By Maury Wright, Editor at Large
Participants:
- Maury Wright, Editor at Large, EDN Worldwide
- Graham Prophet, Editor, EDN Europe
- Kirtimaya Varma, Editor in Chief, EDN Asia
- Tsuguyuki Watanabe, Editor in Chief, EDN Japan
- John Mu, Executive Editor, EDN China
- Pradeep Chakraborty, Correspondent, EDN Asia/India
- Mike Pan, EDN Asia/Taiwan
- Kwon Yong Wook, EDN Asia/Korea
Consumer electronics
Wright: Many analysts believe that consumer electronics segment-in particular spurred by the digital representation of audio and video-will be the biggest driver of worldwide economies going forward. Do you believe that consumer electronics is the most important market sector in your region?
Watanabe: Absolutely.
Prophet: As noted in an earlier discussion on this topic, consumer electronics in Europe is a large retail sector, but only a limited amount of the product is manufactured locally. A larger proportion is designed locally, although there is some evidence that some of that design effort is also moving east. Consumer electronics is better viewed as an indicator of economic health in Europe, rather than as an industry driver.
Pan: In Taiwan, PC-related products are still the major export-items such as notebook computers, motherboards, and LCD monitors. In each case, Taiwanese companies own the largest market share in the worldwide market. Mobile phones, however, are still a tough business for Taiwan-based makers, because major brands don't do a lot of outsourcing. Meanwhile, orders from China have decreased. According to the Taiwan-based Market Intelligence Center, the year-over-year growth rate for Taiwan mobile phones was -1.8% in the first quarter, compared with 20.6% worldwide year-over-year growth.
Chakraborty: Yes, the consumer-electronics segment is steadily emerging as a force to reckon with in India. Projection and plasma TVs, DVD players, and MP3 players are considered hot items, besides digital video cameras. The fact that several mobile phones come with built-in cameras is also helping drive sales. According to ELCINA, the body for electronic components in India, the sectors driving growth at present are telecom equipment, related to growth of cell phones and Internet usage, computers and peripherals, and consumer electronics, including VCD/DVD players, televisions, and audio equipment.
Another sector that is growing and will become significant in the near future is automotive electronics. Electronic components constitute the largest chunk of electronic exports from India. Many firms are dependant on exports. The major export items are passive components, such as capacitors and resistors, wound components, CD-ROMs, connectors, color picture tubes, and computer components/assemblies such as head stacks, memory modules and RFID products. The main destinations for India's exports are the European Union, the ASEAN nations, and the United States.
Varma: The consumer-electronics sector is among the most important market sectors in the Asia-Pacific region. In the consumer-electronics segment, we include TVs, DVDs, VCRs, digital still cameras, camcorders, video games, set-top boxes, appliances, toys, and other personal and household electronic items sans mobile devices. Mobile phones have not yet fully evolved into consumer devices. If we don't include mobile phones into the consumer segment, then consumer electronics cannot be said to be the biggest driver of economies in Asia. If we look at the electronics industry output by sector, in Southeast Asia, the consumer segment is projected to grow at a CAGR of 6.4% during the period 2003 to 2006, according to Fusion Consulting, relative to an 11.3% CAGR for computing and 8.3% for communications. For the period 2007-2010, the consumer segment will grow by a 5.2% CAGR, compared with 7.7 for computing and 6.3 for communications. In the Asia-Pacific region, computing rather than consumer electronics is the leading economic driver.
The main consumer-electronics products providing growth are DTVs, MP3 players, DVD recorders, and digital still cameras. The growing importance of Taiwanese and Chinese ODMs and EMS, and the waning influence of traditional vertically integrated Japanese OEMs, is pushing the growth of consumer electronics into the ODM and EMS segment. Taiwan is the most important ODM country in the world, while Taiwan, China, Singapore and India are emerging as hot EMS destinations. Consumer electronics is an important market sector in these regions.
Wright: The mobile handset continues to be the biggest selling end product worldwide. Is that true in your region? Is the handset considered a consumer product in your region? If not, how are handsets classified in your region? Do you foresee any impending slowdown in handset demand?
Watanabe: I suppose that mobile handsets are still the leader when it comes to sales volume worldwide. In Japan, however, the demand for handsets is fully saturated. Only the replacement/upgrade cycle drives new sales.
Varma: Yes, the mobile continues to be the biggest selling product in Asia-Pacific, and is gradually evolving into a consumer product from a telecom product, but the evolution is not yet complete. I do not see any slowdown in handset demand.
The Asia-Pacific region represents a broad spectrum of telecom infrastructure development, with mobile penetration rates as high as 100% to less than 5%. The wireless revenue for whole of geographic Asia in 2004 was $152.734 billion (iSuppli figures), and is projected to grow by 14.4% to $174.672 billion in 2005. Over the period 2003-09, the Asia wireless revenue is projected to grow at a CAGR of 8.11%.
The fastest growing telecom sector in Asia-Pacific is wireless technology, specifically cellular phones. Asia is passing through a "sustained 10-year bull market" for mobile phones. The Asia-Pacific market is made up of "mature" players and "developing" players. Taiwan, Hong Kong, Singapore and South Korea are "mature" players. In Taiwan, the number of mobile-phone subscribers runs to 25.1 million, representing 100% penetration rate (APRG Research figures). Hong Kong, with a population of 6.8 million, reached over 8.1 million mobile phone subscribers in Q1 2005. Singapore has 3.9 million subscribers, constituting a penetration of 91%. South Korea has a mobile-phone population of 37 million against a human population of 48 million.
