Where would the electronics industry be today without consumer electronics (CE) and wireless technology? Shawn G. DuBravac, staff economist for the Consumer Electronics Association (CEA), has the answer. He says that the CE sector accounts for 40% of the electronics industry. "This includes components, including semiconductors, as well as finished products," he says.
By some estimates, DuBravac says the CE sector accounts for more than half of all semiconductor sales worldwide, a result of the fast-paced introduction of new and innovative products and services (Fig. 1).
Gartner's Semiconductor Worldwide Group tends to back him up. The research firm reports that all of the industry's top 10 OEMs, which collectively accounted for $84 billion of the semiconductors consumed in 2006, are major CE players.
Gartner ranks Hewlett-Packard as the top semiconductor consumer with approximately $12 billion in semiconductor purchases, but Nokia and Dell have closed the gap to within $0.5 billion. Samsung and Sony rounded out the top five semiconductor consumers, followed by Motorola, Siemens, Toshiba, and LG.
Apple cracked the top 10 for the first time, propelled by strong sales of its portable media products, including iPods (more than 100 million sold, according to Apple).
Overall, factory-to-dealer sales of consumer electronics have been climbing every year, from about $117 billion just three years ago to a projected $155.2 billion in 2007, according to the CEA (Fig. 2).
"Consumers started the year \[2006\] investing in innovative consumer electronic products and seemingly never stopped," says Todd Thibodeaux, CEA's senior vice president of industry relations. "With the 2007 forecast, we see the consumer love affair with technology continuing at a healthy clip." A recent study conducted by the CEA supports Thibodeaux's notion, purporting that the average U.S. household spends $1200 annually on CE products.
Part of what makes the CE sector so dynamic is the pace of new product development and how rapidly it can glom onto new and emerging technologies. And while consumer electronics today rely largely on physical media and on broadcast delivery of entertainment content, ABI Research believes the market is in the midst of a major shift to a greater reliance on network-based delivery.
The market research firm expects Wi-Fi networking to become a key enabler for delivery and redistribution of this content in the home, particularly for retail CE hardware. It forecasts that the total number of Wi-Fi-enabled CE devices will grow from 40 million shipped in 2006 to nearly 249 million in 2011.
"From the enormous interest in online gaming to the rapid emergence of new Internet distribution channels for top movie and TV content, the connectivity in mainstream consumer electronics is growing rapidly," says Michael Wolf, research director at ABI Research. "While the consumer Wi-Fi market has previously consisted largely of routers, gateways, and adapters, we believe that as the market evolves towards digital distribution, its growth will be fueled by the inclusion of embedded Wi-Fi in consumer electronics."
CEA market research supports the networking trend. "Two of the fastest movers in the CE industry—namely network routers or hubs and cable modems—are devices that enable home networking," says Elena Caudle, a CEA senior research analyst. "The other three products enable consumers to create, shift, or transport digital content."
The Internet also plays a large role in how CE products are purchased. Online research could influence as much as $25 billion in sales over a six-year period, according to a study sponsored by the CEA and Yahoo. The study revealed that such research plays a key role as many consumers prepare to purchase CE products whether they make their end-purchases online or elsewhere.
Another significant trend is that the CE market is getting bigger geographically, especially in places like China, Russia, India, and Brazil. Of course, there are risks involved in these markets, such as copyright concerns. But the growth and potential for even greater revenue from these regions hasn't stopped most of the larger CE OEMs from pursuing them.
CE sales in Brazil have climbed from $11.2 billion in 2002 to $17.1 billion in 2006. In addition to the increase in CE sales, China and India are building manufacturing facilities with foreign-based partners.
The CEA, meanwhile, plans to take a broader look at the impact of its members. DuBravac says the association is preparing a larger study to explore the role the CE industry has in the U.S. economy, which he expects to be published by October of this year.
Convergence Is Critical
Convergence may be old news, but it's still a critical driver in the portable and mobile markets where products are being introduced every day. Market research firm Parks Associates says several industry events are helping to build the convergence trend in mobile devices. Apple's iPhone announcement, for example, generated tremendous buzz in the market. Also, major carriers are looking to integrate mobile platforms into their bundled offerings and provide fixed-mobile convergence applications.
Sprint is testing a new business model with WiMAX (Worldwide Interoperability for Microwave Access) services that will provide a bundle of services and applications on multiple platforms and enable consumers to connect a variety of devices to the company's network. At the same time, Nokia and Motorola are making non-traditional devices like Internet tablets and launching their own entertainment services.
GPS functionality is another popular feature in multifunction mobile products. "Convergence has spread GPS across multiple product segments, resulting in greater consumer awareness and budding adoption of the technology," says Steve Koenig, the CEA's senior manager of industry analysis.
A CEA study found that 33% of future GPS buyers are interested in owning a cell phone with GPS/navigation capabilities. Not quite as many have expressed interest in mobile TV, though. But that's likely to change with next-generation models with new and improved screens.
