Written by Lisa Ann Cairns, Ph.D.
There is a compelling, reimagined shift in how we build, use, and experience devices. Both components and end-devices are being redesigned to meet mobile demands, all while adhering to critical price points essential for success in the still-conservative and jittery global marketplace.
The rise of mobility has fueled analysts' diminished outlook for the PC sector, an outlook famously predicted by Steve Jobs in 2010 and echoed more earnestly by analysts recently. There is an irrefutable decline in PC sales and volume growth, but is this market switch as simple as trading PCs for tablets and smartphones? Or, is there a wider set of changes that can be identified and help us to understand the direction of new growth opportunities in the semiconductor and electronics industry?
Why BYOD is more than an enterprise IT trend
Bring Your Own Device (BYOD) is a very recent demand driver that is contributing significantly to the PC sector slowdown. User experience has evolved and been redefined as a hybrid of (1) the portability of mobile, wireless devices and the anywhere access afforded by them; and (2) the dedicated design integration of hardware and software to create seamless operating environments that can provide enhanced features, capabilities, and experiences for the user.
BYOD is an outcropping of the ongoing hot mobility trend. Alongside the significant, global consumer electronics demand for smart wireless devices (SWDs), particularly tablets and smartphones, BYOD encompasses the enterprise demand that typically was expressed as PC refresh cycles. BYOD leaves the choice of device up to the business user, and those users follow similar device demands in their business roles as they do in their personal, consumer roles. It is both that simple and that influential, simultaneously.
BYOD trends and sector growth impact
Smartphone growth continues to expand
The demand for mobility continues to spur high smartphone and tablet growth, with little sign of abating. Even though smartphones are poised to pass the 50% penetration rate in the mature economic regions this year, the momentum in sales and volume is not slowing, as highlighted in recent research from IC Insights:
[S]martphone shipments are forecast to grow by another 37% in 2013 and fall only 25 million units shy of 1.0 billion. Smartphones are expected to account for over 50% of quarterly shipments for the first time ever in 2Q13. In fact, smartphone shipments are forecast to reach 300 million units in 4Q13 and represent 60% of total cellphones shipped that quarter. Smartphones are expected to surpass the 50% penetration level on an annual basis this year and hold 85% of total cellphone shipments in 2016.
As IC Insights also reported, "[m]any in the cellphone industry believe new smartphone designs are reaching the point where they have enough performance to become the primary computing device for many consumers. If so, the market could be on the verge of entering into 'the post-PC era,' […]." As IDC notes, price declines are occurring in the smartphone market due to the commoditization of components as volume increases reduce Average Selling Prices (ASPs), and due to device manufacturers and OEMs exploring new design strategies for BOMs that can shave costs and provide pricing tiers that attract sales in emerging markets and mid-range developed markets.
New research from IDC reveals the significant growth opportunity for SWDs in emerging markets:
[…] global shipments of smart connected devices (PCs, tablets, and smartphones) are expected to surpass 1.7 billion units by 2014 with roughly 1 billion units delivered to the emerging markets. Within the emerging markets, the BRIC countries – China, India, Brazil, and Russia – are expected to generate shipments of 662 million units with a shipment value of more than [US] $206 billion. More than 650 million units are forecast to be shipped to developed markets with the United Sates, UK, and Japan capturing more than 400 million units with a shipment value of [US] $204 billion.
With the BRIC countries expected to surpass the total shipments to developed markets by 2014, it is clear that demand for smart connected devices is quickly shifting from developed to emerging markets. The emerging markets are expected to grow at a compound annual growth rate (CAGR) of 17% over the 2012-2017 forecast period, compared to the 7% CAGR expected in developed markets.
The IDC research underscored that, of these smart connected device shipments, the vast majority of the 2014 shipment, 1.4 billion of 1.7 billion units, is expected to be smartphones and tablets, while PC shipments forecast only 300 million PC units for the same period.
