The popularity of consumer sat-nav devices is fuelling the market for GPS receiver chips, with one billion chips now forecast to ship annually by 2013, says analyst house ABI Research.
As more chips are shipped, average selling prices will continue to fall, the analyst predicts.
But the cost of chips is already dropping as manufacturers look towards mobile location-based services - a market set to be worth $8bn by 2011, according to a recent Gartner forecast.
ABI Research analyst, Jamie Moss, said in a statement: "Handset-based GPS will be critical to strong market penetration [of GPS chips]." Cheaper chips are needed for this as mobiles are "lower-margin devices", said Moss.
He predicted: "The average price of the [GPS] chipset will fall to $3.50 or below by the end of 2008, permitting a true mass market adoption."
As well as being as inexpensive as possible, GPS chips will need to be as easy as possible for device manufacturers to integrate with Bluetooth, wi-fi, FM radio and cellular technology, Moss added.
He said: "As it was with Bluetooth, there is no great proactive consumer demand for GPS in mobile phones today but once it's there, people will use it and expect it."