With AT&T win Qualcomm is quietly reviving BREW and the feature phone

2011 is shaping up to a banner year for smart devices. Verizon Wireless (NYSE:VZ, NYSE:VOD) landing the iPhone on Tuesday was just the latest in a long line of announcements that will flood the market with smartphones and tablets of every conceivable make, operating system and embedded network technology. But coasting under the smartphone hype, Qualcomm (NYSE:QCOM) is starting to see success in a not-so-smart device category, the feature phone.

Last week at CES, AT&T (NYSE:T) highlighted its high-speed packet access plus (HSPA+) upgrade efforts and the upcoming long-term evolution, promising 20 so-called 4G handsets and tablets by year-end. At the same event, though, AT&T revealed its first quick messaging phone (QMP) powered by Qualcomm’s retooled mobile OS, BREW MP. The device is the first of five Qwerty-keyboard text and e-mail –focused devices using the BREW platform that AT&T plans to launch this year. More importantly for Qualcomm, the win demonstrates its now ancient—by mobile standards—phone OS has finally broken from its CDMA shell into the larger wireless market.

You might say Qualcomm is a bit too late. In the age of smartphones, the lesser data capabilities of the feature phone—often derided as ‘dumb phones’ – have fallen to the wayside. But Qualcomm BREW MP vice president of product management Jason Kenagy argues that while the hype over smartphones has far overshadowed feature phones, the reality is very different.

Feature phones still make up the bulk of device sales, especially in developing markets. While Kenagy readily admits that smartphones will account for a vast portion of device sales in the U.S. as they scale down into the mid-tier, there will always be a huge demand for cheaper data devices that customers can get free with a subsidy and that come with inexpensive data plans. Those devices may not be the darlings of tech media, but they’ll be a force in the market. And Qualcomm is making significant in-roads into that area, Kenagy said.

While Verizon Wireless is focused heavily on its Droid—and now iPhone—portfolio, it’s also renewed its long-term commitment to BREW, using the new MP platform as the foundation of its Get It Now feature phones and app store. After using Java devices for its feature phones for years, AT&T is also making a sizable commitment to BREW. BREW won’t run AT&T’s entire feature phone portfolio but it will be the key platform in its messaging device portfolio—a key win for Qualcomm considering it previously had little traction in the GSM community.

“We’re not trying the play in the smartphone stew,” Kenagy said. “We’re not going to have the 4.3” screens, wide-VGA, 16-GB-of-RAM devices. We’re not going to have 200,000 apps in our store. … Instead we’re focused on the essentially these low-cost devices—low-cost from both a device price and network efficiency perspective.”

And while Qualcomm is shunning the smartphone software market, it is making BREW more like a traditional mobile operating system. It has an open software developer’s program, and it even plans to launch a BREW market independent of operator’s own branded stores, which will allow customers on open networks to access apps and content for its devices. The big difference is Qualcomm is optimizing these features to work on 300 MHz integrated processor rather than the workhorse 1 GHz-plus silicon chips going into today’s smartphones.

The big question is whether Qualcomm can scale quickly enough. Several inexpensive Android smartphones have appeared on the market of late, aimed at the cost-conscious consumer. Sprint (NYSE:S) is selling the LG Optimus Android smartphone for as little as $50 after subsidy and rebate. Qualcomm CDMA Technologies is even working counter to BREW’s strategy, announcing last year a cheaper integrated chipset targeted at the sub-$150 smartphone.

While Kenagy acknowledges smartphone prices will fall, there’s only so far they can drop. With each new build of the Android OS, more powerful features are introduced. Device makers can only scale down the hardware so far before it’s incapable of even supporting the native OS software. Right now, Kenagy said, vendors appear to be outdoing themselves to create the cheapest smartphone in effort to prove the concept, but eventually prices will stabilize. In only in the rarest instances will a full-featured smartphone ever be viewed as “low cost”, Kenagy said.

In that low-cost range, Qualcomm will have a lot of room to maneuver. And while BREW’s competition—which is now primarily among the handset OEMs own proprietary OSes—focuses on the lucrative smartphone, BREW has the advantage of being dedicated solely to the feature phone market. “I don’t want to say the pendulum has swung, but we’re definitely very competitive,” Kenagy said.