iSuppli: Competition heating up among PMP/MP3 controller chip players

By Ann Steffora Mutschler, Senior Editor -- Electronic News, 4/30/2007

Despite the rapid growth in sales of portable media players (PMPs) and MP3 players, intense price erosion is occurring in the market for controller chips for these products as new competitors enter the fray, according to iSuppli Corp., an El Segundo, Calif.-based market research firm.

“A few years ago, the strong growth of the PMP/MP3 player market attracted a new set of controller suppliers,” explained iSuppli consumer electronics senior analyst Chris Crotty, in a statement.

“Seemingly overnight, companies such as China’s Actions Semiconductor Co. Ltd. and South Korea’s Telechips Inc. emerged to challenge early leaders SigmaTel Inc. and PortalPlayer Inc., which was acquired by nVidia Corp. in 2006,” he noted.

Despite legal complications with SigmaTel as well as PortalPlayer’s historically strong relationship with Apple Inc., Actions secured the top unit market share spot in 2005, Crotty added.

“Now, a second wave of competitors has entered the market,” he said. “Many of these companies, such as Chipnuts, Anyka and Rockchip, are small and relatively unknown. They are joining an increasingly crowded market that also includes perennial Taiwan-based fabless suppliers as well as broad-line chip makers like Samsung, Texas Instruments, NXP, Analog Devices and Freescale.”

iSuppli expects global unit shipments of PMP/MP3 players to rise to 268.6 million units in 2011, expanding at a compound annual growth rate (CAGR) of 13 percent from 128.7 million units in 2005.

Global PMP/MP3 factory revenue is expected to rise to $21.5 billion by 2011, growing at a CAGR of 7.4 percent from $14 billion in 2005.

Average selling prices (ASPs) for PMP/MP3 controllers are relatively stable, the firm said, with most suppliers opting to increase features such as capacity, display size and quality while keeping prices fairly flat. This trend has resulted in strong pricing pressure on the semiconductor suppliers.

Other than NAND flash memory used for file storage, the main semiconductor application within a PMP/MP3 player is the controller chip – sometimes called a system-on-chip (SoC) – and is typically an application specific standard product (ASSP) or digital signal processor (DSP) that manages key functions of the device, including file storage, media processing and graphical user interface (GUI) operation.

Historically, PortalPlayer, which until last year supplied all Apple Inc. iPods except the shuffle, and SigmaTel have dominated the PMP/MP3 controller market.

However, in the large, fast-growing low end of the market, products from these two suppliers were often too expensive and/or too feature rich for low-end players, the firm said. Actions achieved its fast growth by serving the low end with inexpensive, simple products.

The entry of Actions and other low-cost suppliers exacerbated the existing pricing pressures for controller chips. The result was that controller ASPs dropped by 26 percent to $3.84 in 2006, down from $5.19 in 2005. Going forward through 2011, the CAGR will remain at nearly negative 16 percent, iSuppli noted.

Despite this trend, however, the growth and size of the PMP/MP3 player market has continued to attract new competitors while leading existing suppliers to increase their marketing efforts. These companies include:

--Sunplus Technology Co. Ltd., a leading Taiwan-based supplier, which hopes to replicate its strong position in DVD and Digital Still Camera (DSC) controllers in the MP3 market.
--Samsung Electronics Co. Ltd., which displaced PortalPlayer and SigmaTel at Apple.
--Ali Corp., which surged from 2 million units in 2005 to nearly 13 million units in 2006.
--Texas Instruments Inc., which is offering new versions of its digital-video-oriented DaVinci platform.
--New entrants such as Silicon Motion Corp. and Chipnuts Technology Inc.

In the midst of these moves, the firm noted that Actions retained its number one position in the PMP/MP3 controller market in 2006 with 51 percent growth, but its overall unit share increased to only 39 percent in 2006, up from 37 percent in 2005.

Looking to the future, iSuppli said Actions plans to increase its lead with new products that address the mid-market and avoid restrictions imposed by its prior legal dispute with SigmaTel.

Meanwhile, SigmaTel and fellow pioneer PortalPlayer continue to struggle in the face of declining share, falling to 15 percent and 12 percent in 2006, respectively. Both companies have diversified into other product areas, and PortalPlayer may seek to leverage the resources of new parent, nVidia Corp., iSuppli concluded.