Wireless to rule OEM IC spending this year

IHS defines OEM spending as all semiconductor spending either by the OEM itself directly or indirectly through an electronic manufacturing service (EMS) or original design manufacturer (ODM). Also for those companies that operate as both OEM and semiconductor supplier, every effort has been made to calculate net spending only for those devices originating from the external merchant market. Therefore, net spend does not include internally sourced products.

"The growth in wireless semiconductor spending this year reflects the strong and sustained consumer appeal of smartphones and media tablets-as well as the robust corporate infrastructure expenditures required to support this trend," said Myson Robles-Bruce, senior analyst for semiconductor design and spend at IHS. "Mobile handsets continued to be the leading category for wireless semiconductor spending, but tablets are on the rise, with the new slate computers surpassing wireless infrastructure in 2012 for the first time ever."

Spending for media tablets alone reached $10.5 billion in 2012, compared to $8.7 billion for wireless infrastructure.

Still, the largest submarket by dollar value will continue to be handsets, at $46.7 billion.

Among the Top 20 OEM semiconductor spenders for wireless communications, IHS estimated that high YoY growth will be achieved by Apple and Samsung Electronics. Another company to watch will be LG Electronics, which will see significant growth in wireless spending. Lastly, this is a market that also includes rapidly emerging players from China, such as Huawei Technologies, ZTE and Lenovo.

The greatest OEM spenders on semiconductors for media tablets remain Apple and Samsung, which together account for 75 per cent of spending. Most media tablet sales are still concentrated in the North American geographic area, although the top manufacturers have recognised the need to more aggressively market products to the Asia-Pacific region.

Apple is still the dominant manufacturer of media tablets, although there have been lots of alternatives emerging-especially at the low-cost entry level. Also, it remains to be seen what the impact upon sales will be coming from the new media tablet releases that have Microsoft Windows RT installed. These will include new models coming to market from Microsoft, Asus, Dell and Lenovo.

In wireless infrastructure, the top OEMs will remain unchanged in 2013: Ericsson, Huawei, Alcatel-Lucent and Nokia Siemens Networks. Ericsson and Huawei now are fiercely battling for the market leadership position in wireless infrastructure. The market ranking is closely reflected in the semiconductor spend analysis results for these OEMs. These are all companies that will rely heavily upon growth in the U.S. and Chinese markets in the future.

On the wireless infrastructure side, there are critical connectivity issues that need to be resolved related to network congestion, power reliability, and privacy and security both for individuals and the public at large. Currently there have been no real solutions established-only a great deal of discussion and possible answers addressing these issues have taken place.

The wireless communications market has become viciously competitive all around, with an industry that is narrowing because of the large market shares enjoyed by the leaders, as well as the rapid growth seen in a few emerging players commonly acknowledged as "the winners."

Wireless device manufacturers have recognised the need to shift their business models away from a unit-growth focus and towards a greater stress on revenue and profitability. The key to successfully negotiating this shift will be to sell products with higher profit margins. One recently widespread strategy has been to offer more software-driven solutions and services.