The major "developing" players are India, the Philippines, Malaysia, and Indonesia. India has a population of 1.1 billion, but the number of mobile subscribers is merely 53 million. The Philippines, with a population of 86 million, has over 32 million mobile subscribers. Malaysia has a penetration rate of 58%, with 14.6 million subscribers out of a population of 25 million. Indonesia has 29 million mobile subscribers out of a population of 233 million.
While the "mature" players provide a great opportunity for Value-Added Services (VAS), the "developing" players provide the opportunity for basic services, making Asia the most dynamic and rapidly growing telecom economy of the world. The dominant players in "mature" countries are migrating their networks to data-centric 3G technologies and developing new data and video services to stimulate revenue growth. Asia is not only the biggest consumer of cellular phones, it is also the biggest producer. It is estimated that 60-65% of mobiles phones are manufactured in Asia.
Asia is the largest market for wireless infrastructure, with an investment of $10.698 billion in 2004 (iSuppli), projected to rise to $11.773 billion in 2005. Asia will remain the largest market for wireless infrastructure, with a CAGR of 5.4% during the period 2003-2009.
Asia has been at the forefront in the deployment of next-generation wireless technologies. While Japan leads the world in 3G migration, Korea is closely following Japan. All major Korean carriers launched 2.5G networks in 2001, and are moving towards 3G. Most Asian carriers currently use the GSM standard for their existing 2G networks, though many began upgrading to GPRS in 2003. A few carriers in India, Hong Kong and Taiwan are currently deploying CDMA2000 as a 2.5G networking technology.
Prophet: The mobile handset is certainly a consumer item here, being marketed and purchased as a fashion item. The mobile market continues to confound in its ability to be driven by unpredicted (and unpredictable?) factors. Who would have guessed that an influential factor in the appeal of a handset would be its compatibility with a particular format of downloaded ring tone? I would expect to see the rate of handset turnover in mature Western European markets settle down to a base of upgrade business plus a modest growth rate. However, this may spike again when (and if) service providers attempt to migrate consumers to 3G tariffs by use of an "upgrade bundle" strategy.
Chakraborty: Yes, the mobile handset continues to be the largest selling product in India and is likely to remain so for at least the next two to three years. The demand for mobile phones has grown at a scorching pace in India and it is currently about 2 million units every month. The recent flurry of announcements by major cell-phone manufacturers to set up units in India is testimony to the fact that they too appreciate the potential in India. Even the Indian hardware industry is keen to supply components for these handsets. There is slowly and surely an all-out to make mobile phones the star product, which can drive growth for several years.
Wright: It appears the next frontier for the handset is video. Already we have major North American carriers such as Sprint and Cingular that offer video programming over the cellular network, albeit with quality ranging from a few frames per second to perhaps 10 or 12. Soon overlay networks will roll out, supporting higher-quality video, and in fact a DVB-H trial is already underway. What are the prospects for video to the handset in your regions?
Kwon: TU Media, a subsidiary of SKT, has recently started Satellite DMB (Digital Multimedia Broadcasting) service based on Toshiba's technology. Now, Satellite DMB phone users can enjoy television programs and movies everywhere in Korea if they pay about US$15 for the service. Meanwhile, Terrestrial DMB service developed by KETI will also start by the end of this year. On the other hand, Qualcomm and Nokia are also developing FLO and DVD-H technologies. Predicting the final winner in the Asia market is impossible right now.
Wright: The PC market remains robust worldwide, and more and more PCs are considered consumer products. Is the PC considered a consumer device in your region? If not, how is it classified? Are Media PCs, which can record TV shows and deliver video around a home, selling in your region? Will consumers in your region continue to buy full-featured PCs based on Intel and Microsoft technologies, or is there potential demand for lower-cost computers that simply provide word processing, email, and Internet capabilities?
Prophet: The PC as business tool, and the PC as entertainment center, are rapidly developing into more-or-less completely separate sectors. Media PCs with PVR capability are available, but could not yet be said to have become a mainstream consumer product. If you are doing PVR recording on your PC, at this moment you would still be in the "geek" fraternity. With well-specified PCs now a supermarket item with rock-bottom price tags, it's hard to see how there is any space left for a real basic-facility machine.
Watanabe: The PC market is still a big market. The number of PCs produced is about 740,000 per month in Japan. But the growth rate has been saturated. PCs are not categorized as consumer equipment in Japan but rather as industrial-electronic equipment. Many present PCs being sold in Japan provide the ability to record TV broadcasts.
Chakraborty: Yes, PCs are now considered a consumer device in India, and home PCs are proliferating. There are TV tuner cards available that can be attached to a TV to view current broadcast channels. Video-on-demand is still in a nascent stage, and DVRs are slowly catching on as a concept. It's still the early days.
Consumers in India generally prefer full-featured PCs with an Intel processor and MS Windows 98/2000/XP. Recently, Xenitis, a company based in Kolkata (Calcutta), launched a PC branded as Apna (My Own) PC at 9999 rupees (US$227.50).
Wright: Who are the semiconductor vendors in your region that are the biggest sellers of ICs into the consumer space? What types of chips are the big sellers-processors, networking chips, application-specific standard products, analog components?
Prophet: There is no reason that this should be other than the usual top-10 global semi vendor list. Depending on specific sectors, indigenous suppliers (such as STMicroelectronics) can be predominant, but overall, Europe functions as part of the global semi market.
Watanabe: Most semiconductor companies sell ICs to the big consumer-product makers directly. In case of small quantity business, they sell products through distributors. In terms of product volume, microcontrollers are the biggest sellers for both the consumer market and the industrial market in Japan.
Chakraborty: All of the leading multinationals are present here, including Texas Instruments, Infineon, Samsung, and Intel. Both processors and ASICs are selling here, as are DSPs. Analog Devices supplies GSM chips in Asia. It also offers a DSP and a media processor. Its Shark DSP is the de facto standard with any military equipment.
