Opportunity Calls:
Semiconductor Consumption in
Key Communications
Applications
Prepared for:
In-Stat’s 20th Anniversary Forum
Report #EA0104MF
Emerging Semiconductor Applications
Service
By:
Cahners In-Stat Group
May, 2001
Edited by:
Christie Van Gaal
In-Stat
Phone: (480) 483-4446
E-Mail: cvangaal@instat.com
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Table of Contents:
The Strength Behind this Report ..................................................................... 1
Executive Summary............................................................................................. 2
Introduction.......................................................................................................... 4
Methodology ........................................................................................................ 5
Definitions.................................................................................................. 6
Cracks in the WW Economic Foundations Followed by Cooling
Demand Quickly Landed us in an Oversupply Situation .......................... 9
Economic Picture Remains Iffy ...................................................................... 9
And Our Semiconductor Outlook Isn’t Pretty . . ...................................... 11
Semiconductor Consumption by Application Segment.................... 12
US End-Use Market Orders Allow Us a Glimpse of The Future ............ 14
Communications IC Market: Wired Versus Wireless ............................... 17
Market Drivers ........................................................................................ 17
Specific Opportunities: Semiconductor Consumption by Segment...... 20
Networking Equipment ......................................................................... 20
Cable vs. DSL........................................................................................... 22
DSLAM ............................................................................................................ 26
Cable Headends.............................................................................................. 27
Cellular Handsets/Terminals....................................................................... 31
Summary – Time to Rethink a Few Things.................................................. 37
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
i
List of Tables:
ii
Table 1.
Worldwide Electronics Consumption – Dollars In Millions ................ 3
Table 2.
Worldwide Semiconductor Dollar Shipments (Dollars in Millions).. 11
Table 3.
Worldwide Semiconductor Consumption By Major End-Use
Category (Dollars in Millions).......................................................... 13
Table 4.
Total Communications Semiconductor Shipments Per WSTS –
Wired Versus Wireless (Dollars in Millions) ................................... 19
Table 5.
Dollar Value for Key Comm Segments for Equipment and Semis –
2001 versus 2004 (Dollars in Millions) ............................................ 36
© 2001 Cahners In-Stat Group –EA0104MF – Confidential
List of Figures:
Figure 1.
Total Semi Dollars by Traditional End-Use (% of Total) – 1995 vs.
2000 vs. 2005.................................................................................... 13
Figure 2.
US Electronic Component Growth vs. WW Semi Sales Growth –
1991 through 2000 ............................................................................ 15
Figure 3.
U.S. Booked to Billed Ratio for Electronic Components – 1995 to
2001 .................................................................................................. 15
Figure 4.
U.S. Booked-to-Billed Ratio for Total Communications Equipment
– 1995 to 2001 .................................................................................. 16
Figure 5.
U.S. Booked-to-Billed Ratio for Office & Computing Equipment –
1995 to 2001 ..................................................................................... 16
Figure 6. Total Communications IC – Wired vs. Wireless 2004 ......................... 19
Figure 7.
Networking Switches & Semis – 2001 vs. 2004 ................................ 21
Figure 8.
Networking Hubs & Semis – 2001 vs. 2004 ...................................... 21
Figure 9.
Routers & Semis – 2001 vs. 2004 ...................................................... 22
Figure 10.
Worldwide Cable vs. DSL Subscriber Forecast ............................... 23
Figure 11.
XDSL Equipment & Semis – 2001 vs. 2004 .................................... 25
Figure 12. Cable Equipment & Semis – 2001 vs. 2004 ..................................... 25
Figure 13. DSLAM and Semis – 2001 vs. 2004 ................................................ 28
Figure 14. Cable Headend & Semis – 2001 vs. 2004 ........................................ 28
Figure 15. Optical Networking Equipment & Semis – 2001 vs. 2004............... 30
Figure 16. Cellular Handsets & Semis – 2001 vs. 2004 .................................... 32
Figure 17. Cellular Base Station Semiconductors.............................................. 34
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
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iv
© 2001 Cahners In-Stat Group –EA0104MF – Confidential
The Strength Behind this Report
The technology industry of 2001 is not the one of 1995 – It’s not even similar to 2000.
Now, on the downside of an extremely successful year, we’re forced to rely on solid
business fundamentals and ingenuity in lieu of simply taking orders.
This report represents a compilation of forecasts and insights from around Cahner’s InStat Group. The strength of the message herein lies with the combined experience of
the wireless, data & voice, converging technologies & semiconductor research groups
within In-Stat. And, that experience is considerable.
This study examines the total end equipment revenue and semiconductor content for
key communications categories in 2001 and 2004. This is represented at a macro level –
total dollar values for each segment. Likewise, detailed semiconductor content is not
addressed here – total semiconductor dollar values for each market segment are
presented. However, total semiconductor consumption and even total worldwide
electronics consumption are forecast through 2005.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
1
Executive Summary
The rapidity with which the locomotive steamed over the cliff caught everyone by
surprise, even the most seasoned industry veterans. But when multiple ordering
combined with an undetected cooling in demand began to take a toll along about last
September, an eerily familiar dread took hold in the business world of high technology.
And, as dot.coms, largely responsible for inventory miscalculations, began to fizzle and
the US economy weakened, things really began to get ugly . . .
By nearly every measure, the communications market had become the growth driver
for the new hi-tech economy. As the world's digital communications infrastructure
continued to build out at a fairly frenetic pace, the technology industry's focus shifted
from “pure computing” to the diverse array of devices required to access voice, data
and video --, and to the technologies and equipment required to deliver an increasingly
complex menu of applications and content.
Regardless of form factor, whether cellular handsets, set top boxes, gateways, PDAs,
MP3 players, notebooks, or desktops, the world had become focused upon accessing
content as needed, when and wherever that need had arisen.
While the Internet had become the growth driver in the wired communications market - primarily supporting data transfer -- voice communications had driven the initial
growth for the massive wireless push. However, as convergence continued to run
rampant, the clear-cut delineation once again had vanished as voice became enabled
over IP networks, and data and Internet access became enabled over the cellular/PCS
networks.
The technology market of 2000 was clearly different from the semiconductor and
electronics arenas of 1995 that were so intent on providing computing power for
computer applications. But the shift had become more complex from a quantitative
perspective, than simply throwing chips from the computing bucket into the
communications bucket. A growing portion of computer OEM’s business began to be
comprised of boxes that support the communications infrastructure – computing
devices built to support networks (including the Internet), telecom infrastructure,
cellular base stations and cable head-ends, for example. Not only had chips become
application-specific, the boxes themselves had become optimized for certain
applications, and a goodly portion of those devices were also functionally computers,
being used in communications, running software that is optimized for communications
applications.
But, regardless of the manner you used to categorize chips, equipment and services,
2000 was the year to be involved in any way. Growing by leaps and bounds, the
technology industry, driven by communications and access, was growing and profiting
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© 2001 Cahners In-Stat Group – EA0104MF – Confidential
at an amazing rate. And then it stopped. The orders stopped coming and those that
were in hand began to be pushed out or cancelled.
The technology/electronics industry, in a way, found itself in a situation that as a whole
it had not experienced before.
The world’s electronics industry is experiencing the down side of a classic
semiconductor industry condition known as boom/bust. Communications gear
companies, from networking equipment purveyors to handset manufacturers have not
really encountered this wholesale, sobering situation prior to this year – build out for
these companies was still too new and too much of a whirlwind. While semiconductor
manufacturers (at least those who have been around for a while) have this drill down,
the guys who consume the semiconductors may not be quite as accustomed to this
scenario. Communications companies didn’t even feel the chip companies’ pain during
the 1996 to 1998 time frame.
