Image: Infineon

Before and after: A new mobile phone prototype from Infineon [bottom] has half the number of components of a typical handset [top]. Integrating several ICs into one chip was the key.

Just over a year ago, handset manufacturers started talking openly about making supercheap phones for the masses in such developing countries as Bangladesh, India, Nigeria, and Yemen. Now they’re delivering the goods. The first generation of low-cost handsets, stripped of everything except simple telephony and text messaging functions, feature single-chip designs, slimmed-down software, and price tags of US $40 and lower.

Why such a big effort? Groups like the London-based GSM Association (GSMA), which represents service providers around the world using Europe’s favored cellphone system, say it’s a question of social responsibility—of connecting many of the less fortunate of the world at a price they can afford. It also makes business sense. Mobile phone operators and equipment makers, struggling now to expand in heavily saturated advanced industrial markets, see opportunities in less-developed regions.

In the world’s poorer countries, according to GSMA, nearly 80 percent of the population lives within reach of a mobile phone base station, but at current prices only 25 percent can afford a handset to connect.

But even if developing markets show the most promise for ultra-low-cost (ULC) phones, developed markets have potential too, industry experts say. The world’s largest handset maker, Finland’s Nokia Corp., for one, plans to market ULC phones for prepaid service and for use by children and the elderly.

International consulting firm Strategy Analytics, in Newton, Mass., expects the ULC market to grow annually from 19 ­million units in 2006 to more than 150 million in 2010. Market research firm ­iSuppli Corp., in El Segundo, Calif., estimates that ULC handsets, together with other low-cost, entry-level devices, will account for around 35 percent of the market in 2006, or 308 million units, worth around $14.6 billion.

Manufacturers are gunning for phones with a materials cost of $10 or lower, and key to meeting that goal are cheap chip platforms. Several of the world’s big chip makers, including Infineon Technologies, Motorola, Philips, and Texas Instruments, have entered the ULC fray. Nearly all of them are focusing on supplying systems on a chip (SOCs), which replace the multiple costly and energy-consuming integrated circuits and other components used in full-­featured phones with a single chip.

An alternative approach, called system in package, stacks memory components with baseband and applications processors in the same package. But this approach falls short on meeting some key production criteria, according to Bill Krenik, manager of advanced wireless architectures at TI’s wireless terminals business unit. “System in package is a solution for achieving smaller board-area solutions, but it normally will not address reduced cost or power that is essential for the ultra-low-cost market,” he says.

Motorola succeeded in keeping its ULC handset’s power low, producing phones with talk times of 340 to 700 minutes and standby times of 175 to 450 hours, using single-chip platforms from Freescale Semiconductor, in Austin, Texas. The GSMA chose Motorola to ­supply 12 ­million phones to 10 telecom operators in developing markets.

Last year, Infineon unveiled its first-­generation SOC platform for cheap phones, relying on mature 130-­nanometer CMOS technology. The E-GOLDradio platform reduced the number of electronic ­components from 200 to 100 by combining, among other things, the baseband and RF components into a single chip [see photo, “Before and After”]. The design also cuts the number of layers in the printed circuit board from six to four.

Earlier this year, the Munich-based manufacturer unveiled E‑GOLDvoice, its ­second-generation reference design, which shrinks the number of components to fewer than 50 and integrates power management and static random-access memory (SRAM). In its next step, Infineon hopes to reduce the total platform ­materials cost to $10 from the second generation’s $16 and the first generation’s $20. Of that $10 cost, the chip itself will account for just a couple of dollars.

At the heart of Philips’s low-cost phone strategy is the Nexperia cellular system, which contains all the hardware, software, and peripherals necessary for building low-cost phones. In May, Qingdao, China–based manufacturer Haier Electronics Group Co. chose to use Philips’s technology.

TI also is breaking into the China market, developing single-chip systems with its digital RF processor technology. Four years ago the company announced plans to integrate the bulk of the handset electronics on a single chip, including baseband, SRAM, logic, RF, power management, and analog functions. Its first SOC, based on 90‑nm CMOS circuits, has since been standardized and branded LoCosto. TCL Communication Technology Holdings, in Shenzen, China, one of the country’s biggest handset manufacturers, has selected TI’s SOC technology for its phones. And Nokia chose it for mobile phones aimed at entry-level markets.

It’s a mistake, say some market observers, to imagine that people in poor countries want only a stripped-down phone that offers nothing but voice and text messaging. “While cost, size, power, and sleek form factors are important,” says TI’s Krenik, “providing a choice of features is also important. A common misconception about the high-growth emerging market segment is that it is all about voice-only phones with black-and-white displays.”

Already, chip makers are planning to add features to their low-cost platforms. An FM radio component, for instance, is a must-have in China, where radio is a primary source of news, says Hermann Eul, head of Infineon’s Communication Solutions group.

Still, at least initially, the name of the game will be making simple, ever-cheaper single-chip phones. That’s what will be essential to growing sales in countries where many people’s monthly dollar earnings are in the single digits.