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Electronics Market OutlookSeptember 2003
September 2003
Agenda
About In-Stat/MDR
Economic Conditions
Demand Drivers & Application Segments
Regional Issues
Semiconductor Industry
September 2003
About In-Stat/MDR
The leading provider of research, assessment and market forecasts of semiconductors and advanced communications equipment and services.
A member of the Reed Electronics Group.
September 2003
Multimedia
Wireless
BroadbandCores of Expertise
Semiconductor Markets & Technology
US Business Segmentation & Verticals
Projections & Outlook
Semiconductor
Consumer & Residential Networking
Service Provider Networks
Business & Residential Networks
September 2003
$-
$20,000
$40,000
2001
Wireless Infrastructure ($M)
$-
$40,000
$80,000
2001
Wireless Handsets ($M)
$-
$15,000
$30,000
$45,000
2001
Wireless Services ($M)
Other
Basic
Voice Services
$-
$20,000
$40,000
2001
US Business Wireless Spending ($M)
Enterprise
Medium
Small
SOHO$-
$10,000
$20,000
2001
Wireless Semiconductors ($M))
Base Stations
Handsets
The Wireless Value Chain
Semiconductor /Services/Content
Client Equipment
InfrastructureTechnology End Users
September 2003
Worldwide GDP Growth
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
1990 1992 1994 1996 1998 2000 2002 2004* 2006*
September 2003
Worldwide Electronics Market
$1,185
$1,356
$1,217 $1,253$1,337
$1,431$1,507
0
2000
4000
6000
8000
10000
12000
14000
16000
1999 2000 2001 2002 2003 2004 2005
(US$ in Billions)
September 2003
8%
46%
31%
15%
Enterprise
Middle Market
Small Businesses
SOHO Businesses
US
$ in
Bill
ion
sDistribution of IT Spending in the US Market
by Size of Business, 2003
200620052004200320022001
$476.7 $492.4
$584.1$564.2
$538.2$512.8
$0.0
$200.0
$400.0
$600.0
IT Spending
US Business Market
September 2003
Noneselected
Putting internalapplications
on Web
Connectingremote or
mobileworkers
Conductingtransactions or
customerservice online
Increasedtelecom orbroadband
requirements
Upgradinginternal
applications
UpgradingLANs
57%54%
41%
20%
29%32%32%
0%
20%
40%
60%
80%
N = 854
% o
f R
esp
on
de
nts
Question: Which factors have significantly impacted your IT
spending in the last 12 months?
58%
14%28% Small Business
Mid-sized Business
Enterprise
Factors Impacting IT SpendingDistribution of Responses by Size of Business
September 2003
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
$310$280
$205$191 $195
$0
$50
$100
$150
$200
$250
$300
$350
2000 2001 2002 2003 2004
US$ Billions
Source: In-Stat/MDR, 05/03
September 2003
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
$60
2002 2003 2004
Other
Content Delivery
Unified Messaging
IP VPNs
VoIP
Hosting
US$ Billions
Source: In-Stat/MDR, 02/03
September 2003
Computer Market
PC units experiencing single digit CAGR
PC ASP has dropped to about $1,200
Most users have more than enough power
Many users want new features
Business replacement cycle 2H 2003
US- Computers & Related Products Bookings/Billings
(Three Month Average)
0
2000
4000
6000
8000
10000
12000
BO
OK
ING
S A
ND
BIL
LIN
GS
(Millio
ns)
0.80
0.90
1.00
1.10
1.20
1.30
1.40
1.50
1.60
1.70
1.80
1.90
2.00
Bo
ok
to B
ill
Ra
tio
BOOK TO BILL RATIO
SALES
ORDERS
47% of Semiconductor consumption
September 2003
LAN Priorities 2003In Q2 2003, on which, if any, of the following LAN technologies will your budget for LAN equipment and services be spent? (Please select all that apply; n=443)
15%
42%
30%
13%
19%
24%
36%
42%
8%
3%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Switches
Security
Storage
Services
NICs
WLAN
LAN telephony
Videoconferencing
Other
None/Don't know
Source: In-Stat/MDR, 3/03
September 2003
Worldwide DSL Growth Remains Strong
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2002 2003 2004
ROW (MEA, SA)
Asia Pacific
Europe
N. America
Lines in Thousands
Source: 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
September 2003
Worldwide Wireless Market UpdateMajor demand drivers:
Mobile communications & the Internet The combination will be the major driver for this decade.
More than $100B spent for 3G licenses. Billions more required for infrastructure hardware.
Mobile text messaging is truly a “Killer App,” with over 100 million messages per day being sent. Western Europe closed 2002: 77.2% penetration, AND 7.2% annual growth! AsiaPac has 13% penetration and 31.5% annual growth rate.
China 206.6M subscribers end 2002. Fourth quarter growth was almost 6.7 million net new adds.
India next major growth market, 1% penetration and 91% annual growth rate. (700k new subscribers / quarter!)
