.

“It will have tremendous importance when smartphones come down to maybe $100 to $150, then you can reach all (consumer) segments,” Johan Wibergh, who heads the mobile networking equipment division at Ericsson (ERICb.ST), the world’s largest cellular equipment maker, said at the Summit, which was taking place at various Reuters offices worldwide.

ZTE’s cheap smartphone, which it is developing for domestic carrier China Unicom (0762.HK), follows similar moves by a number of companies and could mark the beginning of a new wave of phones to enter the market priced at around $100 to $150.

Global cellphone leader Nokia Oyj NOK1V.HE already sells a model whose price starts at 125 euros, while Chinese vendors are expected to take prices into largely uncharted territory.

“We are going to have an Android device for 85 euros ($105) by the end of the year,” Oren Nissim, chief executive of satnav software maker Telmap, told the Reuters Summit in Paris, but he declined to name the manufacturer.

Telmap and many other major mobile software vendors have access to upcoming phone models well before they are introduced to the general public.

ZTE, NOKIA, HUAWEI, GOOGLE TO WIN

The expected boom should benefit companies such as ZTE, Nokia and China’s Huawei HWT.UL that have expertise developing models for cost-sensitive emerging markets and have the manufacturing clout to develop new models cheaply.

“The market is seeing an abundance of affordable smartphones, but that raises a new challenge for operators in how to make data tariffs attractive and accessible on prepay,” said CCS Insight analyst Geoff Blaber.

It could also benefit carriers with 3G networks who stand to reap more money from the data-rich services, such as online gaming, music streaming and Web surfing, that such smartphones are good at.

Ericsson and other network equipment providers could benefit too as carriers boost capacity on their networks to accommodate rising demand.

Another possible beneficiary is Google, as its Android system is fast becoming the preferred choice of many low-end smartphone makers.

“Cheaper smartphone prices are only going to benefit two groups of people: telecoms operators and Google,” said Vincent Chen, an analyst at Yuanta Securities in Taipei.

“Falling smartphone prices aren’t going to be good for handset brands and they’ll need to get used to these cheaper prices and lower margins soon,” he said.

(Additional reporting by Melanie Lee in Shanghai, Tova Cohen in Paris and Kelvin Soh in Hong Kong; Editing by Chris Lewis and David Holmes)

$1=.8114 Euro

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