The P5 Pen Phone is a novel GSM handset introduced in China by Haier Group. The product highlights the increasing threat that Chinese companies like Haier pose to incumbent handset brands on a local-and potentially a global-basis. Rapidly declining component complexity and the swiftly rising sophistication of Chinese manufacturers give them the opportunity to upend the pecking order in the handset universe. The P5, whose 66-gram, 18-mm-wide (0.72-inch), sticklike construction breaks new ground, supports the notion that component commoditization in the hands of eager producers drives rapid product experimentation and novel designs.

Bells and whistles are surprisingly plentiful in the Pen Phone. Polyphonic ring tones, storage for 300 names and numbers, and a 15-minute voice-recording capability add up to an impressive feature set in the diminutive package. Respectable talk/standby specs of about two hours and three days, respectively, are claimed for the 420-mA-hr internal lithium-ion battery. As an intriguing twist, Haier even added a laser pointer to the P5-likely with noticeable drag on battery life if heavily used.

Noteworthy for both form factor and general fit-and-finish, the Haier phone employs highly integrated core devices from merchant IC suppliers-in this case a Texas two-step. Texas Instruments Inc. (Dallas) supplies analog and digital baseband ICs while the Aero transceiver chip set from Silicon Labs (Austin) provides the direct-conversion radio.

Four megabytes of Intel Corp. flash memory is paired with the internal SRAM of the TI baseband chip for system memory. The widely used RF3110 power amplifier module from RF Micro Devices (Greensboro, N.C.) drives a patch antenna that's appliqued to the interior casing. Component count and semiconductor die area are both remarkably low in the P5, paralleling the falling barriers to entry for handset manufacturers worldwide as reference designs, component integration and simplification all continue.

Cost of goods sold for the P5 handset is driving toward the $40 mark, with good margins implied despite a recent inventory build of handsets in China. While non-Chinese suppliers capture the lion's share of the bill of materials, it seems likely that the Chinese government's efforts to promote higher domestic content will make inroads into the share of offshore IC makers in the component space. As evidence of government initiatives taking hold, consider that at the end-product level, Chinese handset producers supply about 30 percent of domestic demand today, up from 3 percent just four years ago.

Haier Group, the largest electrical appliance manufacturer in China with more than $8 billion in revenue, is one of the 20-plus domestic cell phone manufacturers vying for the perceived bonanza that is China's wireless market. While a shakeout is likely, the impact of the surviving Chinese handset makers-whether Haier or its competitors-will be felt worldwide.

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