Tablets gaining momentum
Tablets are very much at the growth forefront, along with smartphones. They are central to non-PC computing options because they offer a larger interactive, multitasking device with optional external keyboards, touch interface, portability, battery life, connectivity, and a seamless user experience. Tablets from leading OEMs and whitebox manufacturers are experiencing significant sales and volume growth. The announcements at Computex Taipei 2013 highlight the shift to reduce entry-pricing levels while seeking to expand the hybrid space for "phablets," devices that bridge the smartphone and tablet sector. According to Credit Suisse research, "Asia Semiconductor Sector 15 April 2013, China tablet/smartphone supply chain momentum remains healthy," "the Chinese tablet and smartphone ecosystem continues to show innovation and near 100% YoY growth momentum, with features pushing up to offer improved quality at a reasonable price necessary to drive volume expansion in emerging markets." (p.1)
Tablets and smartphones continue to gain over PCs in emerging markets because access to computing is more restricted due to availability of PCs at both consumer and enterprise levels. Given the opportunity to purchase a device, the preference is for smartphone and tablet purchases over PCs. The choice is based on SWDs providing the needed access for internet connectivity and cloud computing for processing, while offering other user experiences in the same device.
In mature economies, the adoption of tablets is behind that of smartphones and continues to see more rapid adoption still. Current price reductions due to component ASP declines plus increased and focused competition are pushing adoption despite lingering conservative consumer trends. Citi Research analysts expect "tablet shipments to growth [sic] 60% y/y to reach 206M in 2013, surpassing the notebook market." (p.16) IDC forecasts are in line with these Citi Research data, forecasting growth of "58.7% year over year in 2013 reaching 229.3 million units, up from 144.5 million last year."
The PC-era's plateau or shift?
Given the data and the obvious demand preference for SWDs over PCs, what is the future of the "PC-era"? While we may be witnessing the waning of the present PC-device era, it is more likely that, rather than obsolescing, PCs are shifting to become more-convertible devices with a stronger focus on mobility (both portability and connectivity). The latest Ultrabooks are an example of just this shift, capitalizing on the innovations in component design and architecture for the smartphone and tablet market. This design shift indicates a new, closer link between PCs and SWDs, where developments in electronic components are concerned – a shift that could breathe new life into the PC sector.
Considering this year's industry news from Computex Taipei 2013, Consumer Electronics Show (CES), and Mobile World Congress (MWC), component architecture improvements clearly fronted the demand for "smart" hybrid and/or multitasking devices. These new components keenly pushed the mobility envelope regarding form factors, processing power, multitasking, efficiency, machine-to-machine (M2M) connectivity, RF and sensors, pricing, and similar improvements. Mobility in general, and BYOD more specifically, amounts to the drivers of strong demand for components that meet the new form factors, interface through touch, and power efficiency expectations.
Clearly, component demands have been addressed and are entering the market. At Computex Taipei 2013, there were many new, hybrid devices that now bridge tablet and PC ultra-portable devices. On display were ultrabook/tablet convertibles manufactured by both leading OEMs (e.g., Dell, Acer, Asustek, Lenovo, Sony, among others) and whitebox device manufacturers (e.g., Malata, HKC, Electronic, Hasee Computer, among others), touting touch-driven, multi-core models that meet the demands for a wide range of features and pricing tiers.
The next generation PC devices, the convertible, detachable, hybrid ultrabook-tablet devices, hold significant promise to meet BYOD demands by providing devices that connect to larger screens and keyboards in an office setting while converting quickly and effortlessly to tablets for portability. These convertibles are still high-end products with prices ranging well into US $1,000+ levels. At the single-purpose device level, the entry price for new tablets and notebooks continues to fall and open up to wider markets, notably priced into the low US $100 range for the emerging market. One concern among analysts is the negative effects of a "race to the bottom" in pricing that could compromise earnings margins.
As high-end devices move to quad-core processors, the availability of single- and dual-core processors at reduced ASPs has contributed to the lower pricing levels for new entry-level tablets and smartphones. The ASP change in the component market is an opportunity for increased device competition and adoption at mid- to entry-levels in the tablet, smartphone, and notebook PC sector.
Among the latest generation processors and SoCs, announcements from leading OEMs underscored the dedicated design and manufacturing strategy serving mobility demand. Computex Taipei 2013 provided a substantial amount of processer news, notably from the leaders, Intel, AMD, ARM, and Nvidia, to name a few.
