The investments would probably be funded by the group's initial public offering in Hong Kong this month.

Sim will be speeding up the recruitment of research and development staff to meet the growing demand for outsourced design services from mainland handset manufacturers.

``We have increased our R&D headcount from 250 to 370 in the past year, and we expect this will accelerate,'' said chief operating officer Raymond Tsang. ``We have already started development of a 3G handset based on the TDS-CDMA standard as well as 2.75G phones with Edge technology.''

Handsets designed by Sim sold about two million units last year, after the group developed 56 new models for its customers. The group achieved net profit of US$25.5 million (HK$199 million) last year on sales of more than US$200 million.

Sim is looking to raise US$80 million to US$90 million from selling up to 25 percent of its shares in its IPO, slated for the end of this month, sources said. This prices Sim at between 12.5 and 14 times last year's earnings. At present, the group is 100 percent held by chief executive Wong Cho-tung.

Another mainland handset design house, Techfaith Wireless, raised US$141 million in its IPO on the Nasdaq stock exchange last month from selling 19.9 percent of its shares. The offer was priced at 39 times the company's earnings last year.

Foxconn International, which designs and manufactures handsets for Nokia, raised HK$3.7 billion from its Hong Kong IPO in February. Foxconn's offer was priced at 19.1 times its earnings.

Apart from designing handsets, Sim also helps its customers source handset components, but does not assemble complete handsets, Tsang said.

``Our expertise in component sourcing could help our customers save as much as two months in time to market, which is crucial in a business in which the product life-time is getting ever shorter,'' he said.

Tsang said 70 percent of Sim's turnover last year came from handset design fees and royalties, and the sale of handset components. The other 30 percent came from the group's LCD module manufacturing business.

``The LCD module accounts for about 40 percent of the total costs of a handset. By having our own LCD module manufacturing facilities, we have better control over our costs,'' he said.

Sim's LCD module capacity is mainly used to support the group's handset design business, but also generates external sales to third-party customers. The group has plans to invest in capacity expansion this year.

Tsang said handset manufacturers will outsource more designs to help satisfy consumer preferences for wider choices of handset models. ``The trend is towards more variety, and smaller volumes for each new model.''

This is creating more opportunities for smaller handset manufacturers, as economies of scale become less important in the market.

Sim's customers include Ningbo Bird and ZTE, and Tsang said the group has recently won orders with customers in Europe.

mark.lee@singtaonewscorp.com