By Noel Randewich
SAN FRANCISCO (Reuters) - As Apple and other smartphone makers find it harder to wow consumers with new devices, engineers think future breakthroughs may depend more on finding new ways to integrate existing components than on inventing more powerful chips.
Apple's new iPhone 5S introduced on Tuesday shows how difficult it is to keep coming up with compelling innovations after years of blockbuster hits. The new device boasts a fingerprint reader and a beefed up processor, but it failed to inspire a rally on Wall Street typical of past smartphone launches by the Cupertino, California, company.
While the first iPhone captivated the world in 2007 with multitouch screens and Apple's intuitive iOS platform, more recent top tier phones have featured less spectacular breakthroughs and consumers are becoming harder to impress. Many on Wall Street are concerned that serious smartphone innovation is drying up.
The new iPhone's inclusion of a an emerging kind of chip, called the M7, points to where Apple and engineers at other technology companies are delving for future innovation that they hope will keep consumers hyped up about to smartphones.
The M7, along with similar chips used by rival Samsung Electronics, helps smartphone makers take a small step among many toward what experts call contextual or perceptual computing - an emerging trend of enabling smartphones and other devices to continuously integrate data from cameras, microphones and other sensors so that devices can monitor the environment constantly and in real time, and react to it intelligently.
With varying degrees of accuracy and energy efficiency, gyroscopes, barometers, microphones and radio chips already found in many phones can track location, position, orientation - a partial glimpse of what the user is physically doing at any given moment.
The M7 coprocessor is meant to handle data from the iPhone's sensors using less battery power than the phone's main chip would use to manage the same data. That opens the door for developers to create applications that make more or even constant use of sensors in the phone, a small but important step toward improving contextual computing.
"We're moving from purely computing, where you provide the data, to an intelligent system, where it collects its own data and then computes," said Gartner analyst Sergis Mushell. "But we're still far away. We're at the IQ level of frogs right now compared to humans."
Samsung uses sensor processing chips made by Atmel in its Galaxy Note 2 and Galaxy S4 devices and they are on their way to becoming ubiquitous in high-end phones, said Barclays analyst Blayne Curtis.
Smartphones already offer hints of contextual computing although the technology has yet to become a big selling factor for consumers. Phones using Google's Android platform make suggestions of maps and navigation to different destinations, like the home or office, depending on a user's location, habits, traffic and time of day.
Motorola's Moto X smartphone has a microphone that is always listening for commands.
As well as smartphones, semiconductor companies are also working on ways to deliver more sophisticated experiences using combinations of sensors and other chips in bracelets, watches and other wearables. Consumer products using sensors already include bracelets that track sports and fitness-related activity, including distances run and walked, heart beats and sleep.
Last week, Samsung Electronics launched the Galaxy Gear watch, and Qualcomm launched the Toq smartwatch, both of which work in conjunction with smartphones.
On Monday, Intel announced it is working on a new line of ultra-small and ultra-low-power microchips for wearable devices like smartwatches and bracelets, a bid by the company to be at the crest of the next big technology wave after arriving late to the smartphone and tablet revolution.
Computing companies are also pushing contextual computing into medical devices that can help monitor the health of patients and give doctors early warnings when their conditions change.
Better integrating movement and directional sensors with always-listening microphones and more personal data could let smartphones accurately monitor their location and activities, and figure out what advice and solutions to offer at any given time, whether shopping for groceries or running to catch a train.
InvenSense , which makes gyroscopes and other motion sensors and competes against STMicro, plans to sell chips within a couple of years that can detect changes in altitude as small as riding an elevator in an office building and help navigate downtown corridors where skyscrapers block GPS satellites.
After explosive 46 percent growth last year, global smartphone shipments in 2013 will expand another 33 percent and then increase at smaller double-digit rates over the next few years, according to IDC analyst Ramon Llamas. Asia, where many consumers spend less on smartphones, is expected to be the main source of growth.
Citi analyst Glen Yeung downgraded his rating on Qualcomm's stock in July due to concerns the smartphone industry is running out of new ideas. He said that what smartphone makers do with chips and other components is becoming more important for innovating in phones than adding new hardware.
"When you think about the relationship between software and hardware, this is where it's all going. We're getting to a point where we're commoditizing the hardware. All the tools I need exist," Yeung said.
Paul Jacobs, CEO of Qualcomm, the mobile industry's top chipmaker, disagrees. He says investors who believe that components are already mostly good enough are wrong.
"We're building new radio designs specifically for the idea of the digital sixth sense, of having notifications, discovery of stuff that's around you," Jacobs told Reuters recently.
Chipmaker Nvidia says games on future smartphones and tablets will use cameras and other sensors to add immersive experiences, making the player's environment part of the game.
"End users have to have better experiences. If you just deliver a new chip but don't have the software to build on that ... then the end user isn't going to see any difference, and hence you get a gold iPhone," said Matt Wuebbling, director of product marketing for mobile.
Broadcom , which makes chips that handle wifi, Bluetooth and other kinds of connectivity, is also researching ways to improve how its radio chips interact with GPS satellites and sensors.
"There will be new connectivity technologies, more powerful devices, sensor integration and the integration for wearables," Broadcom CEO Scott McGregor recently told Reuters.
"It's not time to close the patent office yet."
(Reporting by Noel Randewich; Editing by Claudia Parsons)