Consumer equipment uses more chips

James Carbone -- Purchasing, 11/17/2005

The consumer electronics (CE) equipment market will post 7.2% annual growth over the next five years as factory revenue grows from $248.3 billion in 2004 to $344.6 billion in 2009.

The growth of CE equipment is impacting the semiconductor market as more chips are being consumed by equipment manufacturers. Consider: While the CE equipment market is growing 7.2%, the market for chips used in equipment will grow 10.3% over the next five years, according to industry researcher iSuppli.

The good news for buyers at CE equipment OEMs and at electronics manufacturing services providers is that while demand is strong, prices will decline because of stiff competition among suppliers. The exception could be some densities of NAND flash memory. Flash prices could rise because of unprecedented demand.

Besides growth in end-equipment demand, chip growth in consumer equipment is rising because more semiconductors are being used in equipment as it transitions from analog to digital. A good example is televisions.

"The good old fashioned analog cathode ray tube TV had some semiconductor content, but when you go to a liquid crystal display television, semiconductor content goes up by a factor of 10," says Jan Pape, director of marketing for standard linear and logic at Texas Instruments in Dallas. "That is a semiconductor market driver."

Also driving the chip market are MP3 players.

"MP3 players were basically simple USB memory sticks with an audio output," says Pape. "Now you have MP3 players with a 60 GB hard drive, which requires a lot more semiconductors," he says.

In fact, televisions and digital music are two of the biggest drivers of the consumer electronics market, says Chris Crotty, an iSuppli analyst

"MP3 is red hot. The market will double in five years," he says. MP3 players are evolving and will have video capability as well as audio. "Sometime next year it will be called the PMP market (portable media player)," says Crotty. Digital TV is also hot because it is converting analog to digital, he says.

The growth in electronics content in CE equipment and the growth of equipment unit shipments is driving demand for certain kinds of chips.

For instance, MP3 players are driving controller chips, which are application specific integrated circuits (ASICs) or application specific standard products (ASSPs). The chips control the function of the devices, including the processing and graphics user interface.

Other chips used extensively in CE equipment include standard logic, display drivers, programmable logic, analog ICs, discretes and optical semiconductors, including light-emitting diodes and image sensors.

Growth in demand for chips by CE companies may create some shortages. In one case, it already has, according to iSuppli.

Apple's 2 Gbit iPod nano uses two 1 Gbit x 8 NAND flash chips. Previous iPods did not use flash.

"By switching from hard drives to flash memory for a key iPod model, Apple has radically altered the dynamics of the memory market," says Crotty. That's because Apple will buy as much as 40% of Samsung NAND flash output in the second half of 2005, which will leave a lot less NAND flash supply for other customers.

To add insult to injury to other flash buyers, Apple is getting a significant discount from Samsung because it is purchasing such large volumes.

"Even if other MP3 makers can buy NAND memory, they will lack the volume needed to negotiate the same discount Apple likely is receiving from Samsung," says Crotty. Competition for the remaining flash supply may result in higher prices.

In fact, prices for 4Gb NAND flash devices have already increased. The average spot price for the device was $23.38 in September and increased to $27.03 in mid-October, according to iSuppli.

Consumer electronics is also having an impact on semiconductor technology. For example, a lot of CE equipment is portable and requires chips in small packages.

TI says it has strong demand for Little Logic chips, which use Nanostar wafer-chip scale packages.

"It is the smallest footprint possibility and a limitation in footprint is a function of what consumer electronics customers are capable of or willing to assemble on the boards," says Pape.

The dimension of the package is 1.0 mm x 2.1 mm.