Video-IC suppliers have a new medium in which to sink their teeth as DVD players fast-track their way into becoming fixtures as prevalent in living rooms as VCRs.
With the promise of superior images and sound quality based on MPEG technology for $250 or less, consumers will more than double their demand for DVDs this Christmas, observers said.By 2002, unit sales of DVD players will outpace those of VCRs, according to analysts.
"There are two factors driving growth-pricing and content," said Robert Blair, president and chief executive of ESS Technology Inc., Fremont, Calif. "At $250, you basically get all the bells and whistles: the multiple angles, high-end digital audio, digital output, and fiber output. And the $250 price point will continue to drop as well."
Key DVD features are mainly based on MPEG decoding technologies that constitute the back-end component of the players.
OEMs had relied on in-house capabilities for their DVD players' video ICs since the players' 1997 inception. But as supply and demand drive down prices, OEMs such as Matsushita, RCA, Samsung, Sony, and Toshiba, are turning to third parties for DVD back-end chips.
"Manufacturers typically have a high overhead and a cost structure for their own chips, so after DVD players went down to a $599 price point before last year, the OEMs no longer wanted to use their own silicon," Blair said. "And they also began to seek silicon from somebody else that offered a higher technology than what they could develop in-house."
Currently, the top DVD video-IC suppliers, such as C-Cube Microsystems Inc., ESS, STMicroelectronics Inc., and Zoran Corp., continue to enhance their single-chip functionalities for OEMs at a price of less than $15 a unit. These suppliers represent more than 80% of the market, according to industry estimates.
Third-party suppliers will account for 60% of DVD video ICs this year and will represent 70% of the supply base in 2001, according to Shmuel Farkash, vice president of business development at Zoran in Santa Clara, Calif.
DVD-chip functions will continue to converge as DVD-player prices drop to about $100, which will likely happen soon, Farkash said.
"The challenges will be the integration of both the front-end and back-end functionalities on a single chip," Farkash said. "Currently, suppliers offer a single chip for the back end, but in our case, in order to maintain our leadership position, we'll begin to integrate more of the front-end functionalities, such as the DSP process that takes data out from the DVD disk and converts it into the back-end chip that our CPU decodes."
Many back-end systems-on-a-chip (SoCs) offer buffering functions for the front-end components, Farkash said. "But by the end of next year, I believe you'll see some single SoC solutions already in the market," he said.
Although the DVD sector continues to outpace most consumer electronics markets, the specter of oversupply and price declines associated with other high-growth applications such as the computer-graphics-chip market, remains a concern for some suppliers.
"Anytime there's a growing market that's really hot, a lot of smaller players want to jump in," said Tim Vehling, director of marketing of consumer products at C-Cube, Milpitas, Calif. "If you look at PC graphics, a few years ago there were probably 30 to 40 companies active in that market with graphics chips, and today that list is down to less than half a dozen.
"But so far, with DVD, it's not quite as bad, since there are now about a half-dozen manufacturers worldwide doing chips for DVDs," Vehling said.
Except for media companies that encrypt their DVDs for copyright protection, the DVD-player market does not face significant compatibility issues. But as consumers demand more functions, compatibility issues could arise when players begin to offer recording capabilities.
"Currently you have two different camps," said Philip Lambinet, vice president and general manager of digital video at STMicroelectronics, Grenoble, France. "You have the DVD-ROM and the DVD+RW camp and the biggest players in the consumer industry not agreeing on the same recording standard. It's like VHS vs. VCR2000 and Betamax. And it doesn't seem that the consumer companies will agree on one standard in the near future."
Meanwhile, DVD players' growing popularity also indicates how technologies for entertainment functions such as games and Web applications are moving away from the PC and into the living-room DVD set-top box.
As early as next year, medium-priced DVD players will feature Web surfing and textual content that offers information about DVD films and recording artists, according to analysts.
"With the combination of DVDs and extraordinary games on consoles, users now have extraordinary opportunities for entertainment whenever [they] want it, at ridiculously low prices," said Jon Peddie of Jon Peddie Associates, a Mill Valley, Calif., market research firm. "In three to five years, it'll stop being revolutionary, after all of these functions are integrated and taken for granted."