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.

Meanwhile, Sony Ericsson has launched a handful of phones that accept attachable cameras over the past two years, and intends to deliver a high-priced model with a built-in camera in the first quarter of next year.

Carriers Eye Sales

Wireless carriers also hope to get a revenue boost from the new devices, as customers need high-speed data networks to send and receive pictures on their handsets. Next to downloadable games, photo messaging may be the best way for carriers to raise their average revenue-per-user figures, analysts say. Carriers have spent billions upgrading aging networks to be able to deliver high-speed wireless data services, but subscribers have been indifferent to the services thus far.

"If there are devices bred to best enable users to access or utilize applications, like camera phones and multimedia messaging, then it could translate to replacement handset sales and eventually higher data traffic," said Bryan Prohm, an analyst at Gartner Dataquest. He added that significant revenue won't appear until 2004, when the cost of components and handsets drops.

The trend also could give a lift to the downtrodden semiconductor industry. OmniVision Technologies ( OVTI), which specializes in low-powered camera chips, saw its sales to phone manufacturers triple in the third quarter compared with the second quarter of this year. OmniVision supplies a range of companies, including Motorola, Sony Ericsson, Samsung and Kyocera.

Semiconductor giants such as Micron Technology ( MU), Agilent Technologies ( A) and Toshiba also are looking to offset declining chip sales with the camera-phone ramp-up. Micron was so enamored of the emerging camera-phone market that it purchased camera-chip designer Photobit in late 2001. Photobit's founders were former NASA engineers who pioneered a manufacturing process that helped chipmakers create inexpensive, low-powered imaging sensors used in camera phones.

Chip Outlook

Brian O'Rourke, an analyst at technology-research firm InStat/MDR, estimates chip manufacturers will ship 35 million imaging chips this year and 60 million units next year. "The big driver will be mobile-phone cameras," said O'Rourke.

Strategy Analytics, meanwhile, expects the camera-phone industry to sell 16 million units this year, beating the handheld-computer industry's anticipated 13 million units. By 2004, camera-phone sales are expected to overtake the digital camera industry and reach 54 million units, compared with an estimated 47 million units for cameras, the research firm says.

Still, camera phones will face a crucial global trial next year in regions outside the gadget-obsessed Japanese and Korean markets. "It will be prohibitively expensive for the mass market until the end of next year," noted Gartner Dataquest's Prohm. Moreover, even the most bullish analysts caution that sales of such devices may not take off until either the latter half of 2003 or 2004.