The production value of Japan's semiconductor industry reached JPY3.25 trillion (US$27.5 billion) in 2014, increasing 8.7% from a year earlier. Companies have received a boost from government policies that help strengthen the division of labor in order to improve their profitability, according to Digitimes Research.The Japan government believes that the high-production cost structure of Japan's semiconductor industry is the main reason contributing to its gradual decline in the global semiconductor market.Makers in the line have thus tended to reduce capital spending for equipment and R&D projects under shrinking profits and therefore, Japan-based semiconductor firms have been set in a position unfavorable for them to maintain their technology advantages but also prevent them from committing new investments for achieving sustainable growth.For stressing the division of labor, the Japan government is encouraging makers to outsource more production to outside companies to reduce investment on manufacturing processes.It is also encouraging the development of IC design and IC manufacturing industries, separately. For example, Fujitsu Semiconductor and Panasonic have jointly set up an IC design company, named Socionext, integrating the LSI business units of the two companies. Additionally, the wafer foundry of Fujitsu Semiconductor has also been spun off into an independent subsidiary.In line with its policy calling for the development of smart community, the Japan government has also been pushing semiconductor firms to develop related applications for the smart community such as smart grid systems, smart households and smart sensors for driving controls, Digitimes Research noted.

Following the release of vehicles from Mazda that feature adaptive LED headlight (ALH) technology, more vehicle vendors are looking to incorporate the technology into upcoming automobiles in 2015, according to Digitimes Research.LED vendors in Taiwan are seeing growing interest from automakers from Japan in particular for use in mid-range vehicles as component costs involved in producing the technology have dropped.Previously, higher-end units from Audi and other makers adopted the technology ranging as far back as 2007 but over the years supply chains have brought down pricing and are now aiming for it to be the next step in spurring LED demand.The vehicle segment is regarded as one of the fastest growing segments for LED makers in addition to display makers, with vendors also emphasizing more on value-added features to spur demand.ALH technology has also seen major breakthroughs in control features, system integration with vehicles, and overall detectability for improved safety and value, added Digitimes Research.

Samsung Electronics will lead the world's top-10 smartphone vendor rankings in 2015, followed by Apple, Lenovo, LG Electronics, Huawei, Xiaomi Technology, Microsoft, TCL Communication Technology, Coolpad and Oppo, according to Digitimes Research. Samsung and Apple will ship over 330 million and 230 million smartphones, respectively in 2015, while Lenovo will ramp up its shipments to 84 million units following the completion of its acquisition of Motorola Mobility. Fourth-ranked vendor LG will ship 67 million units, while Huawei will ship slightly over 65 million units. With regard to smartphone platform, shipments of Android phones by the top-10 Android smartphone vendors will account for over 70% of total Android phones shipped in 2015, said Digitimes Research.

