Is anything hotter than wireless? Maybe consumer electronics. Both are pervasive markets. But wireless is everywhere and constantly finding new applications, even where wired solutions didn't exist. There's GSM, CDMA, Wi-Fi, WiMAX, Bluetooth, ISM, RFID, and ZigBee, which together represent a market in the hundreds of billions of dollars.
Cell-phone penetration in the U.S. will increase from 66% in 2005 to 88% in 2009, according to the Telecommunications Industry Association's (TIA) 2006 Market Review & Forecast. Cell-phone generated revenue also will grow, according to the TIA, fueled mainly by new and emerging technologies and new applications, some of which we haven't seen yet.
Even third-generation (3G) wireless, still slow to grow in the U.S., can claim more than 160 3G systems in commercial operation in 75 countries with more than 230 million 3G subscribers at the end of 2005.
Consumers Drive Chip Growth
How important is wireless and consumer electronics to the semiconductor industry? Just ask Texas Instruments, whose chips are in most of the cell phones produced in the world. Or, you could ask flash chip maker SanDisk.
Eli Harari, the president and CEO of SanDisk, believes the semiconductor industry is at the beginning of a new 20-year growth cycle that largely will be driven by consumer electronics demand. Harari says consumer electronics will create the same kind of growth in the next 20 years that PCs did from 1980 to 2000.
"When you have dramatic cost reductions, and the key driving force is Moore's Law, you enable completely new markets," Harari said, noting that three of the top five markets for NAND flash did not exist five years ago. (SanDisk's sales more than doubled from $1 billion in 2003 to $2.3 billion last year with a lot of help from digital camera sales.)
Pushkar Apte, vice president of technology programs for the Semiconductor Industry Association (SEMI), made essentially the same point at the recent SEMI Strategic Business Conference, presenting data that showed that in 1965, the U.S. government purchased 80% of all semiconductors. During the 1980s and 1990s, corporate users became the most significant purchasers in the market. That changed in 2005, he said, when individual consumers overtook the corporate sector as the single largest user of semiconductor-enabled products.
Much of this growth is coming from flat-screen TVs. While only 17% of consumers currently own a flat-panel display (FPD), 49% say their next TV set purchase will be some type of flat-panel technology, according to research by the Consumer Electronics Association (CEA).
"The current TV market is in the midst of a massive upgrade cycle," says CEA Director of Industry Analysis Sam Wargo. "Flat-panel shipments now comprise 36% of total revenues, and growth is assured with FPDs reaching 63% of revenues by 2009—despite and because of continual price declines in this category."
The CEA forecasts the shipment of $32 billion worth of TVs to U.S. dealers in 2006, with shipments increasing nearly $30 million by the close of the decade, making it the single largest consumer electronics category. "It is likely many consumers use 'plasma' to describe the broader flat-panel category, and for other consumers, perhaps flat is just flat regardless of the technology type," Wargo says.
Confusion about TV terminology isn't unique to flat panel displays. A large portion of rear-projection set owners aren't sure what type of projection technology they own, and the term plasma is more recognizable to consumers than the venerable cathode ray tube or CRT set. LCD familiarity isn't far behind plasma, which is a testament to the growth of this category over the last year. In fact, Wargo says LCD is the most owned type of FPD at 53%.
Radio, meanwhile, continues to be the most ubiquitous consumer electronics product with 98% household penetration. Much of its growth is due to innovations such as satellite, HD Digital Radio, and Internet radio. Introduced in 2001, satellite radio shipped more than 3.6 million tuners in 2005 and continues to add subscribers at a good clip.
The key to much of consumer electronics' recent success is in the creation and acceptance of new portable devices. Besides mobile handsets, PDAs, and portable electronic games, several companies have introduced portable Internet radios that no longer need a computer basestation, while MP3 reigns as the top content format.
Apple Computer has had tremendous success with its iPod, shipping 8.5 million units in the second quarter of this year, while adding new features to newer models. In January, Apple unveiled a remote control with FM radio capabilities for the iPod. The CEA is projecting that 13.5 million portable radios, including MP3/radios, CD player/radios, boomboxes, and headphone radios, will be sold this year.
Yankee Group market analysts believe the only way companies can maintain their success with portable entertainment products is to have a firm grasp of consumer behavior and the competitive landscape. "The major players must understand who will lead and who will follow in order to successfully plan future strategy and appropriately target their investments," says Mike Goodman, the Yankee Group's senior analyst for media and entertainment strategies.
