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DECEMBER 19, 2005 RELEASE

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IC Content in Cellular Phones to Surge

IC Insights forecasts that IC content in cellular handsets will reach 37% in 2008!

Scottsdale, Arizona — December 19, 2005 — In 2009, 80% of cellular phone unit sales are forecast to be replacement sales. IC Insights believes that, although some new cellular subscribers may be inclined to buy basic inexpensive phones, replacement handsets will tend to be "full-featured" and relatively expensive.

Figure 1 shows that, with full-featured/Smartphone handsets becoming more prevalent, the IC dollar content per cellular phone is expected to increase from $38.54 in 2005 to $44.73 in 2009. As a result, the IC content percentage of the total handset price is forecast to rise from 28% in 2004 to 37% in 2009. IC Insights believes that the IC value in a cell phone will decline slightly in 2009, coinciding with the forecasted overall IC cycle slowdown and an associated fall in IC average selling prices (ASPs) that year.



Figure 1

Increased IC integration, intense competition among IC producers, and a relatively slow overall IC market (accompanied by lower IC ASPs) drove down the IC dollar value per handset to a low of $31 2002. However, higher levels of IC integration have also served to incorporate some of the handset functions typically performed by passives and discrete devices. This movement from passive and discrete devices to ICs, coupled with handset price declines, is forecast to help boost the IC percentage content of a handset through 2009.

The average IC value in a cellular phone is expected to be over $38 in 2005. However, there is almost a 3:1 difference in IC content in a high-end cellular phone (including a camera) as compared to a "basic" model. The use of a camera chip, Bluetooth module, and multimedia processor in a 2.5G-phone means more than four times the memory device cost. Also, many high-end phones require significantly more DRAM in addition to flash memory.

Throughout 2005, many handset vendors were researching the possibility of producing ultra-low-end phones that would sell for under $40 and have a bill-of-materials cost of about $25. The bill-of-materials cost for a low-end handset in 2005 was about $39. Many handset producers believe that a $25 cost, or lower, will be reached sometime in 2006, allowing them to offer ultra-low-cost phones to emerging markets such as India, Africa, and China.

IC Insights believes that the market for ultra-low-cost cellular phones will be rather limited. Considering that 80% of the cellular handset market in 2009 is forecast to be higher-end replacement phones, and that many new subscribers will prefer more full-featured phones, the market for ultra-low-cost phones is expected to represent only 5-10% of the handset units shipped over the next five years. As one handset manufacturer stated, "forget the $25 phone, give me a $5 per month service fee from the phone company!"

Additional information on the cellular phone market can be found in the 2006 edition of IC Insights’ Integrated Circuit Market Drivers (formerly known as the Emerging IC Markets report). The report provides a study of emerging and major end-use applications fueling demand for ICs in the second half of this decade. Packed with numerous tables providing 10,000 market data points, the IC Market Drivers report is available in both a three-ring binder and on CD-ROM, costing $2,485 for the bundled set. Additional individual copies of the disk or binder sell for $495 each. A single CD-ROM or binder copy is available for $1,990. The report is also available under a multi-user corporate license for $5,290.

About IC Insights

IC Insights, Inc., based in Scottsdale, Arizona, is dedicated to providing high-quality, cost-effective market research for the integrated circuit industry. Founded in 1997, IC Insights offers coverage of global economic trends, IC market forecasts, capital spending and fab capacity trends, product market details, and technology trends, as well as complete IC company profiles and evaluations of end-use applications driving demand for ICs.

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