The migration to next-generation handsets is driving chip growth. According to IDC, worldwide digital handset semiconductor revenues will increase at a compound annual growth rate (CAGR) of 18%, from approximately $17 billion in 1999 to over $38 billion in 2004, while handset shipments will post a healthy 24.4% CAGR during this same period to reach over 780 million units in 2004.
"Semiconductors for second-generation handsets will still account for a large portion of the market through the forecast period," said Michael Nguyen, analyst for IDC`s semiconductor program. "Third-generation handsets, however, are gaining momentum and will have a stronger impact beyond 2003, especially as new features drive more logic and memory content to support higher bandwidth communications and multimedia computing."
According to IDC, the GSM (global system for mobile communications) cellular segment currently accounts for more than half of all chip revenues due to its large installed base of users, particularly in Europe and Asia. Beyond 2002, however, growth in GSM will continue to slow as CDMA (code division multiple access), TDMA (time division multiple access), and 3G (third generation) penetrate further into the market and gain share. By 2004, 2G CDMA and TDMA markets will account for over 43% of the total market. The advancement of 3G handsets, which includes primarily CDMA2000 and W-CDMA standards, will also start significantly impacting the future of the market as voice and data-enabled cellular systems drive convergence.
Despite the recent slowdown in the economy and inventory issues from several leading OEMs, the opportunities for semiconductor vendors in the cellular market will continue to be very attractive. The upcoming year will be looked at as a major time of transition in the cellular handset market as technologies migrate from being "voice-only" applications. "Development of these next-generation handsets over the next few years promises to dramatically change the business environment and competitive landscape that we see today," Nguyen said.
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