Major IDMs are turning fab-lite or spinning off their memory businesses in order to focus on R&D, with the handset and TV chip markets being their prime targets. The revised strategy of IDMs is ushering in a new order in the market that is expected to continue taking a heavy toll on the average selling prices (ASPs) for chips in 2008.
Infineon Technologies, NXP and STMicroelectronics are now focusing their R&D efforts on logic and analog ICs. With rich capital resources, the companies are hunting for merger and acquisition targets in order to accelerate the growth of their handset and TV chip businesses.
The impact of their fast growth has been very tangible in 2007, with handset and TV chip prices trending down fast. Fabless IC designers, who have often boasted their capability of cost control, are feeling strong pressure from the fab-lite IDMs.
Recently, a new wave of pricing in the handset chip market has been triggered by a drop in 3G handset chip prices. Quotes for 2.5G and EDGE chips have also gone down. Both the suppliers of chips and handsets recognize the huge potential in the 3G market. Handset clients are counting on lower quotes from chip suppliers to help them roll out cheaper 3G models that can boost the penetration of 3G. Chip suppliers, which see it as a must to have a headstart in the 3G market, are obliged to lower their prices.
Major handset chip suppliers Texas Instruments (TI), STMicroelectronics, Infineon, NXP, Qualcomm, Broadcom, Freescale Semiconductor, EMP and MediaTek are battling it out in the handset chip market, with their major battlefield expected to be in China and other emerging markets. The price war will inevitably continue in 2008.
In the global TV chip market, competition may be as fierce. While the fourth quarter is a crucial time for the design-in and design-win of new TV models for the first half of 2008, TV chip prices have recently dropped considerably as a result of attempts by suppliers to defend their market share.
At present, major TV chip suppliers are fabless designers who have exercised self-restraint concerning pricing. But with mounting competition from fab-lite IDMs, the TV chip market in 2008 is likely to see cutthroat competition similar to that in the handset chip market.
Chip suppliers can only pray that the markets corresponding to their chips will grow fast in 2008 so that pricing will not be too fierce.
Article translated by Rodney Chan
