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CE still profitable amid flat growth

Posted: 03 Jan 2005 ?? ?Print Version ?Bookmark and Share

Keywords:2005? trend? growth? market? outlook?

The overall semiconductor industry, teetering on the verge of a flat growth in 2005 and an impending recession in 2006 according to analysts, still shows signs of strength. More and more consumer electronics (CE) companies are looking skyward to a more profitable 2005 as consumers line up to purchase their next electronic gadgets.

Dataquest estimates that the consumer electronics segment will grow from $28 billion in 2003 to $48 billion in 2007. The research firm also predicts sales of consumer products such as digital cameras, DVD recorders, DTVs and portable multimedia will grow 25 percent CAGR. As Jeff Bier, GM at Berkeley Design Technology Inc., in one of his columns puts it, "Today, the action is in consumer electronics, where growth is strong and innovation abounds."

Jerry Peng, analyst with Industrial Economics & Knowledge Center at ITRI believes that the demand for video efficiency will push growth for MPEG chips. "In-Stat/MDR estimates the MPEG IC market will reach 14 percent CAGR, reaching $3.2 billion in 2007."

Research firm Frost & Sullivan observes that there has been an increased consumption of consumer devices in average Asian homes, thus equating to huge demands. And as CE giants such as Samsung, LG, Hitachi, Sony, Sanyo and Panasonic deepen their investments in the region, consumer electronics shall drive the demand, and hence revenues, for the semiconductor industry in Asia-Pacific in the next few years.

Once a fat wallet for Japan, then Korea, the CE market now ushers vendors such as Ningbo Bird and TCL to Western shores, marking China in the global CE territory. Also, a dozen Taiwan companies have entered the CE market. For instance, BenQ Corp., once an Acer Inc. subsidiary known for its PC peripherals, has made such a fast progress in the CE realm and is now being seen as "the next Samsung" in Asia by Wall Street.

Despite an increased demand for products like DTVs and airconditioners, Korea's CE market suffered in 2004, but is eyeing a bright 2005. One key product that will fuel growth for Korea's CE market is the mobile phone, which has slowly become a pocket media center. As the convergence in handsets accelerates, new products combining the mobile phone, digital still camera (DSC), MP3 player, PDA, digital multimedia broadcasting and mobile banking will be introduced, giving birth to what we now call smart phones.

Hear ye, hear ye

There is beautiful music playing for MP3 players as portable entertainment is hot in the CE checklist. According to the Consumer Electronics Association market research, global shipments of MP3 players have topped 2.5 million units in the first half of 2004 alone, thanks to the explosion of digital music and the popularity of digital music download services.

International Data Corp., meanwhile, predicts global shipment of MP3 players to hit 15.7 million units in 2005, up from 3.5 million units in 2003. In mainland China, growth is expected at 70.8 percent, according to Global Sources.

"MP3 players feature lower prices, reduced form factors and lower power consumption, and hence are popular among youngsters," said Aber Bai, development manager at Meizu Electronic Technology Co. Ltd. Although the integration of MP3 function into mobile phones will erode some market share, there will still be a large chunk left for MP3 players, he added.

MP3 players are evolving with new and enhanced functionalities. More color LCDs will be used in MP3 players, said Danny Mulligan, VP of MP3 product line at SigmaTel Inc. However, he emphasized that price and battery lifespan are major issues.

"We are uncertain about the prospects of the portable media player (PMP) market. In the United States, many cars have built-in DVD players. Frequent flyers would rather watch a movie from their laptops than from a 3-inch display," said Mulligan.

Meizu's Bai agrees that the integration of the PMP is a dilemma. A 3-inch display is too small for movie viewing, while a larger screen would be more expensive and power-hungry.

"Continued price drop in flash memory has led to the blooming introduction of low-price MP3 players. In mainland China, there are dozens of new companies entering the market every month," said SigmaTel's Mulligan.

Moreover, domestic brands account for about 70 percent of the MP3 player market. The high-end segment is still dominated by international big names like Samsung and iRiver, while ODMs are major players in the export market.

