Broadcom Market Exit Shows Dramatic Decline of Western TV Chip Suppliers

Thursday, September 29th, 2011
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Broadcom Corp.’s (NASDAQ: BRCM) reported exit from the markets for television video processing chips illustrates the increasingly intense state of competition in this area, as Asian suppliers drive the established Western suppliers out of the business, according to the IHS iSuppli Digital TV & Set-top Box Semiconductor Market Tracker from information and analysis provider IHS (NYSE: IHS).

A recent press report noted that U.S.-based Broadcom plans to shut down its internal business unit focused on system on chip (SoC) solutions for televisions and Blu-ray disc players. This development was followed by news that another U.S. supplier to this market, Trident Microsystems Inc. (NASDAQ: TRID), is engaging in a 20 percent reduction of its workforce to adjust to declining sales in the set-top box and television semiconductor segments.

“With growth in the consumer electronics (CE) market slowing in mature Western economies and soaring in Asia, the balance of power in the television video processor industry is shifting eastward,” said Randy Lawson, principal analyst, display & consumer electronics, for IHS. “This has led to the rise of Asian CE system and semiconductor suppliers at the expense of the established U.S. players. Given Broadcom’s strong product and technology offerings, the company’s apparent exit from the market serves as a dramatic example of how forbidding the competitive landscape has become in television video processing semiconductors and in CE chips in general.”

Taiwan in the Lead

Just five years ago, Trident, Micronas of Europe, ATI Technologies Inc. of Canada and Genesis Semiconductor Inc. of the United States were the top four suppliers of TV video processors, boasting a combined share of 58 percent of the total market. In the first quarter of 2011, Taiwan’s Mstar Semiconductor Inc. and MediaTek Inc. owned the top two slots in the television video processor market, with a combined 45.3 percent share. Of the Top 4 suppliers in 2006, only Trident remains, with a mere 7.3 percent share in early 2011–even after absorbing both Micronas and NXP’s television semiconductor business during the intervening years.

Taiwanese suppliers have benefited from increasing cost pressure in the low end of the television market, while Western suppliers have suffered from competition with captive consumer electronics semiconductor makers.

“In the market for inexpensive television sets, there is enormous demand for the lowest-cost semiconductor solutions–the type offered by Taiwanese suppliers,” Lawson said. “In the high-end television market, leading Korean and Japanese brands–including Samsung, Toshiba, Sony and Panasonic–frequently employ their own internally designed semiconductor solutions. This leaves little opportunity for the Western suppliers that offer video processors targeted at the midrange and high end of the market.”

Too Smart by Half

Significantly, Broadcom’s apparent exit from the television processor market comes at a time when the types of solutions the company offers should be in high demand.

“Smart TVs that integrate Internet capability are all the rage in the television market,” Lawson observed. “This should play right into Broadcom’s strength in offering advanced television SoC solutions with built in connectivity. However, with the television processor market experiencing a squeeze at both the high and low ends, even a player as strong as Broadcom is finding it hard to compete successfully.”

The West is Not the Best in the TV Chip Market

The reports on both Broadcom and Trident point to a pessimistic near-term outlook for the television semiconductor market. In particular, the consumer electronics and television businesses in Western regions are suffering from too much inventory and reduced end-market demand.

As the Western economies continue to suffer slumping consumer demand and macroeconomic woes, IHS expects to see even further consolidation of suppliers in the television processor space. There also will be a trend toward the adoption of video processing intellectual property into application processors targeting new forms of mobile CE devices, such as media tablets.