But, even the most successful of the communications giants will remember the recent
past and the year 2001. Great guns growth leads to ordering like there’s no tomorrow.
Fearful that they could miss an opportunity, companies go overboard to ensure that
product is available. However, in the heat of the market, no one really seems to notice
quickly enough when demand cools a bit. All of a sudden (or so it seems) players from
all levels of the value chain find themselves scratching their heads, with too much
inventory in a market that has fallen off of a cliff.
Couple that with US, and hence worldwide, economic difficulties, and no good can
come of this. At least not for a few quarters.
We at In-Stat feel that this situation should begin to stabilize a bit during fourth quarter
of this year, barring anything catastrophic on the economic scene. Second quarter isn’t
likely to get much better, but third quarter will flatten out, followed by a moderate rise
in fortunes during fourth quarter. But, calendar year 2001 won’t look very pretty on
paper.
Figure 1 shows worldwide electronics consumption for the forecast period.
Table 1.
Americas
% Change
Europe
% Change
Japan
% Change
Asia Pac
% Change
Total Consumption
Percent Change
Worldwide Electronics Consumption – Dollars In Millions
1999
$464,245
$298,705
$143,422
$160,667
$1,067,039
2000
$501,187
8.0%
$323,256
8.2%
$153,394
7.0%
$190,303
18.4%
$1,168,140
9.5%
2001
$511,219
2.0%
$330,234
2.2%
$155,647
1.5%
$195,397
2.7%
$1,192,497
2.1%
2002
$545,321
6.7%
$354,281
7.3%
$165,410
6.3%
$221,000
13.1%
$1,286,012
7.8%
2003
$583,050
6.9%
$378,256
6.8%
$178,600
8.0%
$254,901
15.3%
$1,394,807
8.5%
2004
$619,068
6.2%
$401,276
6.1%
$192,480
7.8%
$287,162
12.7%
$1,499,986
7.5%
2005
$662,857
7.1%
$432,415
7.8%
$212,365
10.3%
$313,265
9.1%
$1,620,902
8.1%
Source: In-Stat, Reed Electronics
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
3
Introduction
The technology market has undergone a dramatic shift that has
taken it from being focused largely upon computing technology to
being an integrated partner in a digitally communicating realm,
where the number of applications (and technologies required to
implement those applications) are wide and varied. Where chips
destined for computers once comprised over 50% of all
semiconductors worldwide, the market is now, and will continue to
become more and more diverse in terms of semiconductor
applications. And, with this shift comes more complex inventory
issues than what existed for computing – parts were pretty much
parts in the land of computers. The digital communications
infrastructure brings with it a wide variety of customers and
customer needs, from many camps. This puts a whole different
angle on the inventory scene, especially if you’re a chip guy.
The intent of this study is to clarify the impacts that this dramatic
shift will cause in terms of semiconductor demand and to
simultaneously provide a good picture of key communications
market segment performance for 2001 and for 2004. While
semiconductor technology as a whole remains the enabling
building material for any sort of electronics revolution, it is clear
that there will be specific areas that will, in dollar terms, represent
strategic contribution over the next five years.
Infrastructure, services, access devices and technology will
represent tremendous opportunity for all involved in the
communications value chain over the forecast period. While
services don’t impact semiconductor consumption directly, it is
important to note that current trends would indicate that services
represent a recurring revenue stream that will be crucial to tap into,
whether you are a technology provider, a hardware vendor or
rolling out infrastructure.
Specific communications applications are segmented, forecasted
and discussed in terms of market dynamics, In-Stat’s assumptions
and vendor opportunities in the ensuing sections.
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© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Methodology
In-Stat utilized a concurrent top-down, bottoms-up methodology to
arrive at the forecasts presented in this report. Analysts from each
pertinent In-Stat market and component technology group began
by compiling equipment unit forecasts based on market dynamics,
projected penetration rates, infrastructure roll-outs, competitive
pressures from market and technology perspectives and standards
issues, to name a few of the major factors. Semiconductor content
for each market segment was then assessed predicated upon
technology requirements, integration trends, projected capacity,
pricing and competitive pressures, etc.
In-Stat’s position and views were then discussed in depth with key
players in both the wired and wireless communications markets, in
our best effort to define next-generation system and product
requirements and features.
Vendors contacted included:
• Alcatel
• Cisco Systems
• Lucent Technologies
• Ericsson
• Mitel
• Motorola
• NEC
• Nokia
• Nortel Networks
• PMC-Sierra
• Toshiba
Finally, the top-down assumptions are reconciled with the
bottoms-up projections. This is an arduous process, but is in
reality the truest depiction of what is likely to take place in these
market segments.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
5
Definitions
For the purposes of this report, In-Stat’s total communications
semiconductor forecast is first divided into major splits between
wired and wireless, comprised of the following:
• Wired Communications
- Networking Equipment. Includes Hub Ports, Switch Ports,
NIC, LOM, ATM WAN, ATM LAN, Router Ports, Remote
Access Servers and WAN IP Telephony.
- Analog Modem
- XDSL Modem
- Cable Modems
- Cable Infrastructure
- DSLAM
- Telecom Equipment
- Facsimile
- Telephone Handsets, Analog (Corded and Cordless) and
Digital Cordless
- Other
• Wireless Communications
- Cellular Handsets/Terminals
- Cellular Basestations
- Wireless LANs
- LMDS/MMDS
- Other
Broad strokes at wired and wireless were then segmented as
follows:
• Networking ICs consumed by Hubs, Switches and Routers
• Broadband ICs destined for Cable, DSL and Other
• Wireless ICs consumed by Handsets and Infrastructure
• Wired ICs in consumed by Telecom Switches and Optics
It is important to note that this study focuses only upon chips
consumed in the communications sector. That being said, this
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© 2001 Cahners In-Stat Group – EA0104MF – Confidential
report does not size the total wireless chip market – it will only
account for wireless communications chips. As wireless technology
permeates every facet of our lives, we must realize that wireless
chips are being shipped into each of the classic end-use segments.
So, the wireless devices being worn at the drive-through at
McDonalds, the wireless inventory mechanisms and the wireless
technology that enables bedside patient check-in at the hospital
would all be counted in the traditional industrial category. The
wireless functionality in PDAs and notebooks would be counted in
the computing segment, and the GPS “On-Star” chips in cars
would, of course, be counted in automotive.
We feel that functionality and final application is the most effective
manner in which to account for these shipments, whether for chips
or the end equipment that consumes them. Even then, as we all
know, this process is difficult at best. But, In-Stat has painstakingly
accounted for a large portion of these market segments and we feel
that there is a probability that the total chip market is being
underestimated, and some of the adjustments that we have to make
in order to adhere to reported numbers are less than satisfactory.
By every measure, whether it be geographic, product-based or by
vertical industry, equipment shipments as reported by industry
associations coupled with input we receive from vendors tells us
that reported chip numbers are too low.
Considering the fact that bottoms up estimates are almost always
larger than the total, we feel there has to be a solid and plausible
middle ground between what is being reported for the
semiconductor market and what is being reported by the
equipment manufacturers whose products consume the chips.
