Fight For The Digital Living Room

Not long ago, "consumer electronics" in the living room began and ended with the television and your father's hi-fi stereo system.

Consumer electronic devices are being infused with more and more functions traditionally associated with PCs. Televisions and set-top boxes are requiring ever-more-sophisticated graphics chips to process high-definition digital video signals. Wireless networking is also making its way into consumer electronics and may eventually have an even greater impact on how CE devices are designed and used.

Not surprisingly, then, chip companies with roots in the PC space are attempting to make their way in the consumer electronics market, some with more success than others. Competing in consumer electronics takes a different approach to margins and—in some cases—customers.

Video: tough competition

The rush to high-definition digital video is being driven by the competition between service providers: cable TV, satellite and telco. All three are subsidizing the development of set-top boxes that will let them deliver HDTV programming to their customers. There's a big pile of money to be made: Analyst firm iSuppli predicts that semiconductor revenue for digital televisions alone will go from $4.5 billion in 2005 to $10.8 billion by 2009.

The chips that power most of these products are heavily commoditized (or quickly headed that way), and most of the chip companies that sell into those devices—LSI Logic, NEC, Philips Semiconductor, STMicroelectronics, to name just a few—are large and well established. Others include Broadcom, MediaTek and Zoran.

STMicro is the No. 1 company in shipments of chips for set-top boxes, with Broadcom in the No. 2 position, according to Shyam Nagrani, digital television analyst for iSuppli. Broadcom doesn't have the history in the market that STMicro does, but Nagrani and others expect the former company to continue to gain market share, based on the strength of the technology portfolio it has assembled during years of steady acquisitions.

Even that stiff competition hasn't discouraged ATI and Nvidia—traditionally PC companies—from trying to play in the consumer living room; of course, their approach is slightly different from that of the established consumer electronics companies. Whereas Broadcom and STMicro are thoroughly grounded in cable-signal tuners and demodulation, ATI and Nvidia are attempting to parlay their graphics chops into consumer electronics design wins in set-top boxes and digital televisions.

Of the two, industry observers believe that ATI has the advantage. In 2002 ATI added broadband signal demodulation to its technology portfolio, by acquiring NxtWave Communications; in February 2005, the company purchased cable modem IP from Terayon Communications and hired roughly 25 employees from Terayon's design team. Both of these moves have permitted ATI to provide a digital TV chip set to manufacturers of set-top boxes and television manufacturers, a level of integration Nagrani believes will be required for success in the digital TV arena.

Paul O'Donovan, principal analyst at Gartner, also believes that the digital TV market has a nasty wake-up call waiting for Nvidia. Analyzing Nvidia's strategy, O'Donovan says it depends on the PC's taking over the consumer electronics industry—and bringing fat PC profit margins along for the ride.

Certainly Nvidia isn't the only company thinking that way. In August 2005, Intel announced "a platform for digital home entertainment," which it is calling VIIV (pronounced "five"). In the absence of specific product announcements, industry observers are reserving judgment or are outright skeptical. "Everyone said that this is new technology for consumer electronics," says Chris Crotty (no relation to the author), senior analyst for consumer electronics at iSuppli, but VIIV-enabled PCs are just that: PCs. "Once again, it is an example of Intel's not really getting consumer electronics."

Changing strategies

For wireless networking chip vendors from the traditional data processing market—including Atheros, Airgo, Intel and Marvell—the challenge is less to battle entrenched competitors than to adjust their strategy to meet the needs of consumer electronics device manufacturers.

"We've got new customers," says Dave Borison, director of product marketing at Airgo. "Five years ago, nobody would have dreamed of selling a wireless product to a television or audio manufacturer and there was no way you could sell to a telco."

These days Borison spends much of his time convincing those manufacturers that wireless networking can open up new product uses in much the same way wired networking transformed a PC from a glorified typewriter into a post office, a mall and a telephone. The question is, can suppliers like Borison convince manufacturers of their vision?