Samsung Springs the Trap?
August 12th, 2008By Paul Gray, Director of European TV Research
Last quarter I struggled to make sense of the TV chip makers’ figures. Mediatek sales appeared to decline, and this didn’t fit with their general trend of design wins and a rising Flat Panel TV market. It seemed as though either someone else was gaining share, or that there was a sudden cutback in production which didn’t fit with what the TV set makers were telling us for our forecast.
It appears as though the picture is now clearer. The clue was Trident’s earnings call on 28 July, which stated that Samsung had now switched to its own in-house supplier from its mid-range chip supplier. For a long while most observers have seen Samsung’s TV IC capabilities grow: in MPEG decoding, video processing, front ends and RF, demodulation and of course DRAM and flash. Samsung had the pieces, and the question was when (or if) they would put them together convincingly.
At the same time, Samsung’s TV component purchasing has been running what I call its escalator: Hungry new IC vendors are nurtured, learn a lot and grow. They are then challenged by a chasing group who are also travelling up the escalator. Combined with Samsung’s huge production volumes, this has produced successive waves of winners in the TV IC business; ATi, Trident and Mediatek are the most recent. However, with the increasing barriers to entry in the TV IC market simply due to the size of the devices and their design cost, it appeared to me as though this escalator had a finite life and something had to change.
What has now happened is the entry of Samsung’s internal supplier, and this appears to be Samsung’s end game. The mid-range sets use a new Samsung one-chip TV IC concept called ‘Bay Hill.’ They have now gone vertically-integrated, and the merchant opportunity for them will be in the niches of high-end, regional specialization and bleeding-edge features. The other area will be the most commoditized at the low end where IC vendors are prepared to take lower margins than Samsung. It is not a happy outcome for Mediatek and MStar, who had expected to travel on a journey to the same heights that Trident enjoyed.
Samsung now appears to be as vertically integrated as Panasonic with all key components under its roof. It will be interesting to see if Samsung pursues Panasonic’s policy of using that verticalization to pursue uniqueness, or whether Samsung’s TV ICs will enter the merchant market and create a further earthquake.
