Wireless Sector Pins Hopes on Shutterbugs

If the wireless sector has its way, people will be saying "cheese" to cell phones instead of cameras next year.

Companies are pouring millions of dollars into the development of mobile phones with built-in or attachable cameras. Nokia(NOK), Samsung, Sony Ericsson and a slew of Asian and European manufacturers are planning splashy launches of new phones starting in the first quarter of 2003, hoping to boost sales amid declining wireless-subscriber growth.

Is the industry right to place such a pricey bet on the gadgets? Some analysts say yes. The phones, which first began to appear in Japan and Korea nearly two years ago, are expected to outsell handheld computers globally this year and will outpace the entire digital-camera market by 2004, says Neil Mawston, an equipment analyst at research firm Strategy Analytics.

"We expect camera phones to be a significant driver in handset sales in 2003," said Mawston.

However, there's no telling whether consumers will be as enthusiastic about the new phones as companies hope. The handsets can be costly, and wireless-data pricing structures are complicated and confusing. And a recent warning from Nokia that customers are favoring cheap phones doesn't help. Plus, combining two hit consumer devices hasn't always worked in the past. (Anyone remember interactive TV?)

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Also, the quality of camera-phone photos lags that of most digital-camera pictures -- yet the phones cost two to four times as much as comparable cameras. Another issue: Camera phones are inoperable at night, since only one model at this point contains a flash. Sprint PCS(PCS) has a $399 model with a built-in flash, the Sanyo SCP-5300.

Nonetheless, nearly every major manufacturer is throwing its weight behind the trend. And sales figures in Japan and South Korea -- amounting to about $4 million last year and $8 million in the first nine months of this year -- suggest consumers may be willing to overlook problems with the phones.

Such success drove Nokia to launch its first model in Western Europe and Asia, the 7650, in the fall. In the first week of November, Nokia sold more than one million units of the flagship phone. The company now plans to produce a camera phone targeted at the mass market by early next year, the 3650, which will cost $300. In fact, Nokia plans more than a dozen models that will have built-in cameras or the capacity to accept camera attachments.