Shipments for white-box tablets using Intel solutions enjoyed significant growth on quarter in the fourth quarter of 2014 and are expected to see flat performance or drop slightly in the first quarter of 2015 despite the quarter being the traditional slow season. Compared to shipments for MediaTek, Rockchip and Allwinners, which are all seeing dramatic declines from a quarter ago, Intel's application processor (AP) shipments are performing rather well.Digitimes Research believes Intel stands a chance of becoming the largest AP supplier of the white-box tablet industry in the first half of 2015; however, the momentum will not be contributed by its newly released SoFIA or Core M processors, but instead by its Bay Trail-T CR processors.Intel's strong rise in the white-box tablet market in the first half is down to three major factors. The first is Microsoft's participation in tablet subsidization. In addition to giving free Windows licensing to devices sized below 9-inch, Microsoft has also been providing subsidies to white-box players for their non-recurring engineering (NRE) and marketing expenses on their Windows-based tablets since the fourth quarter of 2014.White-box players are able to receive US$3-4 in subsidies from Microsoft and Intel each.The second is Intel's adjustment of its subsidy policies. To achieve its tablet AP shipment goal for 2014, in December 2014, the CPU giant changed its policies from giving subsidies after vendors shipped their products to directly offering discounted prices for its Bay Trail-T CR processors at US$4, which attracted vendors to place large volumes of orders in the fourth quarter to prepare for their shipments in the first and second quarters of 2015.The last is the fact that white-box vendors are also looking to diversify their tablet products. In the fourth quarter of 2014, inexpensive Windows tablets were the focus of white-box vendors but it changed to dual-operating system (OS) tablets in the first quarter of 2015. For the second quarter of 2015, white-box vendors are planning to promote inexpensive 2-in-1 products.As for Intel's AP solutions, Digitimes Research believes that the SoFIA and Core M series processors - which have generated much discussion - will not be the growth driver of its AP shipments. The growth driver will be the Bay Trail-T CR series APs released more than a year ago.With demand for low-end/entry-level tablets with phone function from several key emerging markets in the first quarter weaker than expected, plus the fact that Spreadtrum, MediaTek and Qualcomm have been offloading their 3G smartphone AP inventories into the tablet market, demand for Intel's SoFIA 3G and 3G-R APs, which have weak supply chain support and slow development process, is being seriously impacted.According to Digitimes Research's findings from China's upstream supply chain, Intel's SoFIA 3G solution has been available since early first quarter, but has not seen any major adoption by white-box vendors. The SoFIA 3G-R has recently entered pilot production, but the solution is expected to encounter fierce competition from products such as MediaTek's eight-core MT6592 processor, which has already seen pricing drop below US$10.White-box vendors are mostly interested in the SoFIA 4G solution since competition in the 4G market is milder. Intel's 4G technology and solutions are not lagging competitors' as seriously as its 3G ones have been. And among SoFIA solutions, Microsoft is planning to focus mainly on providing its support on the SoFIA 4G for its Windows.Since the SoFIA 4G solution does not yet have a firm release schedule, some white-box players believe that the sample may not be distributed for development until the fourth quarter and if such a schedule turns out to be true, it would be better for them to turn back to ARM solutions.As for Intel's Core M processors, related end products' high prices are the main obstacle stopping them from becoming a popular choice among white-box players.White-box players are able to develop quality Intel Core M-based Windows 2-in-1s with prices US$100 less than those of first-tier brand vendors' devices, but their prices are still above US$400 and could become difficult to sell in the white-box channel or compete against devices from other first-tier brand vendors in standard retail channel.As a result, white-box players are mainly choosing Bay Trail-T CR processors for their 2-in-1 devices. Most players have already planned new Windows 2-in-1s for mass shipments in the second quarter, priced between US$150-250, and these devices are expected to pose a great threat to first-tier brand vendors' similar products in emerging markets.

Panel makers are looking to further invest in Oxide TFT LCD technology throughout 2015, with major plans to expand production capacity expected to unfold in the second half of the year and into 2016, according to Digitimes Research.Oxide TFT LCD panels are now being looked at as the next step for TFT LCD makers to provide high-resolution, energy-saving solutions at competitive prices as costs for the technology continue to drop. Sharp has one of the longest histories in developing Oxide TFT LCD displays, namely for Apple products such as 9.7-inch iPad models, and aims to further invest in expanding production in addition to improving production methods that will allow the company to produce 700ppi and above displays in 2016.Sharp's dominance in the market, however, will be challenged as Innolux, BOE, LG Display and Samsung Display are also planning to expand production capacity. LG Display is reportedly in discussions to shift investment to increased Oxide TFT LCD panel production while Innolux is also planning similar measures. AU Optronics (AUO) and Samsung may also follow suit.Additionally, BOE will enter mass production for the technology at its Chongqing 8.5G facilities in 2015, with monthly production capacity reaching 30,000 units.The effects of such moves are likely to have limited impact on Sharp in 2015, but will clearly pose challenges in 2016, added Digitimes Research.

