Worldwide Network Components Expenditures

Report Highlights

• Chip suppliers will see the unit shipments rise at an average annual growth rate (AAGR) of 10.3%from 242 million to 397 million for network semiconductors.
• Spending on network semiconductors will increase from $2.6 billion in 2005 to $3.7 billion in 2010, an AAGR of 7.2%.
• Wired Ethernet LANs will be the most significant market segment but VoIP network connections will show the highest growth rate.
• Wireless network product sales will grow, but intense competition and low growth rates will force suppliers to compete more on price.

INTRODUCTION

Increasingly, es and consumers communicate in real time and networks have made it possible for companies and individuals to communicate effectively. They have become faster, less expensive, and simpler to deploy. es and individuals have developed new applications to take advantage of high speed, multimedia friendly transmissions. Just about every type of device is being connected to and consumer networks.

Behind these new networking advances is an ever-expanding array of semiconductors. Advances in wafer and silicon technology have enabled chip manufacturers to squeeze complex functions and functionality onto smaller and smaller spaces. As a result, network chips continue to be an area of prime interest for semiconductor suppliers. Because these newest semiconductors offer users a number of benefits, demand from network equipment suppliers has been rising.

This report will examine the silicon used to connect an ever-growing array of devices, from complex servers to nextgeneration phones, to networks. After defining the different market segments (10M Ethernet, VoIP), the report analyzes and forecasts market trends in each segment, and delineates technology trends and identifies markets leaders. Long-term economic, , and other macro issues raised by these trends are also analyzed.

SCOPE OF STUDY

The report contains:

• Examination of the silicon used to connect complex servers, next-generation phones, networks, etc.
• Definitions of the different market segments
• Outlines of the immediate and long-term commercial opportunities for vendors
• Analysis and forecasts through 2010 of market trends in each segment and the long-term economic, , and other macro issues raised
• Delineation of technology trends
• Identification of markets leaders.

METHODOLOGY AND INFORMATION SOURCES

Preparation of this report involved in-depth study and critical analysis of published data from a wide variety of world economic agency, US government, and private company sources. Industry projections have been made by BCC based on original studies of economic, social, and demographic information, as well as on critical examination of projections by industry analysts and those found in public sources. Information included in the report comes from primary BCC research, input from key suppliers in the various market segments, and reports from organizations, such as the U.S. Department of Commerce, The World Trade Organization, the 10G Ethernet Alliance, the Wi-Fi Alliance, the Institute of Electrical and Electronic Engineers, and the Internet Engineering Task Force. The projections are based on anticipated growth in the current base of network users, the emergence of new market sectors, movement among existing network users from low speed to higher speed options, the availability of new networking options throughout the world, and a push by suppliers to wire more devices in the home as well in .

Another factor is the never ending improvement in silicon design. When new network components are first shipped, they sell at their highest price. Typically, pricing erodes from 5% to 20% per year depending on how long the components have been shipping. The higher price drops are associated with newer technology and vendors can make up for lower pricing by increasing volume. The lower end of the spectrum occurs with mature products; here vendors need to squeeze out costs by reducing expenses or improving production.

Since segments of the market, such as low-speed Ethernet connections are mature and stable, vendors have been examining new ways to leverage their technology. Markets, such as home and industrial automation offer them those opportunities. The need for higher speed network options corresponds to the never ending delivery of faster, more powerful computer systems. As companies and individuals take advantage of these advances, they find that their network connections slow down data transmissions, which reduces productivity. Consequently, they are looking to upgrade to faster networking options. Since vendors have shipped more than 3 billion Ethernet adapters and 450 million wireless connections, the migration from lower speed to higher speed connections provides suppliers with a recurring revenue stream. In addition, lower product pricing stemming from increased competition among suppliers has been expanding the market, so es, OEMs, and consumers can now afford additional network solutions.

The market for network silicon will be healthy in emerging market segments, such as Voice over IP (VoIP), and some of the potential revenue increases that vendors would like to reap will be offset by declining prices stemming from intense competition. Silicon vendors have been lowering the price of their products by streamlining manufacturing processes, moving facilities to inexpensive labor markets, such as China, and improving the design process. The revenue projections are based on a continued worldwide growth in consumer and spending of 2%, which translates into expansion of numerous product categories, including the use of networking products. One item of caution, the projections could be lower if the world economy slips into a recession or a depression, events that are possible given the volatility in areas, such as the Middle East.

ANALYST CREDENTIALS

Paul Korzeniowski (E-mail: paulkorzen@aol.com) has been writing about information technology (IT) issues for more than two decades. His work has appeared in a number of publications, including Investors Daily, eWeek, Network World, and Information Week. His articles have discussed all types of computer, network, and software products and services, from mainframes to handhelds, enterprise resource planning (ERP) systems to collaboration tools, and dial-up links to optical transmission systems. In addition, he has worked for a number of vendors and has produced white papers, case studies, and market research studies.