Www. Electronics Market Outlook September 2003

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  • Electronics Market OutlookSeptember 2003

  • Agenda

    About In-Stat/MDREconomic Conditions Demand Drivers & Application SegmentsRegional IssuesSemiconductor Industry

  • About In-Stat/MDRThe leading provider of research, assessment and market forecasts of semiconductors and advanced communications equipment and services.

    A member of the Reed Electronics Group.

  • The Wireless Value ChainSemiconductor /

  • Worldwide GDP Growth

  • Worldwide Electronics Market (US$ in Billions)









    Total Electronics Market










    Total Electronics Market11850135631217212530133711431115074











  • US$ in BillionsDistribution of IT Spending in the US Market by Size of Business, 2003IT SpendingUS Business Market

  • N = 854% of RespondentsQuestion: Which factors have significantly impacted your IT spending in the last 12 months?Factors Impacting IT SpendingDistribution of Responses by Size of Business

  • Constrained Worldwide Carrier CapEx In-Stat/MDR forecasts CapEx decline of 7% in 2003 Decline primarily due to heavy debt load and weak economy Forecasting weak market rebound in 2004, with 2% growth

  • IP Services Growing Worldwide Worldwide IP Services grow 40% in 2003 and 34% in 2004 Hosting (Web, Application, Storage) represents largest IP service Highest growth IP services are VoIP and IP VPN$0$10$20$30$40$50$60200220032004OtherContent DeliveryUnified MessagingIP VPNsVoIPHostingUS$ BillionsSource: In-Stat/MDR, 02/03

  • Computer MarketPC units experiencing single digit CAGRPC ASP has dropped to about $1,200Most users have more than enough powerMany users want new featuresBusiness replacement cycle 2H 2003

    47% of Semiconductor consumption

  • LAN Priorities 2003

  • Worldwide DSL Growth Remains Strong010,00020,00030,00040,00050,00060,00070,00080,000200220032004ROW (MEA, SA)Asia PacificEuropeN. AmericaLines in ThousandsSource: In-Stat/MDR, 02/03 Worldwide DSL subs grow 47% in 2003 and 37% in 2004 S. Korea has highest installed lines in Asia, but growth favors China and Japan US still lags rest of the world in growth due to regulatory uncertainty

  • Worldwide Wireless Market UpdateMajor demand drivers: Mobile communications & the InternetThe combination will be the major driver for this decade.More than $100B spent for 3G licenses. Billions more required for infrastructure hardware.Mobile text messaging is truly a Killer App, with over 100 million messages per day being sent. Western Europe closed 2002: 77.2% penetration, AND 7.2% annual growth! AsiaPac has 13% penetration and 31.5% annual growth rate.China 206.6M subscribers end 2002. Fourth quarter growth was almost 6.7 million net new adds.India next major growth market, 1% penetration and 91% annual growth rate. (700k new subscribers / quarter!)

  • Hot Spots & WLAN

  • Worldwide Wireless ChipsetsComponent manufacturers continue to embrace cellular technology and 802.11. Intel major push via Centrino family, supported by $300 million advertising spend over 3 months.In 2000, 4 companies making WLAN chipsets; 2003, more than 35 25, while ASPs dropped from ~$30 to ~$6.(All Revenue in US$M)200120022003200420052006Total WLAN Chipsets RevenueTotal All Chipsets$229.9$403.9$421.7$527.4$575.2$566.8% Change75.7%4.4%25.1%9.1%-1.5%Total Cellular Base Station Chipsets RevenueTotal All Chipsets$2,587$2,483$2,161$2,044$1,698$1,414% Change-4.0%-13.0%-5.4%-16.9%-16.7%Total Handset Chipsets RevenueTotal All Chipsets$19,975$19,948$18,491$19,169$18,890$18,464% Change-0.1%-7.3%3.7%-1.5%-2.2%Source: In-Stat/MDR

  • State of Consumer EquipmentGrowing OpportunitiesDVI/HDMI-enabled devices: over 200% CAGR 2002 2006Digital Imaging: image sensor market growing over 23% per year through 2006, with cameras in mobile phones driving the marketUSB-enabled devices to rise 18% CAGR through 2007Integrated DTV sets will grow 61% CAGR due to FCC mandatePVR unit shipments to double in 2003 to 3M units, then again double in 2004PDAs to see 18% CAGR 2002-2007, strategies to grow market include device variety, pricing, multimedia, and connectivity

