Buoyed by spending on handsets, tablets and wireless infrastructure, global OEM purchasing of semiconductors is expected to grow by 6.2 percent this year to reach a value of $280 billion, according to the IHS iSuppli Semiconductor Design & Spend Analysis at information and analytics provider IHS.
The IHS 2013 forecast for OEM semiconductor spend, which is based upon an analysis from the second half of 2012, estimates that spending across almost of the application markets will be within a relatively flat range of between a 2 percent decline and 6 percent growth. The sole exception will be spending on semiconductors for wireless communications, which is expected to see growth of 13.3 percent for the year, as shown in Figure 2.
The wireless communications market is segmented into product categories for handsets, tablets, and wireless infrastructure. Last year, for the first time, spending on semiconductors for tablets exceeded spending for wireless infrastructure.
Spending for media tablets alone reached $10.5 billion, compared to $8.7 billion for wireless infrastructure. And, of course, the largest sub-market by dollar value will continue to be handsets. Semiconductor spending for wireless communications overall is expected to reach $70.2 billion for this year.
IHS defines OEM spending as all semiconductor spending either by the OEM itself directly or indirectly through an electronic manufacturing service (EMS) or original design manufacturer (ODM). To avoid double counting, only ODM spending for owned company brands is included.
Also for those companies that operate as both OEM and semiconductor supplier, every effort has been made to calculate net spending only for those devices originating from the external merchant market. Therefore net spend does not include internally sourced products that could be classified as intersegment sales.
Among the top 20 OEM semiconductor spenders for wireless communications, IHS estimates that high year-over-year growth will be achieved by market leaders Apple and Samsung Electronics. Another company to watch will be LG Electronics, which will see significant growth in wireless spending. Lastly, this is a market that also includes rapidly emerging players from China such as Huawei Technologies, ZTE and Lenovo.
The greatest OEM spenders on semiconductors for media tablets remain the market leaders Apple and Samsung, which together account for 75 percent of spending. Most media tablet sales are still concentrated in the North American geographic area, although the top manufacturers have recognized the need to more aggressively market products to the Asia Pacific region.
Apple is still the dominant manufacturer of media tablets, although there have been lots of alternatives emerging-especially at the low-cost entry level. Also, it remains to be seen what the impact upon sales will be coming from the new media tablet releases that have Microsoft Windows RT installed. These will include new models coming to market from Microsoft, Asus, Dell and Lenovo.
Battling for infrastructure
In wireless infrastructure, the top OEMs will remain unchanged in 2013: Ericsson, Huawei, Alcatel-Lucent, and Nokia Siemens Networks. Ericsson and Huawei now are fiercely battling for the market leadership position in wireless infrastructure. This market ranking is closely reflected in the semiconductor spend analysis results for these OEMs. These are all companies that will rely heavily upon growth in the U.S. and Chinese markets in the future.
The wireless outlook for 2013 from an OEM semiconductor spend perspective is consistent with trends seen at the recent International Consumer Electronics Show (CES). According to many in attendance, the 2013 CES could have been called "Wireless CES" or "Connected CES."
Manufacturers of wireless devices will make incremental changes to their products this year, but beyond that there is also a need to address issues and problems associated with these devices in order to ensure a future of growth and profitability. Key areas of R&D focus include the following: efforts to significantly improve display resolutions for tablets and smartphones, and improvements to the sound quality of mobile devices by utilizing better noise reduction technology.
On the wireless infrastructure side, there are critical connectivity issues that need to be resolved related to network congestion, power reliability, and privacy and security both for individuals and the public at large. Currently there have been no real solutions established, only lots of discussion and possible answers addressing these issues.
The wireless communications market has become viciously competitive all around, with an industry that is narrowing because of the large market shares enjoyed by the leaders, and the rapid growth seen in a few emerging players-they are the "winners."
Wireless device manufacturers have recognized the need to shift their business models away from a unit-growth focus and toward a greater stress on revenue and profitability. The key to successfully negotiating this shift will be to sell products with higher profit margins. One recently widespread strategy has been to offer more software-driven solutions and services.
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