Cheap Smartphones Will Reshape Mobile -- for Better and Worse

Last Updated Dec 24, 2010 2:47 AM EST

Some recent news suggests just how staid the mobile market has been -- and just how manic it will soon become. Broadcom (BRCM) introduced a new integrated chip to provide virtually everything that Android phone hardware needs.

Rarely can individual components realistically inform strategic planning. However, Broadcom has managed a coup: a baseline Android handset on a single chip for a cheap price. That will help tip consumer spending to smartphones even faster than has already happened. The impact on the mobile industry will be immense.

Smartphone use has exploded. In February, 1 out of every 7 handsets was already a smartphone. According to figures from market research firm IDC, the industry sold 340.5 million handsets in the third quarter of 2010. Of those, 81.1 million, or 24 percent, were smartphones.

As 2009 Q3 handset sales were 297.1, growth was 14.6 percent. Smartphone sales were 42.8 million, so 2010 Q3 smartphone sales saw growth of 89.5 percent. Even current growth rates would propel 2011 Q3 smartphone sales to 153 .3 million, while all phone sales would be 390.2 million. Smartphones would 39.3 percent of all handset sales.

However, things will move far faster. One of the natural barriers to smartphone adoption has been price. Even with a service contract, often a payment can run between $150 and $199. That is what the new Broadcom chip addresses:

The platform provides everything a modern smartphone builder needs: a dual core ARM processor, Bluetooth, GPS, support for up to a 5-megapixel camera, support for capacitive HVGA (320x480 like iPhone 3GS) or WQVGA (~240x400) displays. That's pretty much your current baseline Android smartphone, like the Samsung Intercept.
Broadcom expects phones based on the chip to have suggested retail prices -- not subsided prices, but full retail -- run less than $100, and possibly as low as $75. Not only will that kick out the supports that have kept smartphone prices high and margins fat, but the new smartphones will have lower retail prices than even the bulk of feature phones. (I just checked the Verizon Wireless site: retail feature phone prices ran from about $100 to more than $400.) I'd expect other chip makers to follow suit.

At that price range, smartphones will become the low-cost choice. Carriers will be happy to trade off the lower retail prices for monthly data plans. At least, the carriers will until the implication of so many people using smartphones hits the networks. The carriers complain now about data consumption? What if it triples or quadruples in just the next year? Are any of them ready for the onslaught of user demand?

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    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.