iPhone to push smartphone prices?

An unintended side-effect of the iPhone may be higher prices for smartphones in general, analysts suggest. Richard Windsor of Nomura Securities argues that the iPhone has an unusually high-end feature set, lack of 3G notwithstanding; it is for instance capable of desktop-like graphics, where many phones have primitive menus. Were other carriers to add dedicated graphics chips from companies such as AMD and Nvidia, this alone could add $10 to a smartphone's raw costs, for which shoppers would be charged several times that amount.

In the long term, notes Portelligent head David Carey, memory may add the most to increasing costs. "If you took all the memory out of an iPhone and compared its insides to a Nokia N95, you'd have roughly the same cost of components," says Carey. "The component content that is most in demand is flash chips. If everyone starts chasing the iPhone, then the costs will go up, but that will be driven more by flash."

The smartphone has traditionally held to stable prices however; Windsor observes that Nokia's top-end phone today costs approximately $648, the same as a less-functional equivalent from five years ago. Chipmakers are also working to combine more and more functions into the same chipset, giving them dominance in a phone's parts, while simultaneously saving on the actual retail price. Says Yossi Cohen, VP and general manager of the wireless chip unit at Broadcom, "We've got products on the market now that not only combine two or three chips into one, but can integrate eight or nine different kinds of chips into one."

Likewise, the head of wireless chip marketing at Texas Instruments, Avner Goren, says that dedicated graphics chips may be redundant. "The effects that make a sexy interface are taking advantage of graphics hardware that is already embedded in the chips," he contends.

Jagdish Rebello of the research firm iSuppli suggests that what may actually happen to the smartphone market is a further division into products aimed at different purposes and incomes. "When the handset market is a billion units a year, there's enough room for the manufacturers to differentiate themselves. And that will put pressure on the semiconductor companies to do more differentiating of their own."