Not long ago analysts were predicting rapid expansion of most mobile-platform markets, but many now report declining, weak or flat sales for handhelds and mobile handsets. Next-generation hybrid PDA/mobile phones, like their PDA and cell-phone counterparts, incorporate many improvements-brilliant graphical user display interfaces, compact form factors and a host of new capabilities. But to the disappointment of mobile OEMs such as Samsung and Handspring, the new hybrids have been unable to whip up a buying frenzy among consumers.

Despite the tough economic conditions, MediaQ has sustained substantial revenue growth throughout the downturn by taking advantage of a continuing shift in the market toward color screens and the development of new multimedia applications.

Looking forward, we still see excellent growth opportunities for portable devices capable of delivering a richer multimedia information environment. Additionally, as service providers implement third-generation wireless networks, they will provide new capabilities for handheld systems to combine text, graphics, video and audio in a single mobile platform. Emerging applications such as video mail, mapping services, wireless Web access, gaming and streaming video for downloading of music videos will require systems that can produce a higher-quality, higher-resolution user viewing experience.

To achieve these performance levels, handheld designers will have to overcome major performance bottlenecks. They will need high-performance silicon capable of providing enhanced basic graphics and multimedia functions to meet the new performance demands without violating their designs' strict power, space and cost budgets. Only with a new generation of hardware accelerator chips will designers be able to blend these new computing and wireless capabilities into a new set of products. Once handheld manufacturers are able to achieve that goal, however, we believe that these new handheld devices will allow consumers and IT buyers to adopt compelling new applications that will expand the mobile appliance market.

We believe our energy-efficient, multimedia-enabling chips will play a valuable role in helping OEMs, application developers and service providers work together to create a new mobile industry infrastructure that will help drive consumer and IT spending in a sluggish economic environment. While the timetable for the development of that infrastructure is still difficult to predict, the demand for richer user information environments and the silicon needed to support them is inevitable.