Handsets (which are estimated with TIA data and vendor input)
alone accounted for more than 90% of the wireless communications
chip number in 2000. In-Stat has a long history and in-depth
understanding of the movements of the semiconductor industry as
reported by the WSTS. If the reporting methodology is left
unchanged, there is no way to grow the communications IC portion
of the total market to a level that would account for what we see
coming down the pike in communications equipment.
Therefore, please note that the In-Stat forecasts for total
semiconductor by geography and total semiconductor by
traditional end-use segment are based upon the market as currently
reported by the WSTS. Some of the individual pieces we have
chosen to highlight are not based upon the current semiconductor
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
7
industry reporting structure. As we feel that our forecasts tend to
be conservative to begin with, based on solid logic, we are more
than comfortable with the revenue figures that appear herein for
each of the segments.
8
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Cracks in the WW Economic Foundations
Followed by Cooling Demand Quickly
Landed us in an Oversupply Situation
That which goes up nearly always comes down, and the worldwide
semiconductor market is definitely the poster child for that old
adage.
But beginning with fourth quarter 2000, global economic conditions
began to also contribute to a slow-down in end-equipment markets.
We started to witness an erosion in order growth an backlog at the
equipment level along about October – but, overheated demand
and build-out for the 15 months prior wasn’t easy to put the brakes
on. Momentum in growth for everything Hi-Tech, particularly
broadband communications, landed us in an all too familiar
position: massive inventory build-up that had catapulted past
demand, which unfortunately, can stop on a dime.
Economic Picture Remains Iffy
We don’t expect that things will pick up appreciably on any front
during 2001. Economic conditions continue to be iffy at best –
difficulties in the US in particular ripple soundly throughout the
world. After a very healthy 5.0% GDP growth rate in 2000, 1.7 is the
consensus for 2001. Easier fiscal and monetary policy should allow
the U.S. economy to recover modestly rising to 3.1 percent in 2002.
A sustained interest rate cutting campaign by the Federal Reserve
combined with expected tax cuts should help to offset a slowdown
in growth prompted by a deterioration of the business
environment. Many in the economic community feel that the brunt
of the slowdown should be felt only during the first half of this
year. However, we would caution that a recovery could be pushed
out beyond the second half of 2001 if consumers and businesses
continue to pull in the reigns on spending in the face of
unemployment rises and investment declines.
Meanwhile, unemployment is expected to rise, helping to keep a lid
on inflation, with the proportion of the labor force out of work
forecast to rise to 4.6 percent in 2001 and 5.0 percent in 2002,
compared with 4.0 percent last year.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
9
Inflation, as measured by the OECD's GDP deflator, is forecast to
come in at 2.3 percent in 2001, up from 2.0 percent in 2000, but will
moderate to 1.9 percent in 2002. The OECD inflation forecast
includes investment prices as well as export and import prices, not
just consumer prices. And, while there are bits and pieces of good
news, the overarching theme remains – a much softer economy
than what has been experienced in recent years.
Europe is a bit of a mixed bag as the larger economies there were
hesitant to lower forecasts in spite of economic woes in the US. But
lower them they have – Germany, the region’s lead economy, has
had its growth forecasts slashed from 2.75 percent to about 2.0 for
2001. Fearing that slower growth will present risks to the German
government’s budget on both the spending and revenue sides,
leaders there have been urged to forge ahead with structural
reforms.
The outlook for the British economy remains generally status quo,
but downside risks from the US slowdown may justify another
precautionary interest rate cut. British economy is currently being
forecast at 2.5% for 2001.
Italy, Europe’s third largest economy, is expected to eke out a
2.25% increase as weaker exports cut into last year’s 2.9% increase.
Meanwhile, Japan may be at risk for a considerable downward
spiral unless it bails out some of the country’s ailing banks to
ensure the stability of the financial system. GDP is expected to
grow by only 1% this year and 1.1% in 2002. The OECD
acknowledges that purging bad loans could lead to rising
bankruptcies and unemployment in an economy that is already in
deep trouble. However, this being said, the Japanese market
continues to consume semiconductors at a reasonable rate in
comparison to the other major geographic markets -- likely a result
of moving focus from EDP to communications and consumer
products which are being produced domestically.
Likewise, the larger economies of the Asia Pacific are cutting
forecasts as they too are impacted by lower trade prospects. For
Taiwan as an example, worsening US economy caused exports to
the US (Taiwan’s main export destination) to fall 13.5% in April
alone.
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© 2001 Cahners In-Stat Group – EA0104MF – Confidential
And Our Semiconductor Outlook Isn’t Pretty . . .
After a 36.8% increase for 2000, the semiconductor industry is
caught in the midst of a classic “down” cycle predicated by overheated order rates, inventory build-up at the end equipment level –
caused in part by the crash of the dot.com craze – and economic
conditions that just plain stink.
While the end markets that are fed by the semiconductor industry
will likely still eke out some unit growth in 2001, much of this
demand will be satisfied out of inventory. Therefore, units, ASPs
(Average Selling Prices) and hence dollars for the chip industry will
decline in 2001.
And, although there were major additions to semiconductor
capacity throughout 2000, the current situation had essentially put
the brakes on capital spending – the likes of which we’ve not seen
before. This will also halt the current overcapacity situation, which
is likely to help us return to strong growth rates for 2002 and 2003.
In-Stat feels that we’re likely to see this market pop back up next
year – again barring unforeseen economic catastrophy.
Table 2.
Total Semiconductor
Americas
% Change
Market Share
Europe
% Change
Market Share
Japan
% Change
Market share
Asia Pacific
% Change
Market Share
Total World Wide
% Change
Dollars in Millions
Worldwide Semiconductor Dollar Shipments
(Dollars in Millions)
1997
1998
1999
2000
2001*
2002*
2003*
2004*
2005*
CAGR 99-05*
$45,852
7.4%
33.4%
$41,431
-9.6%
33.0%
$47,478
14.6%
31.8%
$64,071
34.9%
31.3%
$52,841
-17.5%
30.7%
$60,312
14.1%
30.6%
$70,852
17.5%
30.5%
$79,909
12.8%
30.5%
$89,640
12.2%
30.3%
11.2%
$29,089
5.5%
21.2%
$29,405
1.1%
23.4%
$31,881
8.4%
21.3%
$42,309
32.7%
20.7%
$35,231
-16.7%
20.5%
$39,794
13.0%
20.2%
$45,768
15.0%
19.7%
$50,811
11.0%
19.4%
$57,446
13.1%
19.4%
10.3%
$32,079
-6.1%
23.4%
$25,921
-19.2%
20.6%
$32,834
26.7%
22.0%
$46,749
42.4%
22.9%
$40,430
-13.5%
23.5%
$46,692
15.5%
23.7%
$55,160
18.1%
23.8%
$62,923
14.1%
24.0%
$70,532
12.1%
23.8%
13.6%
$30,184
9.6%
22.0%
$28,853
-4.4%
23.0%
$37,184
28.9%
24.9%
$51,264
37.9%
25.1%
$43,651
-14.9%
25.4%
$50,357
15.4%
25.5%
$60,469
20.1%
26.0%
$68,292
12.9%
26.1%
$78,248
14.6%
26.4%
13.2%
$137,204 $125,610 $149,377 $204,393 $172,153 $197,155 $232,249 $261,935 $295,866
12.1%
4.0%
-8.4%
18.9%
36.8%
-15.8%
14.5%
17.8%
12.8%
13.0%
Source: In-Stat Group
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
11
Semiconductor Consumption by Application Segment
The semiconductor end-use consumption forecast will experience a
shift as communications applications contnue to explode and
consume more chips at a faster growth rate than other segments.
