Hot stuff

The hottest consumer item of the moment is going to stay hot, and that's good news for chip makers.

Although the electronics industry had little to boast about in 2002, there were a few bright spots in the consumer segment. The DVD player is being hailed as the fastest-selling consumer

device ever. First-year sales of DVD players outpaced first-year sales of CDs and VCRs combined. Now, DVD player sales growth is reaching record levels, according to the Consumer Electronics Association (CEA), Arlington, VA. Unit sales to dealers hit a record 17.1 million in the United States last year, a 34% increase from 2001. That's the most sold in a single year since DVD technology first hit the market, in 1997, says the CEA.

A high growth rate is expected to continue as DVD technology moves into more applications, according to Scottsdale, AZ-based In-Stat/MDR, a division of EB 's parent company. DVD players are not only popping up in cars and sports utility vehicles but they also are being integrated into TV sets, VCRs, home theater systems, set-top boxes and personal video recorders. Falling prices will fuel more unit growth, says Jon Peddie, president of Jon Peddie Research, Tiburon, CA. Whereas feature-rich players were selling for as much as $300 in the United States last year, low-end players were priced as low as $59.

And semiconductors accounted for a big hunk of that price. In 2002, the average dollar amount of semiconductor components per device was roughly $25, according to Semico Research Corp., Phoenix, AZ. Although that dollar amount will drop as components become more integrated, Semico analyst Jason Blackwell says suppliers to the DVD market will continue to benefit from ramped-up volume sales. To stay competitive in the price-sensitive consumer market, he adds, IC manufacturers will have to integrate more functions onto a single chip to keep unit costs at a minimum. Blackwell estimates that DVD players currently carry about 13 chips, and he expects that figure to drop to seven by 2006.

Sales of DVD players will slow slightly in 2005 and 2006, as technology paves the way for DVD recorders. But In-Stat anticipates that the drop will be slight. Initial prices of DVR devices will be high, and by 2006 consumers will most likely be buying their second, third and even fourth DVD players.