Second and third-tier consumer electronics chip providers face life and death

According to iSuppli, the consumer electronics market has escaped the downturn during the recession and continues to have tremendous growth potential. However, semiconductor manufacturers working in this decentralized area will face new profitability challenges.

The consumer electronics market continues to recover. It is expected that sales will reach 259 billion US dollars in 2010, and it will recover almost all the lost land in the previous year. In 2009, sales decreased by more than 3%. And this trend of growth will be maintained in the coming years, with an increase of 6.7% in 2011 and 7% in 2012. It is expected that the expansion rate will slow down to 1.2% in 2013, and the market is expected to shrink by 0.6% in 2014.

iSuppli's research shows that the current growth in consumer electronics sales is high-value and high-volume products, such as LCD TVs and Blu-ray players. At the heart of these popular consumer electronics devices are advanced chips and other semiconductors that provide core functionality.

After the economic downturn, manufacturers competed to provide such semiconductor chips to consumer electronics manufacturers and compete for upgrades. If you get a design order in a high-value consumer electronics product, you may receive $100 million or more in revenue and income over the life of the product.

Companies that focus on manufacturing ASSPs or ASICs will benefit most from the consumer market because these devices are neither easy to manufacture nor easily replaced. ASSP and ASIC are two main types of semiconductor chips.

On the other hand, the cost of developing leading dedicated chips continues to rise from $10 million to $20 million. Only the largest and most successful vendors can afford such a high development cost. This actually squeezes out small-scale manufacturers, ie, second-tier and third-tier vendors. iSuppli believes that small-scale manufacturers will face such a choice: Designing with old technology may result in higher production costs or complete withdrawal from the market.

Therefore, iSuppli Corp. predicts that the consumer-specialty chip market will undergo dramatic integration in the next five years, and it may happen earlier.

In addition, the consumer semiconductor market is relatively decentralized, which will cause all manufacturers in the market to face more fierce competition. Only Toshiba has a market share of more than 10%, and Sony only has a market share of more than 5%. The total market share of the 10 largest manufacturers is only 48.4%.

iSuppli insists that in order to continue its success in the consumer electronics semiconductor market, manufacturers must balance their design and manufacturing costs.

For high-volume consumer chips, the high design costs of advanced nodes can be offset by lower production costs. However, this can only be established if the manufacturer wins large-volume design orders.

On the contrary, second-tier and third-tier suppliers may find themselves unable to afford advanced silicon technology because they are too expensive, and thus miss the next generation of consumer electronics systems.