But, the PC will continue to dominate the end-use arena, as
computer applications will still consume the lion’s share of chips at
$122.2 billion worth of semiconductors, or 41.3% of all chips, by
2005. Communications is the fastest growing segment at a nine
year CAGR of 17% through 2005. Communications will have
increased from a 14.8% share in 1995 to 25.6%, or $75.9 billion of the
total market by 2005.
So, when you gauge chip demand by its final destination, the end
result is a dramatic shift in the classic end-use categories – the likes
of which had not been witnessed before by this industry.
Computing, even though it will retain the largest portion of chip
consumption during the forecast period, dramatizes these shifts. In
1995, a full 53% of all chips were manufactured for use in
computing applications, which included PCs (desktop and mobile),
workstations, etc. By the end of 2000, that number had fallen to
47.5% and by 2005, further erosion will have taken place, landing
computer chips (by the purest form of the definition) at 41.3% of
the total. Prior to recent history, none of those end-use percentages
shifted wildly from year to year – for all intents and purposes, it
often took several years to identify a shift, and those shifts were
mostly nominal. Traditional computing applications drove the
semiconductor industry. Period. That has all changed.
Figure 1 epitomizes the shift from pure computing to chips headed
for communications, consumer and automotive applications. Table
3 presents In-Stat’s semi end-use consumption forecast.
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© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Figure 1.
Total Semi Dollars by Traditional End-Use (% of
Total) – 1995 vs. 2000 vs. 2005
60
50
Percent of Total
40
1995
2000
30
2005
20
10
0
Consumer
Automotive
Computer
Industrial
Communications
Military
Source: inSearch Research, Cahners In-Stat Group
Table 3.
Total Semiconductor
Consumer
% Change
Market Share
Automotive
% Change
Market Share
Computer
% Change
Market Share
Communications
% Change
Market Share
Other (Industrial, Military)
% Change
Market share
Total World Wide
% Change
Dollars in Millions
Worldwide Semiconductor Consumption By Major
End-Use Category (Dollars in Millions)
1997
1998
1999
2000*
2001*
2002*
2003*
2004*
2005*
CAGR 99-04*
$22,708
0.0%
16.6%
$20,550
-9.5%
16.4%
$25,973
26.4%
17.4%
$37,940
46.1%
18.6%
$31,362
-17.3%
18.2%
$36,722
17.1%
18.6%
$43,284
17.9%
18.6%
$50,973
17.8%
19.5%
$58,734
15.2%
19.9%
14.6%
$7,354
1.0%
5.4%
$7,439
1.2%
5.9%
$9,512
27.9%
6.4%
$12,025
26.4%
5.9%
$9,590
-20.2%
5.6%
$11,210
16.9%
5.7%
$13,716
22.4%
5.9%
$16,648
21.4%
6.4%
$18,730
12.5%
6.3%
12.0%
$68,598
3.8%
50.0%
$62,246
-9.3%
49.6%
$71,000
14.1%
47.5%
$93,128
31.2%
45.6%
$80,043
-14.1%
46.5%
$85,962
7.4%
43.6%
$101,456 $111,324
18.0%
9.7%
43.7%
42.5%
$122,248
9.8%
41.3%
9.5%
$24,057
14.9%
17.5%
$22,281
-7.4%
17.7%
$28,980
30.1%
19.4%
$44,823
54.7%
21.9%
$38,069
-15.1%
22.1%
$47,272
24.2%
24.0%
$56,115
18.7%
24.2%
$64,099
14.2%
24.5%
$75,856
18.3%
25.6%
17.2%
$14,487
-3.3%
10.6%
$13,094
-9.6%
10.4%
$13,912
6.2%
9.3%
$16,477
18.4%
8.1%
$13,089
-20.6%
7.6%
$15,989
22.2%
8.1%
$17,678
10.6%
7.6%
$18,891
6.9%
7.2%
$20,298
7.4%
6.9%
6.3%
$137,204 $125,610 $149,377 $204,393 $172,153 $197,155 $232,249 $261,935
4.0%
-8.5%
18.9%
36.8%
-15.8%
14.5%
17.8%
12.8%
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
$295,866
11.9%
13.0%
Source: In-Stat Group
13
US End-Use Market Orders Allow Us a Glimpse
of The Future
In developing our forecasts for semiconductors and end-use
electronics segments, we are allotted one luxury – we still get order
rates, inventories and backlog data in addition to the sales numbers
for Total Communications, Office & Computing and Electronic
Components in the US market. While there is an awful lot of
“stuff” in these numbers, and they are confined to the US market
only, we have over the years been able to draw some definite
correlations to the worldwide semiconductor and electronics
sectors.
As an example – the following graph contrasts worldwide
semiconductor sales growth year to year against US Electronic
Component sales growth. The Electronic Components category is
where semiconductor sales are reported to the Department of
Commerce for US consumption.
Depending on the year, semis account for 40 to 50 percent of this
category. You can see clearly that although Electronic Components
doesn’t tend to go negative in terms of growth, there is a distinct
correlation in the growth trends. Because we still get order rates
and other pertinent information for the components category, we
are able to come up with very sound short-term forecasts for
electronic components AND it allows us substantial insight into
what’s going on with the semiconductor market in total – it’s
another piece of the pie that gets factored into the overall forecast..
Following Figure 2, please note Figures 3 through 5 that depict InStat’s Booked-to-Billed ratios for Electronic Components, Total
Communications and Office & Computing equipment, which
contains, among other things, PCs shipped in the US. With all of
the information that the government provides us with for these
categories, we are able to solidly predict performance 12 months
out. Additionally, with the amount of product that these three
categories encompass, we are able to get a very solid gauge on the
US market in general.
14
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Figure 2.
US Electronic Component Growth vs. WW Semi
Sales Growth – 1991 through 2000
Annual %
Growth
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
-10.0%
-20.0%
Electronic Components
WW Semiconductor Growth
Source: Cahners In-Stat Group
Figure 3.
U.S. Booked to Billed Ratio for Electronic
Components – 1995 to 2001
22000
2.00
1.90
20000
US ELECTRONIC COMPONENTS
Bookings/ Billings
(Three Month Average)
1.80
18000
16000
Book to Bill Ratio
1.60
14000
1.50
BOOK TO BILL
RATIO
SALES
1.40
1.30
1.20
12000
10000
8000
1.10
6000
1.00
4000
0.90
01
Ja
n-
-0
0
Ju
l
00
Ja
n-
-9
9
Ju
l
99
Ja
n-
-9
8
Ju
l
98
Ja
n-
-9
7
Ju
l
97
Ja
n-
-9
6
Ju
l
96
Ja
n-
-9
5
2000
Ju
l
95
0.80
Ja
n-
BOOKINGS AND BILLINGS (Millions)
1.70
Source: Cahners In-Stat Group/ Dept. of Commerce
Source: Department of Commerce, In-Stat
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
15
Figure 4.
