BEIJING -- Texas Instruments ( TXN) is responding to China's ever more demanding cell-phone users by introducing a chip that promises to lower the cost of handsets offering features like advanced digital cameras and games.

TI's new eCosto platform will help handset makers "develop lower-cost multimedia phones to service the world's fastest growing markets -- countries like China, India, Brazil and Russia," Chief Executive Richard Templeton told an audience of phone makers and telecom operators in Beijing.

As a single-chip processor that integrates several functions, the eCosto boosts efficiency, saving space and extending battery life, TI says.

eCosto is the higher-end sequel to TI's first single-chip cell-phone processor introduced in 2004, which the company billed as a major advance. That chip, known as LoCosto, is now used by 15 handset makers worldwide in phones that cost around $30 to $50.

The new eCosto lineup will be aimed at fancier phones that cost closer to $100 and will enter production in 2008.

China currently has more than 400 million cell-phone subscribers, and that number is expected to climb to 600 million two years out, according to market research firm In-Stat.

"The Chinese market is very large already, and therefore you can see a similar type of segmentation as in the global market," said Alain Mutricy, TI's general manager of cellular systems solutions.

City dwellers are upgrading their phones to take advantage of features like color screens and built-in cameras, which means demand exists for TI's new chip.

"The replacement rate in China is very high, with replacements accounting for around 50% of cell phone shipments," says Jason Yin, managing director of In-Stat China.

Nokia ( NOC) and Motorola ( MOT) have each managed to gain share by aggressively selling cheap handsets in China's less affluent interior. "They fully seized the opportunities in tier-two and tier-three cities and rural communities with their low-cost phone lines," Yin says.

TI also has rural residents in its sights, hoping they'll eventually upgrade to phones with multimedia features. "For many people in China, when they one day connect to the Internet for the first time, they will experience it through their cell phones," Templeton says.

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