Intel's recent moves illustrate the fast-moving, immature market
Intel spent 2004 entering—and exiting— the liquid crystal on silicon (LCOS) technology for digital television (DTV) displays arena. So what does it have in mind, now that it has acquired an Israeli company that has developed video processing technology?
With PC revenues flat, Intel wants a piece of the TV graphics chip market, which is expected to grow to nearly $2 billion in five years. So do a slew of other chip companies of all sizes. Intel and ATI Technologies approach this new market from the PC graphics space and others from traditional TV electronics. Figuring out which piece of the market to attack is hard. ATI is one early leader Intel and anyone else will have to confront.
"You have all these companies trying to get into the market, and there will be a shakeout, but not for a couple of years," says Shyam Nagrani, an analyst at iSuppli. "Companies can still make mistakes and recover when the market is this immature and growing fast."
Intel's strategy change illustrates how immature—and forgiving—the DTV chip market still is. Intel announced in early 2004 that it would offer an LCOS chip for TV displays in 2005. In late 2004, it said it would discontinue the project to focus on higher-margin areas. Taking a second chance, Intel announced in March that it had acquired Oplus Technologies, an Israeli startup founded in 1998 (it did not disclose the price). Oplus makes image processing chips for DTV and had more than 100 employees at the time of the acquisition.
Intel has not announced any products, but a spokesperson says most TV makers consider picture quality a key differentiator, so Intel believes that the highest-value silicon in DTV is the display processor, which formats incoming video, enhances image quality and manages the integration of multiple video and graphics layers. "We have the data processing capability, so what Oplus gives us is pixel processing, which is highly specialized and an increasingly important differentiator," the spokesperson says.
Henry Choy, an analyst at Jon Peddie Research, which focuses on graphics markets, says Oplus has patents on technology for video processing; color control on chips; and keystone correction, a process that helps keep images in alignment. Choy says at least one other company, Silicon Optics, has similar technology. Genesis Microchip and Pixelworks also have similar pixel processing technology, the Intel spokesperson says.
The TV analog-to-digital transition is still young. The worldwide market for TV graphics chips is expected to hit $1.9 billion by 2009, according to Choy (see the chart, "The Outlook for TV Graphics Chips"). The market for advanced TV sets is expected to grow worldwide from 22.2 million units in 2004 to 127 million units in 2009, according to Nagrani.
Nagrani sees two broad groups within the space: those making chips for TVs and those making chips for set-top boxes. The first group includes companies such as Genesis, Trident and Philips; the second group includes ATI, Broadcom and Zoran; according to Choy. ATI and Zoran have the most design wins. Zoran recently announced its own acquisition of an Israeli company: Oren Semiconductor, which develops demodulator technology for high-definition TV (HDTV). Zoran, which was already an investor in the company, paid $44.6 million in stock and cash.
With the functions of the digital set-top box being integrated into the basic TV set and all TV transitioning to digital, the two camps are converging. Analysts believe we're about to see a wild TV graphics space similar to what PC graphics were less than a decade ago.
Of the three companies that survived the PC graphics shakeout, Nvidia is noticeable for its absence in TV graphics. Intel, the overall PC graphics chip market leader, by virtue of its dominance of integrated graphics chip sets, is still figuring it out, judging from its acquisition of Oplus.
It needs to keep an eye on ATI , the market leader in discrete PC graphics chips, because it is one of the few with a clear strategy for DTV and is doing well at this early stage. It entered the digital set-top box market early and has moved into HDTV and other DTV markets. In HDTV it shipped more than five million units in 2004, making it the market leader in that segment.
Mike Gittings, ATI's director of marketing for DTV products, says the biggest hurdle for the market is customers' mass confusion about the difference between DTV and HDTV. "Everyone in the industry agrees that consumer education is the number 1 problem," he says. "If you look at surveys, you'll see that people think they have HDTV if they have a set-top box with analog, digital cable or digital satellite."
The good news, Gittings adds, is that the FCC has mandated the timing for the changeover to digital TV. "Anything that receives an analog signal today must be 100 percent digital by mid-2007," he says. Even if the nation doesn't quite make that deadline, at least there is a plan. And how does this affect a company such as ATI? Says Gittings, "It makes it easier to forecast, that's for sure."