U.S. Booked-to-Billed Ratio for Total
Communications Equipment – 1995 to 2001
2.00
12500
1.90
US- TOTAL COMMUNICATIONS
Bookings/ Billings
(Three Month Average)
1.80
BOOK TO BILL RATIO
SALES
ORDERS
1.60
1.50
9500
8500
7500
1.40
6500
1.30
1.20
5500
1.10
4500
1.00
3500
0.90
2500
0.80
1500
Ja
n
A -95
pr
Ju 95
l-9
O 5
ct
Ja - 95
n
A -96
pr
Ju 96
lO 96
ct
Ja - 96
nA 97
pr
Ju 97
l-9
O 7
ct
Ja - 97
nA 98
pr
Ju 98
l-9
O 8
ct
Ja - 98
n
A -99
pr
Ju 99
l-9
O 9
ct
Ja - 99
n
A -00
pr
Ju 00
lO 00
ct
Ja - 00
n01
Book to Bill Ratio
10500
BOOKINGS AND BILLINGS (Millions)
1.70
11500
Source: Cahners In-Stat Group/ Dept. of Commerce
Source: Department of Commerce, In-Stat
Figure 5.
U.S. Booked-to-Billed Ratio for Office & Computing
Equipment – 1995 to 2001
2.00
US- OFFICE AND COMPUTING MACHINES
Bookings/Billings
(Three Month Average)
1.90
1.80
14500
12500
Book to Bill Ratio
1.60
1.50
10500
1.40
1.30
BOOK TO BILL RATIO
8500
SALES
1.20
ORDERS
1.10
6500
BOOKINGS AND BILLINGS (Millions)
1.70
1.00
1
n0
Ja
0
l-0
0
Ju
n0
Ja
9
l-9
9
Ju
8
l-9
8
n9
Ja
Ju
n9
Ja
7
l-9
7
Ju
n9
Ja
6
l-9
6
Ju
n9
Ja
l-9
5
4500
Ju
Ja
n9
5
0.90
Source: Cahners In-Stat Group/ Dept. of Commerce
Source: Department of Commerce, In-Stat
16
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Communications IC Market:
Wired Versus Wireless
This section will forecast end-use semiconductor consumption for
major sub-segments of the communications market, for both the
wired and wireless categories. Values presented in the various
figures presented in this report relate to total semiconductor
consumption in the communications markets, and not to the value
of the individual sub-segments contained therein.
Market Drivers
Factors driving the communications evolution are numerous, with
one common, underlying thread: the ability to communicate with
anyone at anytime, in any locale has become the prevalent
expectation. While this need to communicate is nothing new,
having been around since the invention of the telephone and
telegraph, it has reached new heights in importance. Today, this
need to communicate has gone from voice-only, to voice and data,
and the requirements are accelerating at an unbelievable rate.
This is further coupled with the fact that the communications world
is rapidly migrating from one dominated by analog technology to
digital, with a concurrent shift from wired to wireless access.
Pushing the migration from a wired world to a wireless one are
factors that include:
•
The prohibitively high cost of laying new lines, especially an
issue in remote regions, such as in parts of Asia, South America
and Africa
•
The fact that the global workforce has become very mobile and
expectations with regard to communications are extremely high.
•
New features and functions being introduced on a continual
basis at reasonable cost are making an extremely attractive case
for increasing wireless access to information, goods and
services.
While the market drivers are relatively straightforward, the
associated issues and complexities are another matter altogether.
These problems range from legal and regulatory to a plethora of
standards and protocols that must be met, and are further
complicated by rapid system evolution and deployment. While in
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
17
the short term many of these market segments remain rather
chaotic in terms of technology AND economy, solutions will be
developed over time and emerging markets will settle and solidify.
In fact, many solutions to standards and protocol complexities will
be met via the use of reprogrammability and/or reconfigurability
of software and/or hardware.
What all this translates to is almost unlimited opportunities for the
companies that participate in this market over the longer term.
However, opportunity is also associated, in many cases, with risk,
but for the majority of companies, long-term success is assured.
After all, the majority of the world is not yet connected. Even in the
face of worldwide economic turmoil, you can’t put a damper on the
big picture view of communications markets.
While the wired segment will continue to dominate the
communications market in terms of dollar value through the
forecast period, it will continually lose ground to its’ wireless
brother. Total wired communications semiconductor shipments
are forecast to increase from $19,610 million in 1999 to $43,383
million by 2004, translating to a compound annual growth rate of
17.2%. However, over this same period, wired communications
will see its’ market share of total communications semiconductor
consumption decline from 71.9% in 1999 to 62.8% by the end of the
forecast period, 2004.
And, in spite of good growth for total wired communications chips,
not all of the defined sub-segments will prosper, primarily as a
result of the migration from analog- to digital-based
communications, and the integration of certain functions, such as
facsimile, into higher-level products.
The factors previously discussed, will drive the growth in the
wireless communications market. In product terms, this growth
will be manifested primarily by the cellular terminal and
infrastructure segments. To give you an idea as to the growth in
these two sub-segments, cellular terminals are forecast to increase
by a factor of 3X over the forecast period, while cellular base
stations will almost double over the same period. Basestations are
being produced with increased capacity – a lower number of
basestations will serve a larger number of customers.
Wireless communication semiconductor consumption will increase
its’ overall share of the communications market, going from 28.1%
18
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
in 1999 to 37.2% by the end of the forecast period, 2004. This
translates into a compound annual growth rate of 27.4%.
Table 4.
1999
Total Wireless
2000
$8,172.00
% Change
% of Total
Total Wired
Total Comm.
2001
2002
2003
2004
CAGR
$14,657.00
$12,792.00
$16,403.00
$20,482.00
$23,845.00
79.4%
-12.7%
28.2%
24.9%
16.4%
28.10%
32.7%
33.6%
34.7%
36.5%
37.2%
$20,808.00
$30,166.00
$25,277.00
$30,869.00
$35,633.00
$40,254.00
45.0%
-16.2%
22.1%
15.4%
13.0%
% Change
% of Total
Total Communications Semiconductor Shipments
Per WSTS – Wired Versus Wireless (Dollars in
Millions)
71.80%
67.3%
66.4%
65.3%
63.5%
62.8%
$28,980.00
$44,823.00
$38,069.00
$47,272.00
$56,115.00
$64,099.00
54.7%
-15.1%
24.2%
18.7%
14.2%
% Change
21.4%
14.6%
17.2%
Figure 6. Total Communications IC – Wired vs. Wireless 2004
Wireless
Wired
37%
63%
By 2004 the Comm IC Market will Have Grown to $64 Billion
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
19
Specific Opportunities: Semiconductor
Consumption by Segment
Networking Equipment
The networking equipment market was booming, with
manufacturer's revenue growth at 34 percent in 2000 to $49.8
billion. Cahners In-Stat Group believes the following are among
the key growth segments in networking equipment.
•
•
Gigabit Switch Routers/Terabit Routers
Gigabit Ethernet Products
•
No-new-wires Home Networking products
•
•
•
LAN telephony
VoIP PBXs and gateways
Storage
In 1999, the top four networking markets in ranked order were
LAN Packet Switches (predominantly comprising Ethernet and
Fast Ethernet Switches, along with the rapidly growing Gigabit
Ethernet segment), Routers, Access Concentrators and ATM WAN
Switches, with respective shares of 26 percent, 17 percent, 8 percent
and 8 percent. 1999 demonstrated the trend toward network value
moving into the WAN. With the exception of high-end LAN
switches, LAN markets experienced rapid price erosion.
By 2000, Fast Ethernet switches, the most popular commoditized
segment, dominated the market (70%), so the IC content remained a
pretty low portion of the total costs of the system. However, highend systems (GigE, 10GE and L4-7) will pick up during the forecast
period, which will cause the IC content to inch up. The move will
be incremental due the inertia caused by the sheer size of the Fast
Ethernet Market.
