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Sales of mobile phone handsets grew by double-figure percentages in key regions during Q1, market watcher Strategy Analytics has reported.

However, that's not necessarily good news for cellular network providers, handset vendors, or handset component makers, research from In-Stat/MDR suggests.

The CDMA market, meanwhile, grew 49 per cent over Q1 2002, largely thanks to high demand in the Americas, SA said. Samsung and LG were the winners here, recording 41 per cent and 81 per cent year-on-year shipment growth, respectively.

"Shipment growth does not equal profitability," said Chris Ambrosio, director of SA's Wireless Device Strategies Service. "With the exception of Nokia, vendor profits were flat or declining. Shipment growth for the top six vendors was slightly faster than the market rate at just under 19 per cent, but profits grew only three per cent.

"Vendors still have a long way to go in improving internal efficiencies, and in developing and commercialising diverse handset portfolios," he said.

Consumer acceptance is a problem too. As In-Stat/MDR notes, "while the number of handsets continues to increase, the vast majority of handsets sold each year are standard, voice-centric devices, and not the data-centric devices that service providers were hoping for".

That has a knock-on effect for component makers. In-Stat/MDR says is expects core handset semiconductor revenue to stay flat for the next few years, as falling component prices counter gains from increased sales. Across a broader timescale, 2002 to 2007, the company expects semiconductor revenues to fall by an average of just over three per cent.

That said, revenue derived from components providing extra functionality - Bluetooth, cameras, MPEG-4 playback, that kind of thing - will do better. In-Stat/MDR forecasts revenue from such "add-ons" to grow from $856 million this year to $1.7 billion in 2007.

But the add-on semiconductor market will never be larger than ten per cent of the core semiconductor market, suggesting that while add-ons will become more popular, prices will fall fast, and - more importantly - they're not going to redefine handset usage in any great way. ®

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