Sept. 21 (Bloomberg) -- Casio Computer Co. expects a 10 billion yen ($86 million) investment in new telephone models to return a profit in the first year, helped by sales of handsets equipped with its Exilim camera and G-Shock watch technologies.

The phones, based on the WCDMA standard, will feature waterproof designs and be sold at a higher profit margin than earlier models, said Tateki Ohishi, chief executive officer of Casio Hitachi Mobile Communications Co., the Tokyo-based company's venture with Hitachi Ltd.

WCDMA, the second most used high-speed wireless technology, will allow Casio to link with NTT DoCoMo Inc., AT&T Inc. and Vodafone Group Plc because they already use the standard. Casio competes with Nokia Oyj and Motorola Inc., the world's two biggest handset makers, in Japan, the U.S. and South Korea.

``We are interested in the U.S. and European markets,'' Ohishi said in an interview in Tokyo on Sept. 18. ``Unlike Nokia or Motorola, which sell low-price models, we'll focus on a niche. We won't sell a large volume of products with a thin margin.''

He declined to provide specific numbers.

WCDMA, or wideband code-division multiple access, was developed by companies including DoCoMo, Nokia and Ericsson AB and is used by 174 operators. It is compatible with Global System for Mobile communications, or GSM, the world's most used mobile-phone standard.

The CDMA2000 system is adopted by 231 carriers worldwide, or 57 percent of 3G carriers, according to Qualcomm Inc., the inventor of the technology.

Compete With IPhone

Besides Nokia and Motorola, Casio faces competition from Apple Inc.'s iPhone. Cupertino, California-based Apple has sold more than 1 million units in the U.S. since June.

The company will sell the iPhone in the U.K. with O2 Plc, a unit of Telefonica SA, and with Deutsche Telekom AG in Germany from Nov. 9. France Telecom SA's Orange wireless unit will also start selling the device in that month. Sales in Asia are expected to start in 2008, Apple said.

Mobile phones generated the second-most revenue for Casio last year after digital cameras and other consumer electronics. Casio is the world's biggest maker of digital watches.

``We will probably start shipping WCDMA handsets in the next fiscal year or later,'' said Ohishi, 51. He started at Casio in 1979 and headed Casio's mobile-phone business before taking the current position in April 2004.

Revenue from Casio's mobile network solutions division, of which handset sales accounted for more than 90 percent, rose 23 percent to 171.3 billion yen in the year ended March 31, or 28 percent of the company's total.

`High-End Models'

``Casio can expect reasonable returns from overseas markets if it sticks with high-end models,'' said Kazuharu Miura, an analyst at Daiwa Institute of Research Ltd. who has a ``neutral'' rating on Casio. ``It will be difficult for the company to succeed'' in the low-cost market.

Casio stock has tumbled 31 percent since May 11, when Casio reported profit that missed its target and unveiled the plan to develop WCDMA phones. The shares today fell 1.1 percent to 1,669 yen on the Tokyo Stock Exchange.

``The expansion of the global mobile-phone market depends on emerging countries, where cheap models prevail,'' said Mitsuhiro Osawa, a Tokyo-based analyst at Mizuho Investors Securities Co. ``The distance is widening between global and Japanese makers, which focus on high-end models.''

The development of a mobile handset is estimated to cost about 10 billion yen a model, according to a report from Japan's telecommunications ministry.

Top Three

Nokia controlled 37 percent of the world's 270.9 million- unit handset market in the second quarter, according to Gartner Inc. Motorola held a 15 percent share, while Samsung Electronics Co. had 13 percent, Stamford, Connecticut-based Gartner said.

Casio, established in 1946, made the world's first compact calculator and was a pioneer of thin compact digital cameras with the Exilim model. The company set up Casio Hitachi Mobile in April 2004, with Casio holding 51 percent and Tokyo-based Hitachi owning the rest.

``The global market is controlled by a handful of makers and oligopoly is growing,'' said Suguru Kagawa, a researcher at Tokyo-based Yano Research Institute Ltd. ``There is little room left for Casio.''

KDDI, Verizon

In Japan, Casio sells handsets to KDDI Corp., the nation's second-biggest wireless carrier. Casio has provided phones to LG Telecom Ltd. since July 2003 and to Verizon Wireless Communications Inc. since October.

Sharp Corp. controlled 19.6 percent of Japan's mobile-phone market last year, followed by Panasonic Mobile Communications Co. and NEC Corp., both with a 13.2 percent share, Gartner Japan said on March 28. Casio doesn't rank among the top five.

Qualcomm, the world's second-biggest maker of mobile-phone chips, agreed in December 2005 to license Casio to make handsets with its WCDMA technology in addition to the CDMA2000 license.

To contact the reporters on this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Junko Hayashi in Tokyo at juhayashi@bloomberg.net.

Last Updated: September 21, 2007 02:40 EDT