Demand for 2.5G and 2.75G handset solutions is falling in China due to growth in the penetration rates for 3G and smartphones in the region, according to sources at white-box handset companies. Thanks to subsidies offered by local telecom carriers, sales of 3G models in China have grown substantially, the sources said.

Sources at Taiwan-based IC designers which mostly target China's white-box handset suppliers have also indicated that many customers decide to promote 3G phones by discontinuing development projects for 2.5G/2.75G models ahead of schedule. Reducing orders for feature phones are likely to affect their sales performance during the first quarter of 2012.

Companies that might see impact from the fall in 2.5G/2.75G handset demand include MediaTek, MStar Semiconductor, Sitronix Technology, ILI Technology and Novatek Microelectronics, industry sources in Taiwan said. The firms' revenues are expected to register sequential decreases of 5-15% in the first quarter of 2012, according to the sources.

Despite the shrinking feature phone market in China, Africa, Eastern Europe, Middle East and South America have been identified as the major markets for 2.5G/2.75G handsets in 2012, the sources pointed out.