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Why ARM Believes We'll See a $20 Smartphone

NEW YORK (TheStreet) -- ARM Holdings (ARMH) believes the company's future will be brighter because it's embracing both ends of the computing business - high-end devices such as smartphones and tablets with quad-core, 64-bit processors, as well as increasingly inexpensive mobile devices running on new single-core chips.

At its Tech Day event in Austin, Texas ARM revealed its plans for its next-generation, mid-range Cortex A53 coming to smartphones in the next few months and its A57 CPU expected to land in early 2015. ARM expects the A53 to measure 50% faster than the current A7 chip while using the same amount of battery power. The A57 will be 50% faster than the current A15.

However, ARM has even bigger plans for its lower-end processors. The Cortex A5 "system on a chip" is set to power a new breed of super-low-priced Google (GOOG) Android-powered phones that have begun to have a huge impact on the industry. ARM believes the industry is changing from top-of-the-line centric devices to mid and entry-level products to attract exploding global sales.

ARM shares were trading 0.54% lower at $44.60 in mid-morning New York trading.

While higher-end smartphones sales are forecast to remain relatively stable as a percentage of industry sales emerging markets in Asia, Eastern Europe, Africa and Latin America will fuel a push to replace millions of feature phones currently in use with similarly-priced, affordable smartphone models.

The big changeover has already begun. Analysts at ABI Research report that the basic mobile phone lost 5% of the total global market share "suggesting Android is set to gain almost all of the billions of mobile subscribers still upgrading to smartphones."

ARM expects twice as many entry-level smartphones will be sold, worldwide, in the next few years as are being sold currently. The overall numbers could total one billion low-end smartphones, selling for less than $150, being shipped by the year 2018.

A year ago when ARM's newest single-core processor was introduced at the 2013 Mobile World Congress in Barcelona, it was touted as the main reason Lenovo was able to announce a smartphone which retailed for $60. That was the full, no-contract selling price. Eight months later, the industry was talking about unbranded phones which would sell for $35.

Today, the people behind Mozilla's low-cost Firefox OS phone say that by reducing system memory they're able to bring the cost down to $25. ARM believes we will see $20 smartphones in the next few months. That should be the lower limit manufacturers will be able to achieve using current technologies. Less expensive tablets and other computer forms should quickly follow.

Competition in the bottom-end segment will be fierce. Lower-cost devices are already making a big impact on global smartphone sales. Many China-centric devices as well as the new Nokia/Microsoft (MSFT) "X" line of inexpensive Android phones use Cortex-based processors and are reportedly selling well according to early reports from limited markets.

Motorola's Moto G phone with a quad-core Cortex A7-based processor and a suggested (no-contract) retail price of $179 has become a worldwide hit. Some retailers have begun pricing the phone at less than $100. Next week, Motorola is set to announce another new smartphone "designed to make a great mobile Internet experience accessible to everyone."

-- Written by Gary Krakow in New York.

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Gary Krakow is TheStreet's Senior Technology Correspondent.
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