Display Standard - Veritas et Visus

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Veritas et Visus Display Standard February 2009 Innovation, partnership, and death: the new economics of HDTV semiconductors by Christian Prusia Christian R. Prusia is chairman of Display Insights, a multidisciplinary team that researches and consults within the HDTV semiconductor market. Prior to Display Insights, Mr. Prusia held numerous leadership positions within the consumer electronics industry; including positions at InFocus, Pixelworks, and Enuclia Semiconductor (where he was co-founder and CEO). Mr. Prusia earned a Master of Business Administration (MBA) from Willamette University's Atkinson School of Management as well as a B.A. from the University of Puget Sound. Both degrees include specialized concentrations within the area of quantitative and qualitative marketing research. Display Insights’ new report “Innovation, Partnership, and Death: The New Economics of HDTV Semiconductors” takes a detailed look at the costs and opportunities within HDTV semiconductors amid the 2009 global climate. The report includes company-specific analysis across 92 individual semiconductor manufacturers (50 privately held) including the leading silicon tuners, demodulators, MPEG processors, image processors, and interconnects (including wireless transceivers). Company-specific analysis includes: detailed block diagrams (120Hz, ultra-thin, MPEG-4); individual component pricing (ASPs), technology roadmaps; design wins; and positional forecasts. http://www.displayinsights.com Inundated with inventory, rapid price declines, bankruptcies and governmental bailouts, there is little debate that the worldwide semiconductor ecosystem is facing a challenging 2009. January opened with China’s largest chipmaker, Semiconductor Manufacturing International, structuring a government-backed infusion of $170 million combined with a larger than expected quarterly loss. Germany’s Qimonda followed by filing for bankruptcy and Korea’s Samsung Electronics reported its first-ever quarterly loss. Adding to the negative momentum, Japan’s Toshiba and NEC Electronics posted Q4 losses, followed by Pioneer Corp. announcing, it will get out of the TV business altogether while trimming 10,000 jobs. The severity of the global semiconductor market was described as “desperate”, by Daniel Heyler, head of global semiconductor research for Merrill Lynch in Hong Kong. 1 And Daniel is not alone in his opinion. In December, iSuppli announced semiconductor inventories would escalate by more than 250%, reaching $10.2 billion at the end of December, up from September’s $3.8 billion. This was followed by the Semiconductor Industry Association‘s February report that outlined global semiconductor sales declined by 16.6% across December, typically one of the strongest months for the industry. The SIA also reported total ’08 semiconductor sales were down 2.8% Y/Y, reaching only $248.6 billion compared to $255.6 billion in ’07. According to Gartner, economic pressures will continue throughout ‘09, with worldwide semiconductor revenues forecast to recede to $219.2 billion, a decrease of more than 11% Y/Y. Short-term impact: high inventories, price erosion, and general discomfort: The reduction in consumer electronics demand across Q4’08 and early Q1’09 has undoubtedly placed tremendous pressure on the average HDTV bill-of-materials (BOM). Yet price compression appeared most volatile across HDTV system memory manufacturers and the flat panel glass manufacturers themselves. This is due to the intense capital requirements both the memory and panel infrastructures necessitate, combined with their standardized production practices. 2 Industry insiders agree that memory and panel manufacturers experience fixed costs ranging between 75% and 85% respectively, so as consumer demand wavers, these manufacturers continue to flood the market in an effort to protect market share at the cost of fueling further price erosion. In contrast to the rapid declines across HDTV-related memories and panels, the average HDTV system semiconductor BOM has weathered the recent turmoil well. According to Display Insights, the average HDTV 96
Veritas et Visus Display Standard February 2009 semiconductor BOM was believed to be $51.07 in Q4’07 and decreased to $46.83 by Q4’08. 3 The Y/Y decrease yields a surprisingly healthy CAGR of -8.3% when compared to Display Insights’ previous estimate of -5.6% over the same period. Another measurement that suggests the HDTV semiconductor’s relative health is found in comparing LCD TV set retail pricing with the set’s respective semiconductor content pricing. A quick test can be performed by comparing the global LCD TV price decline of -13% Y/Y in contrast to that of the HDTV semiconductor price decline of -8.3%. 4 Yet a more compelling argument for the HDTV semiconductor’s resilience can be found in Figure 1. As seen, LCD TV retail set prices have been falling faster than HDTV semiconductor prices during the same period, regardless of screen size. 5 These finding are likely a welcome change for 90+ semiconductor companies worldwide focused on serving the HD market’s system subarchitectures. Figure 1: LCD TV set retail pricing vs. HDTV semiconductor pricing Long-term impact: innovation, partnership, and death: Regardless of its initial resilience, the global HDTV semiconductor ecosystem will be forced to restructure. Over the next two to three years, expect the ecosystem to shrink from today’s 90+ independent companies down to 20 to 30 companies comprised of three to five large companies (i.e. Mediatek, Samsung, etc.) that compete across all HD semiconductor segments, along with 2-3 independent specialist within each sub-category (i.e. tuners, demodulators, MPEG processors, image processors and interconnects (including wireless transceivers). This consolidation is a logical next step as the industry pushes to achieve a true single die ASIC. The challenges amid the global economy will likely accelerate the shakeout, especially among the memory manufacturers and the early stage venture-funded start-ups that have not reached or cannot maintain cash-flow break-even due to soft consumer demand and high inventory holds. So what HDTV semiconductor categories are most prone to consolidation? As seen in Figure 2, the primary architectural sub-categories contribute vastly different values across the HDTV system architecture. The largest system contributors are the MPEG processor and image processor; providing 39.6% and 36.9% respectively of the average HDTV semiconductor BOM. 35 unique companies tracked in Display Insights’ new report offer MPEG processors and 28 unique companies offer image processors. Although the relative number of companies within these two sub-categories is high, it was previously justified due to architectural value combined with the industry’s relative immaturity (i.e. pre-consolidation) when compared to the CRT system architecture. In contrast, the demodulator sub-category has more than 42 unique companies competing for HD-based design wins within a sub-category that occupies a modest 6.8% of the overall semiconductor BOM. A similar supply trend is visible within the silicon tuner space where Display Insights’ has identified 34 companies competing for 9.6% of the average HDTV semiconductor BOM. This large number of suppliers competing within the tuner and 97
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