US : On the outside, cellular handsets have become fashion accessories, music players and 3D game machines. On the inside, technical innovation never ceases as semiconductor suppliers work to put more processing power, memory and connectivity solutions "under the hood."

Technology market research firm ABI reveals that 66% of handset shipments announced in 3Q 2003 were for enhanced handsets, up from 56% of those announced in 2Q 2003. Powering these devices is a host of solutions from the leaders of wireless semis.

Many of these new devices rely on "applications processors", the equivalent of a CPU in the PC world. From virtually nothing two years ago, the market for applications processors (AP) is set to surge by the end of the decade, growing at triple digit rates. Recently revised estimates from ABI peg this market at about $1.8 billion in 2008. Various architecture choices will dictate the exact revenue and technical future for these devices.

"As IC (integrated circuit) suppliers and handset manufacturers continue down the integration path, and as advanced functions and features drift from the high- to the low-end, some of the functions handled currently by the AP will be integrated into ever more powerful baseband processors," explains ABI analyst Alan Varghese. "But the AP goes beyond the need for additional MIPs (mobile Internet protocols); it represents the need to separate advanced, non real-time functions and operating systems from the core real-time call processing software."

Handset OEMs (original equipment manufacturers), however, want options. They want a highly flexible product portfolio with a variety of features and at various price points so that they can sell to a wider customer base. To a certain extent, integration limits this flexibility.

"As far as RF (radio frequency) to baseband integration is concerned, there are basically two camps: those that have competencies in CMOS (complementary metal-oxide semiconductor) RF design and those that don't. The former may choose the natural path of integrating some of the RF transceiver functions on chip with the CMOS baseband; the latter may prefer the System in a Package route, with stacked RF and baseband dies," concludes Varghese, an industry veteran with 13 years of handset design experience.

According to ABI, the overall market for wireless handsets and components will continue to be dominated by GSM (global system for mobile communications) and GPRS (general packet radio system). By 2008, the technology will represent 64% of all handset shipments and 58% of all handset semiconductor revenue. The difference represents the cost advantages of the technology.

Further information on handset ICs is available through ABI's Handset Integrated Circuits Quarterly Service. The service dissects the handset IC market by component, reviewing both regional and air-interface segments. Attention is paid to the continuing integration of functionality and effects on ASPs, as well as revenue trends for the sector. The subscription service also examines Wi-Fi integration. ABI's Wireless Handset Quarterly Service outlines the evolution of the handset to a multimedia and data-centric platform and the progression to the 2.5G and 3G networks. ABI provides a thorough examination of trends in the global market for wireless handsets and offers a realistic outlook on where the industry is headed.