"As the major brands such as Motorola and Sony Ericsson work these emerging nations with value-line offerings, more is being outsourced to Taiwanese suppliers," explained Annie Yang, an industry analyst with MIC. "But demand in EMEA nations is expected to dwindle after a high performing first half, which will dampen Taiwanese shipments in the third quarter," Yang added.

MIC forecasts that Taiwanese handset volume will fall 9.6% to 16.3 million units in the third quarter of 2005. However, this level marks 43% growth year-on-year, owing to brand-name vendors' feverish attempts to ignite replacement demand in the US and Europe with higher-end wideband code division multiple access (WCDMA), MP3, and camera phone handsets.

Emerging markets and new rollouts played a key role for the global handset market in the first quarter of 2005 as well. According to MIC estimates, the global mobile phone market defied seasonality to reach 170 million units in the first quarter of 2005, down less than 10% sequentially yet up approximately 20% year-on-year.

"The global mobile phone market began to cool down as it entered the traditionally weak retail season in the US and Europe. But handset demand continued to thrive in China, Latin America, and Central and Eastern Europe. Nokia and Motorola turned in an impressive performance, and Samsung shrugged off its fourth-quarter gloom by rolling out new models," said Yang.

The performance of the Taiwanese mobile phone industry in the first quarter, however, was under par with the global market, even despite the aggressive cultivation of EMEA nations and Southeast Asian markets by major partner Motorola as well as the ramp-up of production for Sony Ericsson. MIC estimates put first quarter shipment volume at 12.7 million units, a 2% year-on-year decline.

The performance drop is attributed to several factors. Some of the impact was created by Motorola and Sony Ericsson, which outsourced the bulk of their orders to a select number of Taiwanese makers, forcing other Taiwanese players to turn to several second-tier vendors that tend to procure small volumes of a variety of models.

Panasonic and NEC also released fewer orders in the first quarter due to their lackluster market performance and organizational restructuring efforts. Furthermore, Chinese handset vendors began to design and produce handsets in-house, or outsourced these activities to local design houses, also squeezing Taiwanese makers' private-label opportunities.

Taiwanese mobile phone ASP declined sequentially to US$64 in the first quarter; shipment value totaled merely US$820 million. Despite the rising share of General Packet Radio Service (GPRS) handset shipments to over 50%, Motorola generated an influx of value-line, monochromatic, Global System for Mobile Communications (GSM) models, while some value-line GPRS handsets shed prices substantially.