Didier Le Gall says C-Cube sold 5xs as many VCD chips in 1998, as they sold in 1996. They sold 6M units in 1996....................
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January 11, 1999, Issue: 1142
Section: News
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Wary chip makers at CES -- Worry over widespread commoditization, unsettled standards, self-sufficient OEMs
Mark Hachman
Las Vegas- As consumer-electronics OEMs proudly escorted their new products into the retail world last week at the Consumer Electronics Show here, semiconductor makers fretted anxiously in the wings.
With popular opinion beginning to cast the PC as a commodity product, chip vendors have turned to the consumer space as a high-margin safety net. However, these chip companies are finding themselves dependent on the directions OEMs must take, based on the demands of those OEMs' customers.
Like chip vendors, OEMs will design and deliver new products to the requirements of their customers, largely retailers. In turn, those OEMs will ask merchant chip vendors to tailor their 1999 product lineup-and revenue stream- around the new products.
Most OEMs chose to highlight few radical product directions at the show, with the theme of "convergence" between the PC and the TV put on hold, if not halted altogether. Instead, they focused on extensions of traditional products-a broader range of HDTV displays, for example, and additional functions added to DVD players.
Other companies, however, committed themselves to new-product roadmaps, backing up their commitments to emerging product standards. Philips Electronics, for instance, claimed it would deliver a DVD+RW rewritable optical drive next year; Pioneer Electronics also demonstrated a prototype of such a device.
Toshiba, Thomson Consumer Electronics, and Hitachi Home Electronics (America) likewise bucked the trend to downplay convergence by announcing plans to add DBS tuners supplied by DirectTV to future HDTV products.
In addition, some OEMs described several "bridge" products between analog and digital television, including digital-ready sets capable of displaying 540p and 1080i HDTV images; Philips and Sony Electronics also announced plans for HDTV set-top boxes in the second and third quarters of 1999.
"There's much more emphasis on connectivity," said Cees Jan Koomen, president and chief executive of Philips Consumer Electronics' Digital Video Group, Palo Alto, Calif. Philips' vision of interactive television for the next century is a family of products-loosely grouped together under the heading "Personal PC"-that initially will be produced in a partnership with TiVo Inc., a Silicon Valley start-up that has designed set-top boxes with hard drives that allow the user to "pause" live video broadcasts, storing them on disk.
Sony's MiniDisc took another step out of its European and Asian niches, winning more support as an audio storage standard from stereo manufacturers Clarion Sales, Alpine Electronics of America, and Pioneer.
However, OEMs drew battle lines between another pair of audio standards, similar to the debate between DVD-RAM and DVD+RW, the competing formats for rewritable DVD.
SuperCD, promoted by Sony and Philips, will compete with DVD-Audio, which is endorsed by most other consumer OEMs as the next-generation replacement for audio CDs.
Resembling the "enhanced CDs" offered by some recording labels, both formats would theoretically offer video and text in addition to high-quality, multichannel audio for home audio systems.
The high-value world of consumer electronics holds an additional catch for chip makers: OEMs in this arena may opt to use their own semiconductor design and production teams rather than source from third-party chip vendors, even though those vendors may offer a superior product.
And another thorn: Even an emerging market can quickly become a commodity.
"1996 was probably the first big year in [Video CD, primarily used in Asia]," said Didier J. Le Gall, vice president of research and development at C-Cube Microsystems Inc., Milpitas, Calif. "In 1998, we sold five times the number of VCD decoders sold in 1996, but at about a fifth of the price."
The consumer OEM product announcements were also made against a backdrop of financial malaise: Hitachi Ltd., Toshiba Corp., and Mitsubishi Electric Corp. all reported losses for the first half of their fiscal 1999. For the entire fiscal year, which ends in March, Hitachi forecasts a loss of $1.85 billion on sales of $58.3 billion; Mitsubishi estimates its loss will be about $784 million on revenue of $28.2 billion; and Toshiba expects to break even on projected revenue of $40.7 billion.
Furthermore, Hitachi is spinning off most of its manufacturing of consumer electronics, such as printers and audio and video products, into subsidiary operations, according to printed reports. Philips also continues its ongoing process of reducing its worldwide manufacturing sites from 226 to about 160 or so, although a Philips spokeswoman declined to comment further.
Copyright ® 1999 CMP Media Inc.
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