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Electronics Market Outlook September 2003

Electronics Market Outlook September 2003. Agenda. About In-Stat/MDR Economic Conditions Demand Drivers & Application Segments Regional Issues Semiconductor Industry. About In-Stat/MDR.

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Electronics Market Outlook September 2003

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  1. Electronics Market Outlook September 2003 www.instat.com

  2. Agenda • About In-Stat/MDR • Economic Conditions • Demand Drivers & Application Segments • Regional Issues • Semiconductor Industry September 2003

  3. 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

  4. Semiconductor Markets & Technology Semiconductor US Business Segmentation & Verticals Wireless Cores of Expertise Consumer & Residential Networking Projections & Outlook Broadband Service Provider Networks Multimedia Business & Residential Networks September 2003

  5. Wireless Infrastructure ($M) $40,000 $20,000 $- 2001 Semiconductor / The Wireless Value Chain September 2003

  6. Worldwide GDP Growth September 2003

  7. Worldwide Electronics Market (US$ in Billions) September 2003

  8. Distribution of IT Spending in the US Market by Size of Business, 2003 IT Spending US Business Market US$ in Billions September 2003

  9. Factors Impacting IT Spending Distribution of Responses by Size of Business % of Respondents N = 854 Question: Which factors have significantly impacted your IT spending in the last 12 months? September 2003

  10. US$ Billions $350 $310 $280 $300 $250 $205 $195 $191 $200 $150 $100 $50 $0 2000 2001 2002 2003 2004 Source: In-Stat/MDR, 05/03 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 September 2003

  11. IP Services Growing Worldwide $60 US$ Billions $50 Other $40 Content Delivery Unified Messaging $30 IP VPNs VoIP $20 Hosting $10 $0 2002 2003 2004 Source: In-Stat/MDR, 02/03 • 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 September 2003

  12. 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 47% of Semiconductor consumption September 2003

  13. LAN Priorities 2003 September 2003

  14. Worldwide DSL Growth Remains Strong Lines in Thousands 80,000 70,000 60,000 ROW (MEA, SA) 50,000 Asia Pacific Europe 40,000 N. America 30,000 20,000 10,000 0 2002 2003 2004 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

  15. Worldwide Wireless Market Update • Major 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

  16. 250 Aggregate Worldwide Deployments (K) Worldwide Connects/Year (M) 200 150 Locations (K) & Connects (M) 100 50 0 2002 2003 2004 2005 2006 2007 Hot Spots & WLAN September 2003

  17. Worldwide Wireless Chipsets Source: In-Stat/MDR • 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 ~$6. 2001 2002 2003 2004 2005 2006 (All Revenue in US$M) Total WLAN Chipsets Revenue $229.9 $403.9 $421.7 $527.4 $575.2 $566.8 Total All Chipsets % Change 75.7% 4.4% 25.1% 9.1% -1.5% Total Cellular Base Station Chipsets Revenue $2,587 $2,483 $2,161 $2,044 $1,698 $1,414 Total All Chipsets % Change -4.0% -13.0% -5.4% -16.9% -16.7% Total Handset Chipsets Revenue $19,975 $19,948 $18,491 $19,169 $18,890 $18,464 Total All Chipsets % Change -0.1% -7.3% 3.7% -1.5% -2.2% September 2003

  18. 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

  19. 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

  20. Consumer Product Growth 250 Video Game M Units Consoles DVD Players & 200 Recorders PVRs (Stand-Alone) 150 DTT STBs IP/DSL STBs 100 DBS STBs 50 Cable STBs - 2001 2002 2003 2004 2005 2006 Source: In-Stat/MDR, 6/03 September 2003

  21. Home Networking/Digital Domicile Worldwide Home Networking Revenues by Product Segment (US$K) $6,000,000 Includes: Media Networks, Residential Gateways, Infrastructure, NICs/LOM $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $- 2002 2003 2004 2005 2006 2007 September 2003

  22. 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

  23. 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

  24. Regional GDP Growth 10% 8% 6% 4% 2% 0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003* 2004* -2% -4% United States European Union Japan Asian Tigers Asia Developing September 2003

  25. Semiconductors - Consumption September 2003

  26. 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

  27. Semiconductor Revenue September 2003

  28. Semiconductor Unit Shipments September 2003

  29. Semiconductor ASP September 2003

  30. 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

  31. 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

  32. 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 prevalent • Revenue will increase, but slowly, and with more short term perturbations • Profitability will decline September 2003

  33. Semiconductor Forecast September 2003

  34. 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. September 2003

  35. www.instat.com

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