September 2003
Hot Spots & WLAN
0
50
100
150
200
250
2002 2003 2004 2005 2006 2007
Lo
ca
tio
ns
(K
) &
Co
nn
ec
ts (
M)
Aggregate Worldwide Deployments (K)
Worldwide Connects/Year (M)
September 2003
(All Revenue in US$M) 2001 2002 2003 2004 2005 2006Total WLAN Chipsets Revenue
Total All Chipsets $229.9 $403.9 $421.7 $527.4 $575.2 $566.8% Change 75.7% 4.4% 25.1% 9.1% -1.5%
Total Cellular Base Station Chipsets Revenue
Total 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 Revenue
Total 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%
Component 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.
Worldwide Wireless ChipsetsSource: In-Stat/MDR
September 2003
State of Consumer Equipment• Growing Opportunities
• DVI/HDMI-enabled devices: over 200% CAGR 2002 – 2006
• Digital Imaging: image sensor market growing over 23% per year through 2006, with cameras in mobile phones driving the market
• USB-enabled devices to rise 18% CAGR through 2007
• Integrated DTV sets will grow 61% CAGR due to FCC mandate
• PVR unit shipments to double in 2003 to 3M units, then again double in 2004
• PDAs to see 18% CAGR 2002-2007, strategies to grow market include device variety, pricing, multimedia, and connectivity
September 2003
State of Consumer Equipment• Slowing/Declining Segments
• DVD growth has slowed as market matures
• Smart Displays slow getting off the ground in 2003 – too expensive
• Smart appliances, although appearing in greater numbers, will have slow adoption due to pricing, broadband and home networking penetration rates
• Decline in maturing DBS set top box market; stability for digital cable set top boxes
• Nascent Markets
• Network-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
September 2003
Consumer Product Growth
-
50
100
150
200
250
2001 2002 2003 2004 2005 2006
Video GameConsolesDVD Players &Recorders
PVRs (Stand-Alone)
DTT STBs
IP/DSL STBs
DBS STBs
Cable STBs
M Units
Source: In-Stat/MDR, 6/03
September 2003
Home Networking/Digital Domicile
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
2002 2003 2004 2005 2006 2007
Worldwide Home Networking Revenues by Product Segment (US$K)
Includes: Media Networks, Residential Gateways, Infrastructure, NICs/LOM
September 2003
Other Markets
Automotive Steady end product unit volumes Increased electronic content Only 7% of total semiconductor market
Industrial & Military Under 10% of total semiconductor market Declining, with some recent stabilization Highly fragmented
September 2003
Semiconductor Markets
No new killer apps, no new $XX billion semi markets. 1970s - Mainframe 1980s - Mini Computer early 1990s - PC / Web late 1990s - Mobile Phone / Communications 2000s - ?????
Recovery will depend on a wide range of end products.
September 2003
Regional GDP Growth
-4%
-2%
0%
2%
4%
6%
8%
10%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003*2004*
United States European Union Japan
Asian Tigers Asia Developing
September 2003
Semiconductors - Consumption
% of Semiconductor Sales by Region
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1Q1984 1Q1986 1Q1988 1Q1990 1Q1992 1Q1994 1Q1996 1Q1998 1Q2000 1Q2002
Americas Europe Japan Asia Pacific
September 2003
Regional Shifts
Americas, once first is now last as end product manufacture moved from US (and Mexico) to China.
Western Europe expected to decline next, but more slowly due to social structure.
Long term SARS impact? Too soon to tell
Everything moves toward the lowest cost
September 2003
Semiconductor Revenue
Quarterly Semiconductor Revenue (US$ in Billions)
0
10
20
30
40
50
60
1Q1996 1Q1997 1Q1998 1Q1999 1Q2000 1Q2001 1Q2002 1Q2003
Source: WSTS, In-Stat/ MDR
September 2003
Semiconductor Unit ShipmentsQuarterly Semiconductor Shipments (Billions of Units)
0
20
40
60
80
100
120
1Q1996 1Q1997 1Q1998 1Q1999 1Q2000 1Q2001 1Q2002 1Q2003
Source: WSTS, In-Stat/ MDR
September 2003
Semiconductor ASPQuarterly Semiconductor ASP
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1Q1996 1Q1997 1Q1998 1Q1999 1Q2000 1Q2001 1Q2002 1Q2003
Source: WSTS, In-Stat/ MDR
September 2003
Since the Crash -
Unit shipments have grown from their pre run-up levels
Average Selling Price has further declined
Revenue has returned to pre 1999 levels
The primary cause of today’s semiconductor revenue problem is NOT demand, it is over-capacity
September 2003
Capacity Outlook
Commoditization of the CMOS process
Speculative foundry fab building to capture market share
Commoditization 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?
September 2003
Implications for Semis overall
Demand 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
September 2003
Semiconductor Forecast
0
50
100
150
200
250
300
350
400
450
500
1998 1999 2000 2001 2002 2003* 2004* 2005* 2006* 2007*
Rev
enue
& U
nits
(Billion
s)
.
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
Agg
rega
te A
SP (U
S $
)
Total Revenue Total Units ASP
September 2003
Summary
Worldwide 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.
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