Intel officially introduced its fourth-generation Intel Core processor family, code-named Haswell. Beyond the various specification improvements of Intel's Haswell processors, perhaps the most remarkable and newest aspect is dedicated mobility design. Intel took into account the diversification opportunities for device OEMs to deliver hybrid devices, or, as Intel calls them, "a broad new category of 2-in-1 devices." Intel announced that their next generation, 22nm Intel Atom processors, code-named Bay Trail, would be available in products for the 2013 holiday season. Whereas the Haswell series is designed for hybrid PC-tablet devices, the "Bay Trail-T" series is an Atom-based, SoC-processor series, based on the new Silvermont microarchitecture. As Intel describes the new microarchitecture, "Silvermont [serves] as the foundation for a breadth of 22nm products targeted at tablets, smartphones, microservers, network infrastructure, storage, and other market segments, including entry laptops and in-vehicle infotainment." The design focus is on core mobility and multitasking features demanded from computing and SWDs to support multi-functional use and help device manufacturers compete in diverse markets with price competitiveness in mind.
AMD, seeing the opportunity and interest in diversification as a market strategy trend, announced its "Unified Gaming Strategy," "which the company hopes will make games playable on PCs and gaming consoles with minimal modifications in code," as reported by Computerworld. But AMD's offerings certainly don't stop there; AMD's new Temash and Kabini processors provide scalable solution series for designers and manufacturers to meet the mobility and pricing demands of consumers. As device and market competition increases, there is increased opportunity for AMD to gain market share.
ARM also presented its new processors, now spanning a full range of solutions series. While there are high- and low-range series, ARM unveiled the Cortex-A12 processor core and the Mali-T622 GPU recently. These are targeted at mid-range performance levels, sliding in between Cortex-A9 and A15, to round out the series. Together, the A12-T622 combination provides a solution series for expanding mid-range mobile devices to meet feature demands with price competitiveness, a solution that will enable growth in emerging markets, as well as the remaining developed market consumers who are just entering the market due to lowered pricing.
Nvidia presented its latest Tegra 4 and 4i series updates. Combining significant processing power that attends to high demands for graphics, mobile platforms, and seamless user experiences, ARM's next generation processors support the BYOD and mobility drivers. Nvidia's Tegra 4 and 4i series expand the solution series by providing more mid-range options for designs that can deliver the user experience of high-end devices at middle price points. Nvidia's approach targets the importance of delivering a range of mobile features at lower prices in SWDs to meet the demands of an increasingly-diverse market range, both socioeconomically and regionally. Based on ARM architecture, Tegra 4 series' sweet spots are not just pricing and features, where Nvidia leads, but also providing developers opportunities to design PC-like experiences for mobile devices, a significant attraction to consumers. Nvidia is clearly pushing the mobile processing envelope, and is supporting important innovation needed to move the industry into the next generation of smart wireless device capabilities.
Mid-range strategic market positions are not the sole domain of processors. With increased demand and adoption by mid- to lower-priced smartphones and tablets globally, we see an increase in memory components' unit volumes for mobile devices. DRAMeXchange research tracked mobile DRAM sales:
[…] total 4Q12 revenue for the mobile DRAM industry grew 21.4% from the third quarter and reached US$2.74 billion, boosted by climbing shipments of low to mid-end smartphones as well as seasonality. In the first quarter of 2013, however, revenue fell to US$2.6 billion, a quarterly decrease of 5.2%, due to the effects of the off-peak quarter.
At first glance, the PC sales downturn might be considered a significant blow to the DRAM memory market, but there are other variables offsetting depreciations. Firstly, smartphones consumer higher amounts of mobile DRAM than feature phones. Secondly, there is a notable decline in the number of DRAM suppliers and in equipment purchases (indicating no noteworthy capacity expansions). Then there are shifts away from PC-based memory and favoring mobile DRAM, and ongoing inventory drawdowns because of continued macroeconomic uncertainty. The result of these simultaneous events in DRAM has been more of a shortage situation for mobile DRAM, supporting price increases. Analysts across the board are increasing forecasted revenue growth for the overall DRAM memory market as restructuring continues with only three major DRAM suppliers remaining.
The tightening mobile DRAM situation is forecasted by some analysts, such as Credit Suisse, to continue into 2014 based not on a single point, but on a set of issues that strengthen the likelihood of such a forecast:
[…] (1) fewer producers; (2) the divergence of DRAM demand drivers with mobile devices overtaking PC DRAMs; and (3) the uncertainty in DRAM equipment technology keeping new fab builds at bay. (Credit Suisse, SK Hynix Inc: Shifting to the bull-case scenario, 03 June 2013, p. 1, ff.)