MediaWorks Integrated Systems, a fabless semiconductor 2003 startup that offers a series of reference designs for portable multimedia players and recorders, sees the growth in this category made possible by increased functionality and lower end-user pricing. Recent examples include MP3 players with video functionality and video-enabled digital still cameras that can produce home videos.
Also, multimedia mobile phones are rapidly becoming ubiquitous. And because they're now digital and wireless, security and surveillance cameras can record to a computer or personal video recorder, enabling monitoring and viewing via the Internet.
Mobile Growth Is Mobile
The TIA expects subscriber growth in the U.S. to slow to 8.5% annually (Fig. 1). Worldwide, however, there still is plenty of action in mobile handsets, which generated more than $117 billion in revenue in 2005. Much of that growth came from emerging markets, mainly developing countries. But there also are high expectations for growing sales of multimedia phones, such as Motorola's RAZR and Nokia's N-series.
Nokia has sold more than 5 million N-series phones since last year and launched three new models in late April. The company's new N93 model features a video camera with optical zoom. Newer models will add MP3 and mobile TV. Nokia's new E61 model competes directly with RIM's BlackBerry. Another model in the series, the E70, has a 2-Mpixel camera.
Gartner's market analysts expect more than 70% of all the mobile phones shipped by 2009 to have an embedded camera. With these and other new products, Nokia believes the multimedia phone market will exceed 100 million units this year and top 250 million in 2008.
To help keep it on top of the mobile handset market, Nokia has formed a research partnership with the Massachusetts Institute of Technology (MIT) Computer Science and Artificial Intelligence Laboratory (CSAIL) to advance the state of the art in mobile computing and communications technologies. CSAIL and the Nokia Research Center have established a new research facility—the Nokia Research Center Cambridge—near the MIT campus and are already working on five research projects.
Mobile handsets that can check e-mail and browse the Web are growing in market share, outpacing laptops in some markets. Market analyst Ipsos Insight says that more than one-fourth (28%) of mobile phone owners worldwide have browsed the Internet on a wireless handset. "Accessing the Internet on a wireless handheld device is no longer a novelty for consumers in the major global economies," says Brian Cruikshank of Ipsos.
Mobile video is another story, mainly because content that fits the small screen has been slow to develop. "Consumers are interested in mobile video," says David Schatsky, an analyst at JupiterResearch, "but they're not going to pay a lot for mediocre content."
Another trend is the development of municipal wireless systems offering free access to the Internet. Several cities and counties, including Chicago, San Francisco, Philadelphia, and Suffolk County on Long Island, N.Y., are planning systems, although it's not clear at this time whether they will be owned by a private company or the local government. So far, Chicago's system is the most ambitious, covering 940 square miles with a population of 5 million people.
Then there's the replacement market. How often do people upgrade to new cell phones? Every 18 months used to be the average, but it may be slightly shorter now as new, smaller phones are introduced with new features. Telecom Trends International believes upgrading will constitute 67% of the mobile handsets shipped by 2012.
Samsung Telecommunications America also plans to work with regional service provider Arialink to deploy the first commercial mobile WiMAX network in North America. Samsung will provide a suite of WiMAX-ready products, as well as installation, training, and product support, starting service in Michigan in early 2007.
Another sign that wireless continues to be a hot market category is that venture capital investments in the technology are increasing and will likely continue to do so. Telecom industry research firm Visiongain expects VC activity in wireless to hit an all-time high this year.
"Wireless is where the action is, and this is a great time to be a wireless startup in search of venture funding," says Visiongain analyst Lynne Gregg. "The focus of private equity investors is squarely on the rapidly growing, global wireless market. Longer term, we expect the movement towards financing wireless startups outside the U.S. to grow, as major funds are earmarking funds for startups in Asian countries, such as China and India."
Homeland Security Needs Help
Homeland security offers several opportunities for the industry. But it's a category that can easily (and undoubtedly will) take advantage of technologies currently available and under development for the military, much of it coming out of the Defense Advanced Research Projects Agency (DARPA).
One of the most critical requirements today is for fully interoperable communications equipment for first responders. Four years after the September 11, 2001 terror attacks demonstrated that it was virtually impossible for federal agencies to communicate—not only with eachother, but also with local emergency services—a federal-level study group was formed to resolve the issue. The result was a 600-page report that offered several proposals to help solve the problem. But the U.S. still lacks a uniform system that enables all of these agencies to talk to each other during an emergency.
This also was evident during the Oklahoma City bombing in 1995 and the 1993 attack on the World Trade Center. The problem was obvious during Hurricane Katrina last August as well, when state police and other emergency services struggled with an overwhelmed—and incompatible—communications system.