Earlier than it originally announced, Qualcomm is sampling its Universal Broadcast Modem (UBM), which supports FLO technology, Digital Video Broadcasting-Handheld (DVB-H), and Integrated Services Digital Broadcasting-Terrestrial (ISDB-T) all in a single chip. Manufacturers can use it to address three of the world's leading standards with one device.
NBC Universal has already said that it will sell prime-time television shows like The Office and Heroes on demand over cell-phone networks in the U.S. Verizon has introduced its V CAST Mobile TV, which is already available in dozens of cities across the country—and it works, if you have one of the new CDMA phones that offer TV and want to buy into one of Verizon's three video-service packages.
Cell-phone manufacturers and carriers are also touting mobile banking, but surveys suggest this might be a harder sell. AT&T wants to replace credit cards, checks, and cash through agreements with Wachovia Corp. and several other banks. Citibank, the retail banking arm of Citigroup, is starting a mobile banking service that customers can download to their cell phones. Visa USA sees cell phones as the best way to expand electronic payments.
And just about everyone in wireless is working on mobile search, with mapping and other online services already available on computers. Google jumped on this early. Nokia is rumored to be developing its own system, a semantic visual search engine that can organize multimedia content on future mobile phones.
Yahoo says its OneSearch system will spread from U.S. to international markets later this year, offering news headlines, images from Yahoo's Flickr photo sites, business listings, local weather, and links to other Web sites. OneSearch also lists local theaters and the movies they're playing, as well as movie ratings.
Increased Chip Integration
Part of the trick in supporting next-generation features will be the ability to further integrate RF components, such as RF transceivers, power amplifiers, antennas, switch modules, front-end modules, and RF surface-acoustic-wave (SAW) filters, into new mobile handsets.
Research firm iSuppli Corp. says the total market for mobile-handset RF components was $7.1 billion in 2006, and it expects that to grow to more than $8.8 billion through 2010 (Fig. 3). The firm also believes that RF component industry and mobile device manufacturers will have to continue to evaluate new technologies to drive costs down while improving the performance of their products.
Here's the rub on convergence: How much of it can consumers handle? What's the message when the instruction booklet outweighs the product? Carriers, including cable and direct-broadcast satellite companies, are asking a similar question. How can they provide transparent connectivity between platforms such as mobile handsets, TV sets, and PCs without making it too complicated for their customers?
Glenn Britt, president of Time Warner Cable, addressed an International CES audience in Las Vegas in January, stating, "The future is about providing services that cut across these platforms, and none of us knows exactly what they are." Continuing, he said, "We have different ideas. The important thing is to focus on what consumers want and keep it simple."
Several market research firms have been hired to help them figure it out by conducting another round of surveys to determine consumers' attitudes on how far manufacturers should take convergence.
More New Chips
Intel, Advanced Micro Devices, Texas Instruments, and other companies are helping to drive convergence by developing new chips for CE applications that are faster, smaller, and more energy-efficient. They're also being designed to handle ever more applications. For instance, Intel disclosed in January that it was well on its way toward developing a new generation of processors and that it plans to begin producing the chips in the second half of this year.
Intel will be the first chip manufacturer to introduce 45-nm processors—possibly two by the end of this year with additional 45-nm chips in the pipeline in 2008. These will be followed closely by a family of so-called Nehalem chips, featuring a new design with up to eight processing cores, touting graphics capabilities. Advanced Micro Devices also plans to integrate graphics into its processors, partly as a result of its acquisition of the Canadian graphic chip maker ATI last year.
IBM says it has developed a chip capable of transmitting an entire HD movie in one second, making it faster and more energy-efficient. Initially targeting processors that run servers, the chip reportedly can transmit data at 160 Gbits/s. IBM doesn't expect these chips to be available for three to five years.
Forward Concepts, which closely follows the DSP market, predicts general-purpose DSP chips will grow by 8% to $9 billion (Fig. 4). The bigger opportunity, says Will Strauss, Forward Concepts' president and principal analyst, is in the embedded DSP market, which should grow to $17.6 billion in 2007—almost twice the size of the general-purpose DSP market.
Strauss says the embedded DSP market is creating new opportunities for emerging companies because of lower barriers to entry. "A number of new companies are introducing parallel array processor chips for unprecedented DSP horsepower on a single chip at relatively low clock frequencies and reduced power consumption," he notes. He also says Qualcomm, Broadcom, Marvell, and Infineon lead the embedded DSP market, with most DSP products being offered as systems-on-a-chip (SoCs).
WiMax? Why Not?
Despite some heavy competition from the buildout of new 3G networks, chip makers, mobile handset vendors, and wireless carriers are rapidly committing to WiMAX, primarily for high-speed Internet access. For one thing, they like the range it offers. For another, it's a cheaper alternative to current 3G cellular networks.
