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Agere chip to power low-cost music cell phones

Inexpensive chip would support mobile music players offering CD-quality sound, help boost sales in emerging markets.

Agere Systems said on Monday it had developed a low-cost cell phone chip that supports high-quality mobile music players, potentially giving Agere and its biggest client, Samsung Electronics, a boost in emerging markets, one analyst said.

Agere said its chips would support music players with compact-disc-quality sound in phones that could have a total component cost as low as $30. In comparison the cheapest phones on the market with similar sound quality require about $100 worth of parts, Forward Concepts analyst Will Strauss estimated.

Strauss believes Samsung, the world's third-biggest cell phone supplier, will likely use the chips to target emerging markets like India and China where bigger rivals Motorola and Nokia hold more sway.

"This will probably be a new entry for them at the low end of the market," said Strauss who estimates that cell phones are usually sold wholesale to service providers for about twice the price of their components.

Samsung had no immediate comment.

Cheap phones make up the bulk of the cell-phone market and have the largest growth potential, but Samsung has mostly gone after higher-end phone users in the past.

Agere said that Samsung uses its chips for about 50 percent of its phones based on GSM, or global system for mobile communications, that is the world's dominant wireless system. Agere's new chip uses a version of GSM.

About 53 percent of Samsung's phones sold in the United States are based on GSM while the remaining 47 percent are based on CDMA, or code division multiple access, the country's dominant wireless standard.

Agere marketing manager Mary Cramer did not comment on which vendors would use the chips but said she expects handsets to go into production in the first quarter of 2007.

Agere competes with companies such as Texas Instruments, Analog Devices, and Freescale Semiconductor in the mobile phone chip market.

Strauss believes Agere's rivals do not have equivalent chips ready at a competitive price, but expects them to catch up in the near future.

As an increasing number of service providers around the world are pushing services such as wireless music downloads Strauss believes the cell phone music player market will eventually overtake the market for dedicated portable digital music devices known as MP3 players.

"The MP3 player market's growth will diminish after 2008 because cell phones will subsume that market," said Strauss, who believes the Agere chip will play a part in this trend.

Cramer said she believes cell phone music will threaten music players such as the Shuffle and the Nano that are part of the popular iPod line of products from Apple Computer, which is run by Steve Jobs.

"If I were Jobs I'd be really scared about my Shuffle and Nano business," Cramer said. Analysts widely expect Apple to develop a wireless version of its music player.