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Chip Makers Target Low-End Phone Market As Key Growth Area

By Shara Tibken A key battlefield is emerging for suppliers of mobile chips--the low-end smartphone market in developing countries. Semiconductor makers such as Qualcomm Inc. (QCOM), Intel Corp. (INTC) and Taiwan-based MediaTek Inc. (2454.TW) are focusing on low-priced phones, which typically cost less than $200, because the fast-growing market offers high volumes of sales. As a result, the companies are working with handset vendors in China and other emerging countries to increase their presence in this booming segment. Qualcomm, the world's dominant provider of wireless chips, has been working of late with Chinese electronics maker Lenovo Group Ltd. (LNVGY, 0992.HK), and the two this week introduced a few smartphones that use dual-core Qualcomm chips typically reserved for pricier phones. While the devices from Qualcomm and Lenovo aren't the first dual-core phones to hit the Chinese market, they are the first from Qualcomm to address the market's low end. Traditionally, low-end devices use older, weaker processors and sacrifice certain features and performance for price. But Qualcomm's partnership with Lenovo is an attempt to appeal to a more price-conscious audience yet still enable high levels of performance. "It's really amazing what's happening with smartphones, that, even at this entry-level, high-volume mass market smartphone tier, you're getting this level of processing and performance," Jeff Lorbeck, Qualcomm senior vice president of product management, said in an interview. Lenovo, which also has introduced a device using Intel chips, wasn't immediately available to comment. Intel also wasn't immediately available. The low-end smartphone market is expected to grow rapidly. According to ABI Research, cheap smartphones should make up about 42% of global smartphone shipments in 2017, up from about 14% in 2010. By comparison, high-end devices costing more than $400--a segment dominated by Apple Inc. (AAPL) and Samsung Electronics Co. (SSNHY, 005930.SE)--should stay steady at about 23%. In China, nearly two-thirds of smartphones fall into the low-end pricing tier, research firm Analysys International said. To help drive lower device prices, many chip makers are offering "reference designs," essentially fully functioning mobile devices that can help customers design their own products. Such designs speed time to market, lower the complexity and cost for smartphone makers, and boost the number of phone vendors able to address the market, with the chip maker bearing the burden for initial development. The designs are particularly attractive to low-cost phone makers that may lack the expertise to make smartphones on their own. For carriers in emerging markets, lower-priced phones are a big focus. Many wireless providers in countries outside the U.S. require customers to pay full price for their smartphones, which makes high-end phones, such as Apple's iPhone, rather expensive for consumers. Mobile TeleSystems (MBT, MTSS.RS), one of Russia's largest wireless providers, plans to work with manufacturers in Asia, such as ZTE Corp. (ZTCOY, 000063.SZ, 0763.HK) and Huawei Technologies Co., to introduce MTS-branded phones this year that cost less than $100. The company expects the cheaper devices to drive smartphone adoption. It estimates about 60% of the devices on its network will be smartphones by the end of 2014, up from about 15% in the first quarter of this year. "We want very, very affordable smartphones on our shelves everywhere," Vasyl Latsanych, MST chief marketing officer, said during an event in New York earlier this week. He added that cheaper smartphones have existed in Russia in the past, but the poor user experience hurt their adoption. Despite expectations for lower-priced phones, customers still expect high functionality--something chip makers such as Qualcomm hope to address. "People around the world have expectations around smartphones and what they mean," IDC analyst William Stofega said. "I don't think anyone's going to think a low-end smartphone will perform like the high end...[but] the bottom line is you need to give people something that really gives them a good smartphone experience. Otherwise they may look for somebody else." --Juro Osawa and Paul Mozur contributed to this report. Write to Shara Tibken at shara.tibken@dowjones.com. Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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