Based on the IEEE's 802.16 metropolitan-area network (MAN) standard, WiMAX could compete with entrenched broadband systems from cable TV and DSL suppliers. While some of the industry's leading developers, such as Intel, believe WiMAX can converge with CE technology such as digital cameras and handheld games as early as 2009, others are more skeptical. "We're not likely to see technologies like mobile WiMAX or indeed, anything else, really take off until the next decade," says market analyst Sara Harris of Strategy Analytics.
Speculations aside, the fact is major mobile handset manufacturers have already got the ball rolling. Nokia and Motorola plan to introduce their first WiMAX-enabled mobile models in 2008. Samsung is expected to come out with both a single-mode WiMAX model and a dual-mode WiMAX/1xEV-DO modem in 2008 as well.
On the carrier side, Sprint has committed to WiMAX and says it will spend $1 billion this year and another $2 billion next year to build a WiMAX network in 19 U.S. cities by April 2008. The company plans to test mobile WiMAX networks in Chicago and the Baltimore/Washington, D.C., areas by the end of this year, respectively.
Research firm In-Stat expects more than 31 million people in Asia to be using WiMAX broadband wireless Internet links within five years, even though fewer than 300,000 were using WiMAX at the end of last year. Part of the interest in the technology in that part of the world comes from the fact that it can be deployed rapidly.
In correspondence with this exponential growth, In-Stat also projects infrastructure spending for WiMAX by carriers in the Asian-Pacific region to jump from $400 million in 2006 to $2.9 billion in five years. India, where WiMAX is beginning to provide high-speed Internet access and phone service, has opened up 300 MHz of spectrum dedicated to WiMAX.
The Yankee Group predicts that China's WiMAX market will reach 8.39 million users in 2011. That's almost seven times the 1.25 million users the research group forecasts for 2009, which is the first year of significant WiMAX development expected in China. Of the 8 million users, portable broadband users are expected to lead the market.
Fed Goes Green
The environment is another huge issue as the industry continues to embrace new and emerging initiatives such as the European Union's Restrictions on Hazardous Substances (RoHS). Now, there's what seems to be a little known development that requires U.S. federal agencies to procure only "green" products to the extent possible, and that includes electronics.
In January, the Bush Administration signed off on Executive Order 13423, "Strengthening Federal Environmental, Energy and Transportation Management." It calls for federal government agencies to acquire more energy-efficient and environmentally sustainable electronic equipment that is also cost-effective, while maintaining or improving product quality and performance.
This is both a challenge and an opportunity for industry companies that do business with the government. Several key federal agencies have already developed formal programs under the EO, including NASA, the U.S. Army, the Transportation Security Agency, the Veterans Administration, the Environmental Protection Agency (EPA), and the Departments of Energy and the Interior.
According to the EPA, electronic equipment currently represents only 1% to 2% of the country's waste stream, but it is growing quickly. The EPA's concern is that many electronic products contain toxic substances, including lead, mercury, and cadmium. Another goal of the new EO is to promote the recycling of obsolete electronic equipment, which may contain many of these substances.
Annually, 95% of electronic products purchased must meet Electronic Product Environmental Assessment Tool (EPEAT) standards where applicable. EPEAT is an environmental procurement tool designed to help institutional purchasers in the public and private sectors evaluate, compare, and select desktop and laptop PCs and monitors based on their environmental attributes.
According to the EO, Energy Star features must be enabled on 100% of all computers and monitors. It also requires the reuse, donation, sale, or recycling of 100% of all electronic products. Of the 2 billion Energy Star-qualified purchases since 1992, more than half, or nearly 1.1 billion, have been consumer electronic products.
Administered by the White House Office of the Federal Environmental Executive (OFEE), the order consolidates five prior EOs. From a management perspective, it clarifies and expands the roles and responsibilities of the White House Council on Environmental Quality, the Office of the Federal Environmental Executive, the Office of Management and Budget (OMB), and federal agencies.
In his keynote before this year's Semico Summit, National Semiconductor CEO Brian Halla described several "megatrends" he said would drive chip demand, including security and surveillance, ultra-accurate equipment using chip-powered imaging, and analog-enabled medical applications such as modern ultrasound devices that project 3D images. He also sees the potential for a room full of cell phones becoming a high-performance network. Underscoring it all, he says, will be a need for optimized power management to control appropriate voltages and conserve battery life.
Innovation still gets a lot of lip service, mainly from trade associations that lobby Washington, but it continues to be the lifeblood of the industry. Indeed, Halla urged the government to make American innovation leadership a key policy priority. He suggested elected officials enact legislation and policies that encourage funding for basic research, ensure the industry has access to a world-class workforce (including immigration and visa reform), and provide a competitive investment climate and infrastructure so U.S. companies can continue to compete.