The S40/V40 range was released in Australia in February 1997 and ran with no significant changes up until August 1997. I have seen cars made as early as August 1996 here so February 1997 is the date of introduction, not the date of manufacture.
Models from September 1997 were updated with revised suspension (rear: revised springs and dampers, new trailing arm bushes, upper and lower links and lower control arm bushes; front: revised springs and dampers, new bushes and revised geometry), bigger front brakes (281mm instead of 256mm) with stiffer calipers and pipes and a larger master cylinder.
Phase I non-turbo models used the Fenix 5.1 computer which was changed to the EMS 2000 computer which is also fitted to all turbo models. Both ECUs are manufactured by Siemens. The Fenix ECU is difficult to obtain a code reader for but the EMS2000 is apparently OBD2 compliant and compatible code readers are quite cheap and easy to obtain.
Phase I are cars built up until May 31, 2000.
Phase II were built starting June 1, 2000 (released in Australia in August 2000).
For the Phase II, Volvo dropped the 1855cc engine, the automatic transmission had five speeds instead of four, there were suspension changes, interior changes, new colours, revised grill, bumpers, foglights, headlights and sidemarkers, and a different folding key was used.
There seems to be some hybrid cars, Phase I models that had some of the Phase II changes like the suspension and ECU.
In a press release in March 2000, Volvo announced a limited edition S40/V40, the bright yellow Limited Edition Super Touring S40 and V40 T4 SE. They were also available in silver and black and featured unique "Ares" 16-inch wheels.
There were further updates in 2002. A new front radiator grille was introduced, and there were software changes that reduced fuel consumption. Inside there was a new instrument panel with four gauges, a three spoke steering wheel replacing the original four-spoke design, and the seats were made more comfortable.
Safety was enhanced with improved side-impact curtain airbags, and the key now contained an integrated remote control and alarm button.