  • State of Consumer EquipmentSlowing/Declining SegmentsDVD growth has slowed as market maturesSmart Displays slow getting off the ground in 2003 too expensiveSmart appliances, although appearing in greater numbers, will have slow adoption due to pricing, broadband and home networking penetration ratesDecline in maturing DBS set top box market; stability for digital cable set top boxesNascent MarketsNetwork-ready DVD Players will begin to appear in late 2003, portend a huge market for consumers with broadband Internet services, especially those with Cable Modem or DSL service to their networked home PC

  • Consumer Product Growth-50100150200250200120022003200420052006Video GameConsolesDVD Players &RecordersPVRs (Stand-Alone)DTT STBsIP/DSL STBsDBS STBsCable STBsM UnitsSource: In-Stat/MDR, 6/03

  • Home Networking/Digital Domicile $-$1,000,000$2,000,000$3,000,000$4,000,000$5,000,000$6,000,000200220032004200520062007Worldwide Home Networking Revenues by Product Segment (US$K) Includes: Media Networks, Residential Gateways, Infrastructure, NICs/LOM

  • Other MarketsAutomotiveSteady end product unit volumesIncreased electronic contentOnly 7% of total semiconductor market

    Industrial & MilitaryUnder 10% of total semiconductor marketDeclining, with some recent stabilizationHighly fragmented

  • Semiconductor MarketsNo new killer apps, no new $XX billion semi markets.1970s - Mainframe1980s - Mini Computerearly 1990s - PC / Weblate 1990s - Mobile Phone / Communications2000s - ?????Recovery will depend on a wide range of end products.

  • Regional GDP Growth-4%-2%0%2%4%6%8%10%19931994199519961997199819992000200120022003*2004*United StatesEuropean UnionJapanAsian TigersAsia Developing

  • Semiconductors - Consumption

  • Regional ShiftsAmericas, once first is now last as end product manufacture moved from US (and Mexico) to China.Western Europe expected to decline next, but more slowly due to social structure.Long term SARS impact? Too soon to tell

    Everything moves toward the lowest cost

  • Semiconductor Revenue

  • Semiconductor Unit Shipments

  • Semiconductor ASP

  • Since the Crash - Unit shipments have grown from their pre run-up levelsAverage Selling Price has further declinedRevenue has returned to pre 1999 levels

    The primary cause of todays semiconductor revenue problem is NOT demand, it is over-capacity

  • Capacity OutlookCommoditization of the CMOS processSpeculative foundry fab building to capture market shareCommoditization of the design process has also begun - ODMs

    DRAM revenue peaked at $40B in 1995 and was $16B in 2002. Revenue now tracks ASP.

    What happens to commodities?

  • Implications for Semis overallDemand will continue to increase, although the rate of growth may slow. Price will become more volatile as semi industry becomes more commoditized and over-capacity becomes more prevalentRevenue will increase, but slowly, and with more short term perturbationsProfitability will decline

  • Semiconductor Forecast

  • SummaryWorldwide economy remains uncertain, but 2H 2003 remains poised for stronger growth.In the Electronics and Semiconductor Industries, prices are under strong downward pressures which is limiting revenue growth despite respectable growth in unit shipments.Consumer products, Handsets, and select LAN products are showing the strongest growth.Telecommunications infrastructure capex remains weak through 2003 and 2004.

  • In-Stat/MDR is the result of the mergers of three firms (In-Stat, BRG, MDR)

    Summary: We cover - Semiconductor & End productsSupply & demandMarket & TechnologyThe material in this presentation comes from In-Stat/MDR research in these areas.

    Our unique research methodology combines supply-side and demand-side research.We examine each segment of the value chain to correlate the industries most accurate forecasts and market assessments. More uncertainty than usual

    2003 economic forecasts continue to change - many downward, but optimism for the second half is increasing

    At the pessimistic end, Morgan Stanley recently dropped their forecast for 2003 to 2.4% which would make a double dip recession. They think as low as 2.0% is possible.

    SARS has impacted GDP growth

    The worldwide electronics market actually contracted in 2001 by about 10% -- a pretty radical decrease by any comparison, especially for a market that typically stays within the 5 to 7% growth range. As with many market segments, the 2000 growth rate for this large piece of the worlds economy actually increased substantially at about 14%. We saw a very moderate increase in 2002 of about 3%, followed by a resumption of more normal growth rates in 2003, 04 and 05 of between 5 and 7%.

    IT spending. Slower growth, but increasing. This is US market only (but US is 20% of the world economy)

    The key point here is that much of the IT spending plans are for upgrades to existing things which often means software spend rather than hardware.

    These were the actual questions askedQ21 and 22 combined 21. Are any of the following contributing to your