Consumer Products Leading New Boom
By Jessica Davis -- Electronic News, 12/31/2003
After a year when consumer electronics stirred the industry's rise from the ashes following a multi-year economic downturn, the future looks bright for that segment and everyone wants a piece of the action.
From Intel placing a strong focus on the "Digital Home" at its Fall 2003 Intel Developers Forum in San Jose, to Dell Computer announcing its foray into the consumer electronics area with LCD TVs, MP3 players and even plans for a music download site, many electronics companies hedged their bets with chips in the consumer space.
Behemoth Intel is even expected to announce plans to make chips for the projection television market at the Consumer Electronics Show in Las Vegas in early January, shaking up that market and threatening Texas Instrument's stronghold there.
These companies recognize that consumer electronics sweet spot for the next up market.
"Consumer electronics will drive the next boom cycle," said Judy Estrin, chairman and CEO of Packet Design LLC and a former CTO of Cisco Systems, at a CTO roundtable at IDF in September. "Enterprise IT, which drove the last cycle, won't drive this one." And from the looks of it, the next boom cycle may already be under way.
The Semiconductor Industry Association is predicting a strong 2004, with cell phones expected to grow by 10 percent and digital cameras up 14 percent.
Analyst firm Semico, however, believes that the cell phone market has reached maturity but will still experience modest growth from the replacement market and consumers looking for new features.
Meanwhile, Semico believes other consumer devices will be in high demand in 2004. The company expects consumers to buy 40.2 million digital cameras in 2004, compared with 32.3 million in 2003.
But DVD players are the devices that are truly set for explosive growth in 2004, according to Semico, and big screen televisions will also be in high demand by consumers. Most industry watchers concur with this forecast.
"DVD recorders will be big, and they will be the last nail in the coffin for the VCR," Jim Feldhan, Semico president, said this fall in his annual forecast address. Semico predicts sales of 13.3 million DVD recorders in 2004, compared with just 3.5 million in 2003.
There are currently two market strategies among DVD recorder makers and the chipmakers that supply them, according to Terry Leeder, senior VP of sales and marketing for Cirrus Logic, a semiconductor maker that derives 85 percent of its revenues from consumer electronics. Those two strategies are the replacement VCR market and the market for DVD devices with "cool new features." Cirrus is one of many electronics companies making chips and reference designs for DVD OEMs.
Big screen televisions also made it to the top of everyone's wish list this holiday season.
"In televisions, it's clear that the consumer wants a larger screen and better quality pictures," Feldhan said. "Digital televisions are selling well, and the digital imaging market has been booming this year. Consumers are getting more sophisticated and adopting new technology faster than in the past."
Device manufacturers will combine old devices in new ways in 2004 to achieve some of the "cool new features" consumers are demanding. For example, many industry watchers expect the next hot product to be the combination DVD recorder/rewritable that also incorporates a hard disk drive. Such a device could function like a Tivo, or as an audio jukebox, allowing consumers to download music or load it from CDs and create their own customized play lists, and then burn chosen content to CDs or DVDs or download it to portable players such as iPods.
"We estimate that 30 percent of the DVD market is in the combination or combined devices market," said Jim Fox, director of marketing for LSI Logic. "It's a theme we will be addressing as a semiconductor company by offering combination products." LSI announced its second generation DVD recorder processor product in December and is planning further combination announcements at CES. By offering the functionality for two end devices on a single chip, companies reduce the cost of the end product, which then be passed down to consumers, creating a higher volume product.
Prices will drop for DVDR/RW in 2004, said Jeroen Keunen, general manager for consumer multimedia at Philips Electronics. These devices will go "way below $200" for Christmas 2004, he said.
Another new combination of consumer devices puts a television receiver into a cell phone, allowing consumers to keep up with a sports score while in a meeting, or pass the time watching television while standing in line.
In addition to combining devices in a single box, another big theme in consumer electronics during 2004 will be connecting all these devices via a wired or wireless network.
"Entertainment is the killer app for home networking," said Ron Vitale director of marketing for the consumer division of Dolby Laboratories Inc. "Maybe you want to watch a movie in a different room than where the DVD player is. And maybe you want to push only certain videos to the kids' rooms. There are so many things you can do with networked home entertainment."
Connecting it all is expected to get easier in 2004, too.
"You connect it all now, but it's very complicated," said Michelle Abraham, senior analyst for consumer electronics at In-Stat/MDR*. Abraham and other observers, including Cirrus's Leeder, and Texas Instruments' Dave Pahl, expect that to improve next year.
"Everyone is talking about how you connect these things and integrate them so they talk to each other," said Pahl, business manager for digital camera solutions at TI. "If you've ever set up a stereo system and connected all the wires, you know how important it is to simplify the process. If all these things talked to each other wirelessly, people would eat it up."
*In-Stat/MDR is owned by Reed Business Information, the parent company of Electronic News.
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