Routers are currently seeing two areas of growth – SOHO (extreme
low end) and high-end (Gigabit and Terabit). IC content in the
high-end is a huge portion of costs in these systems where a port
can cost tens of thousands of dollars, but this segment is only 40%
of the total market. SOHO is making huge strides in volume, but
prices are dropping. These divergent trends create a fairly flat line
for the overall IC trend as a percent of system costs.
20
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Figure 7.
Networking Switches & Semis – 2001 vs. 2004
$32.9 Billion
$21.8 Billion
Not overly rich in
semiconductor value
as a percent of total
equipment, semis
hold pretty steady at
about 13% of total.
$4.6 Billion
$2.7 Billion
2001
2004
Switches
Switch ICs
Source: In-Stat
Figure 8.
Networking Hubs & Semis – 2001 vs. 2004
$661 Million
Clearly not the opportunity
of the decade, hubs and
the semis that are
consumed by them will
continue to erode over the
forecast period.
$51 Million
$33 Million
$2.5 Million
2001
2004
Hubs
Hub Semis
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Source: In-Stat
21
Figure 9.
Routers & Semis – 2001 vs. 2004
$26.7 Billion
$14.4 Billion
Not expected to grow
by leaps and bounds
by any means, the
semiconductor
opportunity in routers
maintains about a 16%
share of total value.
$3.6 Billion
$1.9 Billion
2001
2004
Routers
Router ICs
Source: In-Stat
Broadband
Cable vs. DSL
The installed base of Broadband subscribers will reach almost 21
million worldwide by the end of 2001, and is expected to increase
to almost 69 million by the end of 2004. This phenomenal growth is
a direct result of increasing reliance on the Internet as an
information, communications, business and entertainment tool. At
the same time, new bandwidth intensive applications are being
introduced that make the argument for broadband services very
compelling.
In many of the earlier markets where broadband services were
being deployed, cable and DSL were competing head to head for
the same customers. Although In-Stat believes that there will be
plenty of customers to go around for both types of broadband
access, our research demonstrates that DSL will be the most
prominent broadband access technology worldwide during the
forecast period.
22
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Figure 10. Worldwide Cable vs. DSL Subscriber Forecast
35000
30000
In Thousands
25000
20000
Cable
DSL
15000
10000
5000
0
1999
2000
2001
2002
2003
2004
Source: In-Stat
Both services are facing hurdles to deployment, many of them are
technical issues. However, the deep pockets of the telco’s and the
comparatively lower infrastructure investment required to deliver
DSL services, will play a prominent role in who wins the battle for
the broadband subscriber. In addition, our comparison includes
residential and business subscribers, and copper penetration to the
business enables DSL to approach a broader total available market.
DSL modems and cable modems are the key customer premise
equipment enabling deployment of broadband services. Cahners
In-Stat Group expects DSL to enjoy strong growth over the next
few years.
Broadband DSL services grew substantially on a worldwide basis
during 2000 compared to 1999 particularly in Asia with
approximately 1,800,000 new DSL subscribers. There were many
contributing factors that produced the big broadband surge over
the last eighteen months. Cahners In-Stat examines not only the
exponential growth of DSL service, but reviews the activity driving
the deployment of DSL chips shipped for broadband modems,
Integrated Access Devices (IADs) and Digital Subscriber Line
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
23
Access Multiplexer) DSLAMS around the world. The correlation
between DSL equipment manufactured, both Central Office and
CPE, chips shipped for DSL equipment, and the final year-end
installed DSL subscriber numbers are all taken into consideration.
Our analysis provides the reader with a comparison of the ground
covered by DSL implementation to date and a sense of where DSL
is going from here.
The market for DSLAM units is expected to grow considerably over
the forecast period, but not as briskly as subscribers. In the US, a
good amount of infrastructure has already been rolled out, waiting
for subscribers – so as subscribers continue to come on line, units
already in the field will merely be used up. Additionally, service
providers have called upon DSLAM manufacturers to increase
density on a per unit basis. Port densities will increase, naturally
allowing for more subscribers per box, yielding higher growth rates
for subscribers vs. DSLAM units.
Additionally, Cahners In-Stat Group reviewed the data reflecting
the number of chips shipped worldwide during 2000 to DSL
equipment manufacturers. The total worldwide chip production of
47 million was slightly more than twice the 21.6 million combined
ports of DSLAM, CPE Modem, and IAD equipment shipped. To
look at it another way, there were a total of 3.45 million new DSL
subscribers worldwide in 2000 compared to 7.2 million CPE ports
shipped, making the total CPE ports twice the amount of new
subscribers installed during the year.
This being the case, there is in all probability a bit of inventory still
out there that will cause new orders, and hence shipments, to
continue to be soft for at least another quarter. The following
graphs depict equipment and semiconductor consumed for XDSL
and DSLAM segments.
24
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Figure 11. XDSL Equipment & Semis – 2001 vs. 2004
$3,500
$3.24 Billion
$3,000
Semis as a % of xDSL
equipment diminish
over time as ASPs
continually erode
In Millions
$2,500
$2,000
XDSL Units
XDSL ICs
$1,500
$1,000
$1.15 Billion
$1.10 Billion
$673 Million
$500
$0
2001
2004
Source: In-Stat
Figure 12. Cable Equipment & Semis – 2001 vs. 2004
$1.2 Billion
Comprising a
very high
percentage of
the total value,
semis are worth
about 79% of the
value in this
segment
$1.6 Billion
$1.3 Billion
$952 Million
2001
Source: In-Stat
2004
Cable Units
Cable ICs
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
25
Factors impacting the growth of the worldwide cable modem
market include:
Slow but steady worldwide growth of cable TV subscribers – at an
average of about 5% per year through 2004. Most of this
worldwide growth will come from China.
The high cost of cable broadband data service will also continue to
be a factor. As an example, Internet usage in Europe is charged by
the hour. Unlike in North America, local calls are not free.
However, the cable operator may subsidize some of these costs in
the future.
Local and National telecommunications preference for telephone
line-based broadband service also impacts this market. In some
countries, like Italy and Portugal, most of the cable infrastructure is
owned by the incumbent telephone company that is a state
monopoly. For the most part, these telcos are more interested in
pushing other broadband services like DSL.
And finally, fragmentation makes an impact. In many countries,
especially in Asia and Latin America, cable service is divided
between many “mom and pop” cable operators.
This
fragmentation denies many areas the economies of scale needed to
introduce broadband cable data services. This is especially true in
Southeast Asia and parts of Latin America.
Even so, worldwide cable modem subscriptions will increase from
6.7 million at the end of 2000 to over 26 million by the end of 2004.
During the same period, worldwide revenues from cable modem
services will increase from $3.1 billion in 2000 to over $10.8 billion
by 2004.
DSLAM
DSLAMs (Digital Subscriber Line Access Multiplexers) are the
central office link in the DSL chain. They aggregate a multitude of
DSL lines into a multiplexing unit and send the traffic on through
the network via either ATM or Frame Relay. DSLAM growth will
shadow the growth of DSL modems, as service providers provision
DSL services.
Several changes will affect the DSLAM market. First, the market is
shifting to allow for multiple types of DSL in a single unit. This
26
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
means that as providers vary their service offerings, they will not
need to purchase separate units. Likewise, these units can be
stacked and daisy-chained with existing equipment, meaning an
add-on is all that is necessary.
