Broadcom's (BRCM) Plan To Bring Down CellPhone Prices

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Perhaps the largest single problem in the handset market is that unit prices are falling sharply. Recent earnings releases from Sony Ericsson and Samsung show good growth in the number of handsets that they sell. But, the price per handset is tumbling, especially as sales increase in markets like India where low priced phones are the norm.

Chip company Broadcom (BRCM) may not be able to solve the problem of falling prices, but it does have a new chip that could improve margins. The product should be especially successful in improving profits on more expensive phones. The company "estimated its new chip could allow high-end cellphones to be manufactured for about $100, compared with a cost of roughly $150 to $175 for similar phones made with existing components," according to The Wall Street Journal.

The challenge now is to see whether Broadcom and rivals Texas Instruments (TXN) and Qualcomm (QCOM) can build chips that offer similar margin increases for less expensive phones. If so, the handset industry could get a big second wind toward the end of the decade.

Douglas A. McIntyre