We estimate that the DRAM industry will likely face tight conditions throughout 2014, unless additional capacity requirements are addressed soon. The PC DRAM shortage that led to sharp price rebounds are [sic] also impacting server DRAMs, where prices are also rising. Should mobile DRAM prices also rise, we believe there could be more upside to average DRAM pricing. Our new model forecasts much higher levels of operating profit being generated given the sharp QTD increase in DRAM prices which will be further leveraged by stronger volume growth. (ibid., p. 8)
These are powerful and very promising forecasts for mobile DRAM, particularly in light of the earlier troubled market conditions, weak pricing, and oversupply that we recently experienced. Again, mobile DRAM illustrates the impact that mobility is having on the semiconductor supply chain as specific component sectors are significantly uplifted due to the growing demand for SWDs.
Forecasts for NAND are not nearly as positive as for DRAM. Analysts are in agreement that the second half of 2013 (2H13) forecast for NAND is holding steady based on questionable demand drivers, limited bit growth, and higher pricing levels that manufacturers are not willing to reduce to stimulate demand (for example, see the latest research from DRAMeXchange). One of the reasons for the reluctance to lower prices is the expectation of possible NAND shortages in 2014 due to strict inventory management currently.
Anticipated demand for ongoing smartphone growth will continue to support roughly 26% of the NAND flash memory market, according to IC Insights. As their research indicates, "Smartphones are forecast to account for 26% of the [US] $30.0 billion NAND flash memory market in 2013. (The NAND flash market is forecast to grow 12% in 2013 from $26.8 billion in 2012)." This represents significant increase over non-smartphone devices. The question is whether the volume increases in smartphone sales will be enough to support continued NAND growth, or if this unit volume increase will put additional pressure on lower ASPs. The limited bit growth expected in next generation smartphones is also important to factor into NAND growth. Visibility continues to be challenging. However, the demand for embedded Multi Media Card (eMMC) is still being debated and could significantly influence the NAND market.
One bright spot for NAND is the potential held by convertible Ultrabooks and PC devices with SSDs. If the devices take off, there will be increased NAND growth from the onboard SSD demand. Some analysts argue that increased global smartphone demand and unit volume sales will support stronger NAND forecasts due to "the demand for more local storage capacity [that] will grow." However, there are inventory issues with NAND, and inventory excess continues to put significant downward pressure on NAND ASPs, as mentioned above. This inventory excess occurred in the wake of the early phase of SSD and Ultrabook growth that did not materialize. According to iSuppli, "[g]lobal shipments of solid state drives (SSD) in PCs are set to rise by a factor of seven by 2017, allowing them to claim more than one-third of the market for PC storage solutions by that time […]."
So, the question remains, how long will the NAND suppliers be able to stave off ASP declines, and will the latest burst of device innovations, incorporating the newest series of processors, be enough to entice refresh cycles that would, in turn, support NAND growth? Utilization and capacity cuts have, so far, held dramatic ASP declines at bay, but a demand uptick is still needed for NAND. Apple's recent WWDC 2013 announcement, as reported by ComputerWorld, describes how the incorporation of PCIe in the next generation of MacBook Pros could be a bright spot for NAND.
Where are we headed?
Clearly, as we see from the selected component drilldown, there are significant, innovative, and strategic market developments in components and devices alike. These innovations are directly addressing the growing demands from BYOD and mobility trends, particularly for new, mid-range price targets. Not all components are favored under mobility's growth opportunities, but processors and memory are two critical component markets that are seeing significant and positive growth from mobile and hybrid devices.
BYOD is a trend that is unlikely to abate in the developed markets, having already reached roughly 10% adoption rates among enterprises. While this new device demand cycle does mean we no longer expect to see historical enterprise device refresh cycles, there are other opportunities for growth that are perhaps even more compelling. BYOD is truly pushing OEMs to design and innovate for the crossover space between tablets, smartphones, and the next generation of PC-productivity devices.
From architectural designs for components and end-devices to strategic supply chain shifts and diversifications, the directions that mobility is taking us are providing growth opportunities. There is a tight push-pull relationship between our ability to design and innovate components that will propel users to engage with their devices and with the demand to rethink ways of computing and connecting in today's mobile world. It is unlikely that we are seeing the demise of the PC era; rather, there is a compelling, reimagined shift in how we build, use, and experience devices. We have seen not only innovative components, but also end-devices designed to bridge our device demands, all while adhering to critical price points essential for success in the still-conservative and jittery global marketplace.