The DSLAM market will also benefit from changes in the way a
provider’s business is conducted. Rather than simply co-locating in
the incumbent’s central office, providers are beginning to locate
DSLAMs in basements of hotels, apartment buildings and office
spaces. As the unit itself becomes more weather-hardened, it may
not be unusual to find a DSLAM on a telephone pole. Expanding
the addressable market in this manner means increased subscribers
for service providers and good times ahead for manufacturers of
equipment.
Cable Headends
An Entire Cable TV System includes all of the headends that are
operated by the Cable TV operating organization. For very large
systems, there may be up to a dozen or more headends that are all
connected to one Primary Headend.
Why does a single Cable TV system have multiple headends? As
the industry consolidates, major Cable TV MSOs strive to create
clusters of systems that serve major metropolitan areas. As larger
Cable TV MSOs buy up the assets of smaller local Cable systems,
the main “cluster” system ends up having more than one headend.
The Primary Headend is the one that has been designated to be the
most important one in the multiple headend system. Usually, the
Primary Headend houses the most modern Cable TV plant
equipment, along with the Cable TV system's business office. The
billing system and subscriber authorization computers are usually
also part of the Primary Headend.
As can be seen in the data table, Cable headends consume
semiconductors at a fairly stable rate. Semiconductor content for
equipment in headends (above what has already been accounted
for in the form of monitors and receiving boxes) will account for
about $300 million by 2004.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
27
Figure 13. DSLAM and Semis – 2001 vs. 2004
$1,400
$1,200
While the market for
DSLAM Equipment
declines in dollar terms,
ASPs per box also
decrease even though
unit densities increase.
Dollar growth for both
the equipment and the
semis are flat over the
forecast period.
$1.203 Billion
In Millions
$1,000
$1.041 Billion
$800
DSLAM Equip.
DSLAM Semi
$600
$532 Million
$537 Million
$400
$200
Source: In-
Stat
$0
2001
2004
Figure 14. Cable Headend & Semis – 2001 vs. 2004
$1.176 Billion
$1.023 Billion
Cable Headend
Semis hang in there
at about 25% of the
total value for both
2001 and 2004
$300 Million
$250 Million
2001
2004
Cable Headend
28
CH ICs
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Source: In-Stat
Telecom Equipment – Switches & Optical
While In-Stat has not traditionally had a specific focus upon
Central Office Switches in the traditional telecom equipment
market, we were able to arrive at a solid estimate of the IC value for
switches based upon the number of lines that are currently
deployed, and those expected for 2004.
In the world of optical networking, we are well ensconced.
The Internet Service Provider (ISP)-driven, e-commerce economy,
with its hunger for speed and data, has given rise to new network
architecture. Gone are the days when a business, be it big or small,
will require a phone network for voice applications alone. Optical
networks are the solution for the New World business strategy, and
Dense Wave Division Multiplexing (DWDM) systems are the
required, capacity-enabling applications.
DWDM
systems
transmit
multiple
light
wavelengths
simultaneously over the same fiber thread, drastically increasing
the number of transmissions that can be carried over the fiber
thread. DWDM systems are also protocol-independent and have
the ability to carry IP, ATM, SONET, etc., while still offering
Quality of Service (QoS).
The optical network, and DWDM systems in particular, has found
market penetration within the carrier backbone infrastructure and
ring architecture environments.
The optical network consists of much peripheral and
complementary technology. Just like the copper wire based
systems of old, optical networks require repeaters/regenerators to
strengthen a light signal periodically.
A limiting factor in the all-optical network is that of the opticalelectrical interface and the developing photonic switch technology
advances. Currently, all network traffic is routed or switched by
network processors that read the packet or cell headers in electrical
form; therefore, all optical traffic must be converted to its electrical
equivalent for the decision process. Photonic switching technology
will eventually allow the decision process to take place in light
form increasing the speed and efficiency of the network.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
29
At any rate, In-Stat feels that the opportunities for optical
component manufacturers are numerous and lucrative and that
optical networking, especially DWDM -- since DWDM systems are
strong capacity-multipliers, in effect turning each optical fiber into
many data channels -- are truly technologies that will enable the
bandwidth that we need, moving forward.
For 2001, Cahners In-Stat Group expects moderate growth in
optical networking systems, with better growth numbers for 2002
through 2004, as long-haul markets begin recovering in the third
quarter of 2001.
Figure 15. Optical Networking Equipment & Semis – 2001 vs.
2004
$60,000
$50,000
$52 Billion
In Milions
$40,000
$30,000
$29.8 Billion
Semis inch up from
25% of total
Equipment value in
2001 to 27% by 2004.
Growth won't be
extremely overheated,
but will be very solid
Optical Equip
Optical Semis
$20,000
$13 Biilion
$10,000
$7.45 Billion
$0
2001
2004
Source: In-Stat
30
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Cellular Handsets/Terminals
There have been a number of factors that have led to the reduction
in handset sales levels for 2001. While the current economic
situations are certainly impacting many of the world’s electronic
sectors, this particular segment may also be suffering from a lack of
advanced devices and features (i.e. PDA-functionality, GPRS and
UMTS). Much-awaited features have not been delivered in a
timely manner, and a growing number of consumers are becoming
indifferent to more "me-too" products. Currently, manufacturers
appear to be unable (or unwilling) to produce state-of-the-art
multifunction, multi-band, data-enabled handsets at the required
price and quantity.
While growth will continue on in the larger, industrialized nations
at a solid, steady pace, growth in the emerging nations, especially
Brazil, China and Eastern Europe, is accelerating very rapidly, as
significant cellular deployments are made.
Cahners In-Stat Group does not expect to see a dramatic shift from
2G to 3G within this forecast period. Today’s 2G based (including
2.5G+) service will actually peak in early 2005, with many 2G
systems remaining in use beyond 2010. While the growth rates may
not appear sustainable to some, they have been predicated on the
ability of wireless to supplant wire-line as the preferred voice
media. However, we do not believe that there will be sufficient
incentive in this forecast period for wireless to make significant
progress in displacing the more traditional data schemes.
Having said that, however, we do believe that 2.5G+ service will
continue to drive subscriber rates, and in fact, will make the
wireless handset the most pervasive method of accessing the
Internet within the next two years. The only negative factor that is
possibly stalking the industry is the ability to obtain a steady
supply of components for advanced handsets. Component
manufacturers, especially the semiconductor and display
manufacturers, will be hard-pressed to keep up with demand,
especially as dual and triple-mode handsets with PDAfunctionality come into vogue.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
31
For component manufacturers, all of these trends will point to more
growth, more products, and more opportunities for innovation.
Overall semiconductor revenue from handsets will grow at a
compounded annual growth rate of 27% through 2004. This
translates into a total revenue of nearly $32 billion. But the above
trends also indicate that the future will entail some challenges.
While past handsets have generally contained roughly the same
type of components, future handset content will be much more
diverse, opening the way for new players in the market, and
making the handset component market a very interesting one, to
say the least.
Figure 16. Cellular Handsets & Semis – 2001 vs. 2004
$140,000
$120,000
$123 Million
In Millions
$100,000
But never fear. Long
term growth is a given - by 2004 handset
semis will comprise
25.8% of equipment
value
$80,000
$60,000
$67 Million
Handset Rev
Handset Semi
All good things will
slow this year as semi
$s in handsets decline
$40,000
$31.7 Million
$20,000
$13.3 Million
$0
2001
2004
Source: In-Stat
Cellular Base Stations
Deployment of Cellular Base Stations will see a nice, steady
increase during the forecast period of 2001 through 2004.