Flash-based MP3 players will continue as mainstream in the Chinese market in 2005. On the other hand, hard disk-based players were not well received as they were bulky, had low battery capacity and unattractive LCD displays. But with Apple's iPod fad in the global market, hard-drive-based MP3 players are beginning to gain attention. Still, as flash memory price dropped and supply stabilized, its expensive price will stop most Chinese consumers, preventing the market from rapid development.

Marconi Jiang, GM at Philips Semiconductor Taiwan, said that the portable media player has the potential to lead the digital home. He said that the PMP's ability to download or record multimedia contents from the TV and the Internet and compile and encode various audio/video formats allow users to enjoy film and video multimedia content in different environments.

Point, aim, shoot

The rise of DSCs in recent years has slowly replaced reloadable film cameras. But the once-mighty DSC now faces tough competition with the rising popularity of camera phones equipped with communication functions. Since 2001, digital camcorders have slashed market share from analog camcorders. In the future, even the sales of digital camcorders might be seriously affected by the introduction of camera phones.

Roy Chang, consumer electronic market and marketing manager at Texas Instruments Inc. Taiwan said that a 10Mpixel digital camera and a camera phone with 400Mpixel resolution or higher are two "pleasant surprises consumers will see in 2005."

Although mainstream camera phones in mainland China offer only 300Kpixelsan order of magnitude behind DSC's multimillion pixel resolutionthe proliferation of these products has impacted the market for DSCs.

An example is the CCD-type camera phone with 5Mpixel resolution that Samsung introduced in October, just about three months after its introduction of a 3Mpixel model. Hence, new models threaten to take away part of the digital camera and digital camcorder market and shift worldwide mobile phone trends toward high-end convergence models.

The resolution war intensifies as some Korean DSC manufacturers aim for over 7Mpixel models. However, many local companies are still cautious in introducing their own 5Mpixel models, as some of them think the market is perhaps not yet ready for such products.

Top DSC manufacturers such as Sony, Canon, Olympus, Kodak and Fujitsu have all set up production lines in mainland China and together have gained a major portion of the market. Local manufacturers, on the other hand, are trapped in developing low-end products and continue to grapple with issues such as component supply.

China State Development Planning Commission predicts an increase in the shipment of local brands from 1 million to 5 million units in 2005. To achieve this goal, more local component suppliers are needed. "Lens supply is always a bottleneck. There are few suppliers, and most of them are Japan-based," a senior engineer from Sharp said.

Apart from component supply issue, local DSC manufacturers also need to go beyond contract manufacturing, get into independent R&D and focus on mid- to high-end products with 4Mpixels resolution or higher. "Although local brands won't surpass existing international heavyweights, they can win a fair share as the overall market grows," said Shaoxi Peng, engineer at Lenovo Research Institute.

Digital home

The prospect for DTV in Korea is bright. According to the Ministry of Commerce, Industry and Energy, DTV will continue to have an increased demand, leading the CE market toward 2006 with global growth rate of 33.6 percent.

The key selling factor for the DTV is price competitiveness. According to market research firm Displaybank, LCD TV will take over the 30-inch market and PDP TV will dominate the 40-inch market.

The shift to digital broadcasting will result in an explosive demand for the DTV, and 2007 will likely see sales of 25 million sets of LCD TV, according to Displaybank. CRT digital TV and PDP TV are likely to follow with 17 million and 13 million sets, respectively. But until 2007, CRT TV is expected to keep its No.1 position with 156 million sets selling.

The Ministry of Information and Communications plans to select DTV as Korea's "new IT growth driver," aiming at local deployment of 13.3 million sets and export sales of $13.7 billion.

Now that the digital broadcasting method is finally determined in Korea, the DTV STB market is also expected to show rapid growth in 2005, reaching 200,000 setsa 300 percent increase from 2004.

Jerico Abila in Manila, Karen Kou in Taipei, Park Dong-Wook in Seoul and Melody Zhao in Shenzhen contributed for this story.

- Yorbe Zhang

Electronic Engineering Time-China

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