The goal is interoperability. Designing different radio systems into a single phone with several frequencies is a big trick. One possible solution under consideration is software-defined radio (SDR), which lets users switch frequencies and air interfaces easily and very quickly. The U.S. military, which started developing this technology in the early 1990s, is an early adapter, essentially enabling soldiers in the field to carry several radios in a single unit.
Another hot issue is border security. One of the most widely discussed solutions to monitoring potential terrorist traffic into the U.S. is unmanned aerial vehicles (UAVs). The U.S. Department of Homeland Security (DHS) is evaluating several UAVs for border, maritime, and transportation security, as well as to protect critical infrastructure. Several UAVs are already in use in Iraq and other areas, and they could be put into homeland security service immediately.
Several new concepts, including highly miniaturized, highly maneuverable UAVs, are under development. AVID is developing a UAV specifically for homeland security missions. It's designed to track potential terrorists slipping across U.S. borders under the cover of darkness. Just two feet wide, it initially could operate at an altitude of 20,000 feet and then descend rapidly and hover within a few feet of any unsuspecting intruder.
Inspecting ship containers and searching for explosives is another DHS requirement. In May, the U.S. House of Representatives approved a $5.5 billion, six-year plan to boost security at U.S. seaports, including a requirement that nearly all shipping containers be screened for nuclear and biological materials by next year. An estimated 60 million containers are moved annually around the world. So far, about 200 radiation monitors have been installed at ports to search for nuclear materials. The DHS says that by October, it will be able to screen 70% of incoming cargo.
General Electric, Mitsubishi, and Siemens are working together through CommerceGuard, in which they hold a financial stake, to supply a device that magnetically adheres to the inside of cargo containers and registers any opening of the container door. Fixed and handheld readers record its status in a database that can be accessed by authorized importers, shippers, and government officials anywhere in the world. GE says the technology will help expedite and accelerate the passage of cargo at seaports.
A team of New Mexico nuclear engineers from Technology Management Consulting Services Inc. and Global Transshipment Monitoring Co. is working with Termo Electron Corp. to develop a radiation detection system. Known as the Mobile Point-of-Need Detection System, or M-PONDS, the system uses spectroscopic radiation detection technology for seaport security.
The DHS also wants to be able to quickly, reliably, and easily test for explosives in bags and packages, similar to the systems used at airports. New York City has been testing several of these devices in city subways. These systems look for substances such as ammonium nitrate or hydrogen peroxide, ingredients used in terrorist bombings in the London transit system in July 2005. New York City transportation officials plan to test similar devices produced by several manufacturers.
Test Drive New Technologies
Automobiles are another important market for many industry companies,to keep getting better.
"At the beginning of this decade, electronics accounted for about 18% per vehicle, which is how GM expresses its use of vehicles," including information and entertainment systems, says Patrick Popp, director of General Motors' Electronic Controls & Laboratory. "We estimate that between 2010 and 2015, electronics-double to 40% of the value of our vehicles." include hybrids, which would make the number for electronics up to three times the amount of electronics found in cars, according to Strategy Analytics, a research and course, there are far fewer hybrid vehicles on the road, growing. Strategy Analytics says there were 335,000 the road in 2005 and it expects this to grow to more 2013, representing 4% of worldwide vehicle production.
Most examples of emerging technologies for vehicles are familiar, such as GPS. The OnStar two-way wireless communications system, introduced in 1995, is now standard on all GM vehicles. But it now comes with some new wrinkles, like reminding owners about scheduled vehicle maintenance and outstanding recall notices.
Other high-end, high-tech features include head-up displays in Corvettes, a vehicle dynamics integrated management system that monitors data from a variety of on-board systems to anticipate problems (available from Lexus), and an intelligent parking assist system (an option on Japanese-market Toyota Priuses).
"In the past, a lot of our development was chip-driven," says Popp. "Today, we take more of a systems approach. To do that, we need two things. We need open standards and open architectures, and we need clearly defined development processes, especially very professionally designed software."
Chip manufacturers are in a particularly good position, not only today, but down the road. Technology Forecasters predicts the automotive chip market will hit $25 billion by 2009. TF also sees a growing opportunity for electronics manufacturing services (EMS)—contract manufacturers—to break into the auto electronics market if they can meet the exacting standards set by automakers. That means zero defects.
According to TF, EMS firms already are stepping up their efforts to make a bigger dent in the auto market (it's now at about 11%), driven by the rapid growth in the electronics content of automobiles and an increasing acceptance of outsourcing by the auto industry (Fig. 2).