Taiwan panel makers have been aggressively promoting their on-cell touch panels and quotes for a 5-inch HD (1280 by 720) on-cell touch panel already dropped to about US$10-12 in early 2015, attracting orders from major handset brand vendors and white-box players in China.Digitimes Research expects these on-cell touch panels to undermine the market for add-on touch panels and force Japan Display (JDI) to shift its focus to other segments by raising its in-cell touch applications' resolution from HD to Full HD (1,920 by 1,080).The touchscreen sector has seen some favorable developments for on-cell solutions lately. Innolux and HannStar Display have improved their production yield rates for on-cell touch panels.Human-machine interface solution providers Synaptics and FocalTech, and touchscreen IC designers Himax Technologies, Mstar Semiconductor and Ili Technology (Ilitek) have geared up developing on-cell touch solutions, resulting in price declines. HD on-cell touch panels' quotes have now dropped to around US$10-12, approaching a level similar to that of GF-based touch panels.Thanks to the dropping prices, China-based smartphone vendors ZTE and TCL as well as players that focus mainly on the white-box smartphone market have increased their adoption of on-cell touch panels and their orders are expected to boost Taiwan's overall on-cell touch panel shipments to above eight million units in the second quarter of 2015.Meanwhile, JDI's touch panel solutions for HD mid-range smartphones are still priced at around US$20 because production costs remain high and the firm is keen to maintain its gross margins. Since JDI's solutions are unable to compete against GFF-based touch panels in terms of pricing, the Japan-based panel maker is expected to rely more on Full HD panels for high-end smartphone products.As for China-based panel makers BOE and Tianma, the two firms are more aggressive in developing in-cell touch panels at their 5.5G LTPS TFT LCD production lines.China's smartphone vendors have been more eager to adopt in-cell touch panels for their mid-range and high-end products since the on-cell technology is only able to support up to five-points multi-touch, making it less appealing for mid-range and high-end products.But on-cell touch panels are mainly supplied to the entry-level market segment and their competitiveness relies on low pricing. On-cell touch panel makers are unlikely to profit much from the product line.Taiwan panel makers are expected to achieve strong shipments for on-cell touch products, but they are unlikely to enjoy good gross margins.JDI, which mainly promotes in-cell touch panels and has a strong capacity in LTPS TFT LCD, should continue to see high gross margins.

There will be 1.401 billion smartphones shipped globally in 2015, increasing on year by 16.4%, according to Digitimes Research.The shipment growth is mainly because of high growth in demand in emerging markets including India, Southeast Asia and Latin America, Digitimes Research indicated.Google has actively promoted Android One low-cost smartphones in India, Southern Asia, and Southeast Asia and is likely to do so in Latin America in 2015. In the China market particularly, many MVNOs (mobile virtual network operators) have been competing for subscriptions and Microsoft has been actively promoting Windows Phone to China-based smartphone vendors of varying sizes and will offer Windows 10 in the second half of 2015.Android will account for 78.5% of 2015 global smartphone shipments, iOS 16.6%, Windows 4% and BlackBerry 0.6%.

The market for unmanned aerial vehicles (UAVs) has continued to expand, triggering demand for upstream parts and components, according to Digitimes Research.A number of US-based companies, including Amazon, Google, Facebook and GoPro all have announced their respectively UAV development plans.Google beat Facebook to take up the solar UAV maker Titan Aerospace in April 2014 and then Google X lab's Project Wing was made public in August in the year.China-based express delivery company SF Express has begun trial operations of delivering cargos by UAVs , while DHL has started delivering goods by UAVs in remote islands in Germany since September 2014. Meanwhile, Amazon plans to begin trial delivery by UAVs in 2015.While the increasing popularity of the UAV systems may stir up demand for related parts and components, concerns over aviation security have prompted a number of governments to impose restrictions on operations of UAVs, which in turn may impede the development of the UAV market, commented Digitimes Research.

Samsung Electronics had talks with MediaTek over cooperation in the second half of 2014 and MediaTek is expected to become an application processor (AP) supplier of Samsung's smartphones in the second half of 2015 at the soonest to help fill up the gap in the Korea-based vendor's product lineup.After Broadcom quit the smartphone AP business, Samsung has turned to Marvell for replacement and partnered with China-based Spreadtrum to acquire AP solutions for its lower-end smartphone product lines.However, the two firms' ability on product supply and support was rather weak, while their solutions also lack diversity and are not upgraded frequently enough, making it difficult for Samsung to develop divers products using their solutions.Although the two firms' AP supply to Samsung has been improving and turning stable recently with Spreadtrum shipping almost 20 million APs to Samsung in 2014, their efforts are still unable to satisfy Samsung and therefore, the Korea-based vendor has turned to MediaTek, looking to improve its product mix.Samsung has strong demand for the supply of all levels of APs and despite its high-end smartphones having encountered tough challenges from competitor devices in 2014, its entry-level products still enjoyed rising demand in emerging markets as well as Europe and North America.Since Marvell and Spreadtrum's product lineups are rather simple, Samsung is unable to make products that stand out from competitor devices using their solutions. Although their supply is growing stable, Samsung, which has strong ambitions to grow strong in the Tizen ecosystem and wearable device market, the two firms' product quality and ability to support different ecosystem products were both unsatisfactory.MediaTek and Samsung never cooperated over smart mobile devices in the past and the two were competitors in India. However, MediaTek's diverse product lineup for the mobile device market, complete support from the supply chain for wearable, telecom solution and components, and strong technical support services are expected to complement Samsung's gaps.Although Samsung has the most advanced manufacturing process and experience designing APs in house, the company is still aggressively seeking assistance from outside in order to achieve a breakthrough in its product lineup since supplying large clients is the priority for its capacity, and its management over different levels of telecom ecosystems is still not yet mature.With the partnership, Samsung will be able to achieve more obvious differentiation from competitors in the mid-range and entry-level smartphone market. Combining its products with MediaTek's smart family, telecom and wearable technologies, Samsung is also expected to benefit for an increase in its products' added value.Therefore, Digitimes Research believes in addition to mid-range and entry-level products, Samsung is likely to adopt MediaTek's solutions and technologies in its high-end products also.However, Samsung is said to have acquired its supply chain partners' confidential information via partnerships in the past, whether Samsung's partnership with MediaTek is meant to acquire information will remain to be seen.

