Cheaper Mobiles Boom, Chipmakers feel Squeeze

Mobile phone sales may be booming worldwide but many suppliers of component chips aren't happy.

Chip makers are complaining that strong demand for affordable cellphones in emerging markets has begun to hurt their sales and profits because cheap phones contain fewer chips than expensive smartphones.

The sudden pain among chip makers is significant because the world's biggest mobile phone maker, Nokia, has been feeling the impact of the shift to cheaper phones for years, without it apparently impacting its main chip suppliers.

Analysts point out that rich consumers in developed nations are not buying expensive phones the way they used to.

With the notable exception of Japanese-Swedish Sony Ericsson , which had a stellar fourth quarter with its expensive Walkman music handsets and Cybershot camera phones, Motorola, Samsung Electronics and LG Electronics all reported a shift to cheaper phones and price pressure in medium and higher priced models.

Sony Ericsson is proving that consumers will buy more expensive models only when there is a clear benefit, for instance because they contain a high quality digital camera, said analyst Niels de Zwart at Rabo Securities.

source: Yahoo!News