Application processors will become an increasingly important enabler of multimedia capabilities in high-end smartphones and feature phones, new research predicts.

But, as the wireless handset market surpasses one billion units shipped per year, this growing market will face "key challenges", according to a recent study from ABI Research.

"Over the course of 2007 to 2012 strong unit growth is expected to be offset by dropping unit prices," said ABI Research senior analyst Doug McEuen.

"After significant increases during the next two years, the decline in unit prices will compress the application processor revenue to a flat growth rate."

McEuen forecast that application processor unit shipment growth will decrease due to two key factors: integration and the rise of the ultra low-cost handset market.

Integration impacts the market negatively, as multimedia functions are combined into the baseband processors fabricated using 65nm or 45nm process technology.

In addition, low-cost handsets, which will not require an additional application processor given their limited multimedia functionality, are likely to increase market share within the overall wireless device market.

This will further contribute to the decrease in application processor unit growth.