A chip technology deal between mobile phone maker Nokia and the world's largest maker of semiconductors for mobile phones Texas Instruments (TI) is expected to add fuel to the already fierce mobile phone market in China.

Industry observers expect Nokia to grab more market share from Chinese manufacturers, helped by TI's newly developed chip, which could significantly lower mobile phone costs.

TI last week said Nokia will adopt its technology that integrates most of a handset's functions into a single chip.

Nokia has singled out India and China as target markets for the new phones.

The cost of chips accounts for 40 to 50 percent of the total costs of a mobile phone, according to Wayne Chao, chairman and chief executive officer of China ECNet Co Ltd, the primary web portal of China's electronic industry.

The single chip will enable Nokia to make very cheap, entry-level and voice-only phones. Typically mobile phones use more than one chip.

The single chip technology will reportedly push the cost of making a phone with basic functions as low as US$25 within a couple of years.

Chao expected Nokia's phones with the new chip will mainly target customers in rural markets and students in China.

"Due to significant cost savings, the single chip will help Nokia grab more market share," Chao said.

According to Elaine Su, an analyst with research firm GFK Asia, Chinese makers mainly compete in the low-end market where unit prices are usually less than 2,000 yuan (US$241).

Liu Fengxi, assistant general manager in charge of domestic firm Konka's mobile phone sales, said foreign giants, which traditionally dominate the high-end market, are now aggressively targeting the low-end.

That spells trouble for domestic players. Leading domestic manufacturers like TCL, Amoi and Kejian, are already posting losses due to stiff competition.

Foreign makers have been aggressively cutting prices, launching low-end phones, and building a strong sales network in small cities to extend their reach into the rural market, Liu said.

In large cities, mobile phone penetration is already high and sales are mainly being driven by those looking to replace old phones.

But in small cities and rural areas, penetration remains quite low.

By adopting the technology, "future Nokia mobile phones will provide the ideal mix of great features and cost-effectiveness, making them more attractive to the mass marketplace," said Juha Pinomaa, vice-president of Nokia's Entry Business Line, in a statement.

(China Daily January 31, 2005)