The infrastructure market is entering a very pivotal time in its
history. In one respect, infrastructure expansion is slowing down
a bit in the US, Europe and Japan since most major markets have
most of the coverage they need. On the other hand, the number of
worldwide subscribers continues to grow at a fast clip,
infrastructure continues to build in ROW, and the industry
continues to anticipate the migration to 3G.
32
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Carriers face tough choices that will have a large impact on their
future infrastructure needs. In Europe, GPRS is emerging as the
step technology of choice bridging the gap between GSM and WCDMA. In Asia, networks are reaching capacity and the move to
3G is a necessity more then just an option. In the United States,
with its three different air interfaces, carriers must not only decide
if they will go to 3G, but pick from a variety of migration paths as
well. Frequency allocation as well as technology questions remain.
Despite some of these uncertainties, the infrastructure market
continues to grow, and with it, the base transceiver station (BTS)
semiconductor market follows. All types of base transceiver station
semiconductor revenue are showing growth over the forecast
period, with the exception being PDC. Overall, the CAGR for all
types of BTS semiconductors is forecast to be 8.2%.
Costs for BTSs range greatly, from under $30K to well over $250K,
depending on how many RF channels are supported and what air
interface technology or technologies are supported. This price
range does not include a base station controller, towers/antennas,
shelter, land, and site work.
Base transceiver station semiconductor revenue is a multi-billion
dollar industry. In 2001, BTS semiconductor revenue was over $4.5
billion. In 2004, this figure will rise to almost $6 billion. Of this, the
power amplifier section accounts for the largest revenue, with radio
front-end, modulation, demodulation, and signal processing
following behind.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
33
Figure 17. Cellular Base Station Semiconductors
$5.7 Billion
$4.5 Billion
Not able to clearly
determine an
"average" cost of
Cellular Basestations
because of the wide
variance in cost, we
based our semi
estimates on the
number of channels.
2001
2004
BTS Semis
Source: In-Stat
34
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
And, Finally, the Numbers
The following table lays out In-Stat’s estimates and forecasts for
key communications market segments.
Please note that
semiconductor content as a percentage of equipment revenues is
expected to increase from a current level of about 20% to over 23%
by 2004. This is a substantial increase as, overall, this type of
percentage analysis has remained fairly static over a number of
years.
The percentage accounted for by semiconductors in
equipment for 2001 will be smaller than would normally be the
case due to rather substantial price attrition in the current climate.
Please note that the IC values for Cellular Base Stations and CO
Switches were backed out of the total IC value vs. Equipment value
comparison because we were unable to arrive at solid total
equipment dollar values for those two segments. The costs for
these infrastructure pieces can vary greatly, and we felt that adding
an estimate would skew the semi $ content percentage. We arrived
at the semi $ value for these two segments based on number of
lines deployed at the CO level, and number of channels deployed
for base stations.
The total switch number that appears in the table is comprised of
ATM WAN, ATM LAN, LAN packet, and Frame Relay switch
types.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
35
Table 5.
Dollar Value for Key Comm Segments for Equipment and
Semis – 2001 versus 2004 (Dollars in Millions)
Cellular
2001
2004
CAGR '01-'04
Handset Revenue
$67,150
$122,714
22.3%
Handset Semi $
$13,256
$31,678
27.3%
Semi % of Equip
19.7%
25.8%
BTS Semis
$4,507
$5,705
8.2%
Broadband
2001
2004
XDSL Equip
$1,083
$2,245
CAGR '01-'04
27.5%
XDSL Semis
$673
$1,154
19.7%
Semi % of Equip
62.1%
51.4%
Cable Modems
$1,205
$1,610
10.1%
$952
$1,295
10.8%
79.0%
80.4%
Cable Semis
Semi % of Equip
Other BB
2001
2004
DSLAM Equip
$1,203
$1,041
-4.7%
DSLAM Semis
$532
$537
0.3%
Semi % of Equip
44.2%
51.6%
Cable Headend
$1,023
$1,176
4.8%
CH Semis
Semi % of Equip
$250
24.4%
$300
25.5%
6.3%
Telecom
CAGR '01-'04
2001
2004
Switch Semis
$3,904
$4,906
7.9%
Optical Equip
$29,800
$52,376
20.70%
$7,450
25.0%
$13,125
25.1%
20.80%
Networking
2001
2004
Hubs
$661
$51
-57.4%
$33
$3
55.0%
5.0%
4.9%
$21,889
$32,957
14.6%
$2,689
$4,605
19.6%
Optical Semis
Semi % of Equip
Hub Semis
Semi % of Equip
Switches
Switch Semis
Semi % of Equip
CAGR '01-'04
CAGR '01-'04
12.3%
14.0%
$14,400
$26,700
22.9%
Router Semis
$1,900
$3,600
23.7%
Semi % of Equip
13.2%
13.5%
Total Networking Equip
$36,950
$59,708
17.3%
Total Networking Semis
Semi % of Equip
$4,622
12.5%
$8,208
13.7%
21.1%
2001
2004
$138,414
$240,870
20.3%
$27,735
$56,297
26.6%
20.0%
23.4%
Routers
Total Equipment
Total Key Segment Equipment
Sub-Total Semi Value
Semi % of Equip
No Equipment Numbers
2001
2004
Telecom Switch Semis
$3,904
$4,906
Base Station Semis
$4,507
$5,705
2001
2004
$36,146
$66,908
Total Semi Value
CAGR '01-'04
CAGR '01-'04
7.9%
8.2%
CAGR '01-'04
22.8%
Source: Cahners In-Stat Group
36
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
Summary – Time to Rethink a Few Things
In summary, the opportunities for communications semiconductor
suppliers are almost limitless, providing you have the right
product, at the right time.
Semiconductors in future
communications systems or products, will take two forms and in
large part, these forms will be very dependent upon their final
destination. The infrastructure, in many cases, will continue to
require highly integrated, high performance (bandwidth), relatively
high-cost solutions. Mass market access devices, whether they be
handsets, PDAs or set top boxes will continue to require lower cost
solutions. This opens the door to virtually any supplier of
semiconductor products, regardless of their position in the
technology supply chain.
And just when we thought we were hitting up on our physical
bandwidth limitations, along comes the commercial viability of
optical networking. The vast amount of information that is zipping
around today’s world, will find a quicker and more efficient route
on the optical pathways being built-out as this is being written.
This will become a crucial piece of any semiconductor reporting
structure that will effectively allow us to know and understand the
worldwide communications infrastructure.
It is In-Stat’s belief that, as members of the worldwide
semiconductor industry, we have reached a point where we must
re-evaluate the manner in which we present data. We will
continue, on a macro level, to adhere to the findings of the
SIA/WSTS. This is necessary in order to be comparing apples to
apples with the rest of the industry when we issue our
semiconductor forecasts. We do, however, find it increasingly
difficult to present plausible segment forecasts for semiconductors
when we are fairly certain that there is a substantial variance
between what is being reported at the chip level and what is being
reported by end equipment associations. Further exacerbating the
problem is the fact that the variance is becoming larger over time.
Putting together a “total” communications forecast has indeed been
a very insightful exercise for all involved here at In-Stat. We hope
that the data contained here is enlightening and helpful in the
increasingly complex task of accounting for and forecasting the
world’s electronic components. As always, we welcome your
input.
© 2001 Cahners In-Stat Group – EA0104MF – Confidential
37