Communications Semiconductor Market Forecast 2014-2019
Sales of communications ASSPs have labored under uneven global economic conditions. Just as mature economies, including the U.S., have improved, China's growth has slowed. Following a strong 2014, China's LTE build out stalled in 1H15. Still, over the longer term, China's GDP is expected to grow at more than twice the rate of the U.S. GDP.
Meanwhile, the supply base, once populated by a mixture of startups, midsized companies, and a few big companies has become increasingly concentrated, With more technologies under its roof, the typical chip supplier is better able to integrate system functions into a single chip to lower system cost. With fewer competitors, the supplier is also more likely to avoid the ruinous price wars that plagued product markets such as DSL. How all these factors come into play affects our outlook for communications semiconductors. Companies seeking to understand these dynamics will benefit from the perspective of the leading group of communications semiconductor analysts.
"Communications Semiconductor Market Forecast 2014-2019" provides the detailed market information needed to sort out the complexities of this market. With this report, chip vendors, investors, and OEMs will readily see how big the mature product markets are and how fast the emerging categories are growing.
Communications semiconductor product categories covered in the report include network processors, 10 Gigabit PHYs by technology (10GBase-T, 10GBase-KR, SFP+ optical, SFP+ direct-attach), 25-, 40-, 50- and 100-Gigabit Ethernet components, PON and VDSL transceivers, cable modems, network search engines, home-networking chips, and optical-transport ICs. Also included are forecasts for FPGAs, embedded microprocessors, and integrated base-station processors used in small cells.
The report includes a brief text summary providing analysis of the data and a set of tables for more than a dozen categories of communications semiconductors. The single-user license includes a brief printed document with summary analysis of the data and is packaged with a non-printing PDF that provides market-forecast tables for more than a dozen product categories. The corporate license includes the printed summary as well as a PDF that permits additional copies to be printed. For easier data reuse, the corporate-license edition is packaged with a Microsoft Excel workbook containing all of the data.
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The Linley Group has developed forecasts of communications ASSPs for wired applications, embedded microprocessors, and FPGAs using information gathered in its market-share process, from public financials and other public sources, and from reviewing spending and technology trends. This report also includes our forecasts for server processors and integrated base-station processors. The latter category is a new class of chips that combines CPUs and DSPs and serves both traditional macro base stations and small cells. A separate report, Mobile Semiconductor Market Share Forecast, provides forecasts for processors and wireless chips used in mobile clients such as smartphones and tablets.
Through the first half of 2015, the market for chips sold into communications systems remained surprisingly strong. Although sales of wireless infrastructure slowed down, primarily in China, wired infrastructure has performed well. As a result, we expect modest growth in wireline-communications ASSPs in 2015. Conversely, sales of embedded processors and FPGAs into communications will decline due to the wireless slowdown. Overall, we expect communications equipment will consume $11.2 billion in ASSPs, processors, and FPGAs in 2015, down about 4% from 2014.
We expect most ASSP segments to grow in 2015, with the only exceptions coming from legacy technologies. Growth in the largest categories, broadband and Ethernet, will more than offset these declining legacy technologies. Driven by large data centers, sales of 10Gbps and faster Ethernet are rising. In broadband, PON and cable are leading the transition to gigabit-class services, outpacing DSL. Within optical transport, OTN continues to grow while legacy Sonet/SDH shipments are plummeting, leading the overall category to decline.
Beyond 2015, the picture is much the same. Ethernet will continue to grow through our forecast horizon, thanks primarily to the expansion of data centers. Now that mature markets are reaching saturation, wired-broadband revenue is increasingly driven by upgrade cycles and subscriber churn. Wireless operators that have completed initial LTE build-outs will maximize use of existing macro base stations before investing heavily in small cells. Macro base-station shipments will remain about flat relative to the lower level of 2015. Operators will adopt small cells to help meet data-capacity demands. Small-cell base stations will consume integrated base-station processors, and they will also drive demand for backhaul and transport equipment.
Ethernet chips will provide nearly three-quarters of the communications-ASSP revenue growth from 2014 to 2019, according to our forecast. The hottest trend is the emergence of 25G, 50G, and 100G Ethernet, which will ramp into volume in 2016. Whereas past Ethernet speeds have taken years to reach high volumes, deployments by hyperscale data-center operators will drive much faster growth for these new rates. Enterprise data centers will continue to consume 10G and 40G Ethernet, enabling these speeds to still grow in parallel with 25G/50G/100G Ethernet.
Broadband subscriber growth is leveling off, and with it the number of broadband CPE ports shipped. Fortunately, competition between service providers drives customer churn, helping increase CPE shipments. Competition also fuels network upgrades, again creating demand for new CPE. The increasing complexity of CPE also supports higher average chip prices (ASPs) as gateways support faster data rates and add Wi-Fi capability. Enabling telcos to offer gigabit-class services to compete with cable and fiber, G.fast will emerge as an alternative to VDSL2 in fiber-to-the-distribution-point topologies.
Compared with communications ASSPs, both embedded processors and FPGAs have greater exposure to wireless infrastructure. They also serve large markets outside of communications. As discussed above, both categories have been impacted by the wireless-infrastructure decline in 2015, but we expect them to rebound in 2016. Communications, the largest application for embedded processors, has a mixed outlook. A significant portion of processors sells into base stations, and we expect this segment will decline throughout the forecast period. On the other hand, we expect embedded-processor revenue from switches, routers, and security equipment will grow substantially.
We track sales of FPGAs into communications and other applications, and these two categories diverged in 2015. The downturn in wireless infrastructure severely impacted FPGA sales in communications, and we do not see a return to 2014's peak level through our forecast horizon. Conversely, our outlook for FPGA sales into other applications remains positive in 2015 and beyond. FPGA vendors are fielding ever more capable chips across a broadening range of prices. At the same time, the cost of developing ASICs and ASSPs continues to rise, which improves the business case for FPGAs.
Complementing our comprehensive market-share report, this document provides investors, product-marketing staff, and executives with insight into the state of the communications IC market and key trends. Extending our ongoing coverage of the industry, it outlines both our quantitative estimates and the important assumptions behind them so that readers can better integrate our forecasts with other information they may have.