China's second-tier and white-box players have recently turned their focuses to dual-OS (operating system) tablets and are aggressively preparing to ship these products to overseas markets.Since the dual-OS technology only slightly increases the players' costs and devices with the feature are eligible for Intel's subsidies for Windows-based tablets, such dual-OS tablets look promising.However, dual-OS devices are more suitable for emerging markets that have yet to see a mature development of Google Mobile Services (GMS) and these products are also expected to face challenges in terms of software-hardware integration, limiting their contribution to white-box tablet shipments in 2015, according to Digitimes Research's findings during its visits in the white-box supply chain in Southeastern China.Currently, existing white-box dual-OS tablets are supporting either hot or cold swap technologies. The hot swap technology allows the users to switch to another OS without reboot, but the costs are US$3 more than those for single-OS devices. On the other hand, the cold swap technology, which is simpler in architecture, only has a less than US$1 increase in costs.However, devices using either technology are able to achieve pricing that is more than US$15 lower than that for single-OS devices and by equipping their devices with 1GB DRAM and over 32GB eMMC NAND flash, white-box players are able to further raise their selling prices to help increase their gross marginsWith Microsoft joining Intel to offer subsidies for white-box devices, white-box players in Southeastern China has been aggressively launching tablets combining Windows and Intel Bay Trail-T CR solutions since the fourth quarter of 2014 and achieved sales of 2.5 million units in the fourth quarter of 2014.Seeing white-box players becoming more aggressive about releasing Wintel tablets, Intel has started shrinking its subsidies on Windows-based devices in 2015, as the subsidies are meant to help it further penetrate into the Android device market. Since dual-OS products are not named in Intel's restrictions, players have then turned to develop dual-OS products to continue receiving full subsidization.The players are able to receive a total of US$10 in subsidies for each device from Intel and Microsoft.Dual-OS tablets enjoy strong demand in China and almost all the new models released after the Lunar New Year holidays are equipped with the feature, currently accounting for one sixth of Intel-based white-box tablet shipments in China.White-box players also prepare to sell these devices to the overseas markets. However, Google is wary of dual-OS devices and is looking to curb their development by tightly control its GMS.As a result, only emerging markets such as Russia and Eastern Europe that do not yet have a mature development of GMS are expected to achieve good sales for dual-OS devices.In addition, hot swap models, which are more popular but harder to design and require more resources to develop compared to single-OS models, will become a challenge for white-box players and its BIOS partners in terms of winning consumers' trust in their capability of software-hardware integration.In 2014, white-box players were able to achieve growth for their Wi-Fi tablet shipments thanks to demand for inexpensive tablets with phone function, while Intel's aggressive actions to establish an x86 supply chain in China and provide subsidies for its China Technique Ecosystem (CTE) project, helped boost white-box players' shipments above 90 million units.However, for 2015, the market has yet to see any significant innovations coming from the technology side that can greatly stimulate demand. Dual-OS technology offers a niche in the market, but challenges still lie ahead for it is the white-box tablet makers.Digitimes Research believes the dual-OS feature will only have a limited contribution to white-box tablet shipments and the white-box tablet market is expected to see over 20% on-year drop in 2015 as overall demand for tablet continues declining.