Portable Devices: Parts is Parts
Driven by the ongoing paradigm shift from traditional PCs, feature phones and cable boxes, we expect the global market for portable devices, including smartphones, tablets and ultrabooks, to grow at a better than 22.9% CAGR through 2016. While this is an obvious boon to Apple, Google, and Microsoft, it is also a huge opportunity for component suppliers. Innovations in these technologies will drive the functionality and performance of devices, usually through incremental improvement, but occasionally via wholly new approaches that have, in the past, triggered significant shifts in the device market. We have divided the parts of future portable devices into 8 categories –processors, communications, displays, memory, sensors, power, materials, and miscellaneous. Of these, displays, sensors, processors, and communications are expected to see significant innovation and to grow as a % of the typical bill of materials, while memory prices are expected to decline much faster than device requirements are expected to rise, sharply dropping the % of the BOM.
Smartphones, tablets and ultrabooks will grow at more than 22%/year, adding new innovations and addressing broader user needs. The TMT sector is in the midst of a once-a-generation paradigm shift that is remaking the way people access and use information. Portable devices, based on operating platforms from Apple, Google and Microsoft, tie user experiences to cloud-based resources across fast wireless networks and integrate them across devices and venues. We expect these devices to obsolete old paradigm platforms like PCs, feature phones and cable boxes, extending current functionality and adding richness, convenience, connectivity, ubiquity, and speed along the way. Support for workplace apps, commercial transactions, location based services, cross platform integration, media consumption, and unthought-of new uses will advance both incrementally and in leaps, with disparate market tiers, form factors and niches developing in what is currently a fairly homogenous market.
Booming device demand will drive considerable opportunity for component suppliers. As the Internet continues to annex value from the rest of the economy, we expect platform owners to take a disproportionate share as they integrate the functionality of key apps into their platforms and exert control over 3rd party apps. However, these platforms rely on innovation in hardware technologies, creating a range of opportunities in 8 categories:
- Processor – ARM has become the de facto standard for its power efficiency, speed and wide chip vendor support. Intel faces a considerable uphill struggle for its alternative design, despite its process leadership, as device makers have embedded investment in the ARM architecture. Future processors will deliver more performance, in less space and with less power, likely integrating further communications and power management functions in the process. We expect the category to remain stable as a % of BOM.
- Communications – LTE is being slotted in many new frequencies. LTE Adv, a significant speed upgrade to 4G, will be available before mid-decade. NFC and WiFi Direct will enhance device-to-device connections. All of this will require more complex RF, more powerful baseband processors and more intricate antenna systems, although rising spending in these areas may be offset by integration of baseband functionality into processor-driven system-on-a-chip packages.
- Display – Today, LEDs offer better pixel density and reliability, but OLEDs are closing the gap and offer intriguing future possibilities like flexible displays, two-sided displays, exceptional thinness, and superior power efficiency. We expect the range of sizes, resolutions and price points to broaden to match developments in the devices themselves. The importance of the display in driving the user experience suggests spending in the category to outpace the total BOM.
- Memory – Old news: portable devices use FLASH, not hard disks, for storage. While on-board memory and FLASH have risen with successive device generations, increasing reliance on cloud-based processing and storage is likely to see RAM and FLASH capacities plateau or even decline going forward. Given price declines of more than 28% per year per GB, the revolution may pass by memory makers, with a long term downward trend as a % of BOM.
- Sensors – Top end smartphones come with GPS, 2 cameras, a microphone, an accelerometer, a gyroscope, a compass and a capacitive touch screen. Better image sensors will drive fine photography. Low latency, pressure sensitivity, haptic feedback and even keypad “buttons” that rise from flat glass as needed are around the corner for touch screens, which may get pressure from no-touch gesture and voice controls. New sensors measuring things like ambient light, proximity, barometric pressure, altitude, and heart rate could find their way into niche applications if not generally available devices. Trends suggest sensors will be the fastest growing part of the BOM.
- Power – Batteries aren’t getting any better, pressuring all other components to reduce their power needs. Some help can come from improvements in power management ICs, particularly as they are integrated into System-on-a-chip solutions. As such, power is unlikely to yield much savings for future device BOMs.
- Materials – Whether it’s Gorilla Glass, liquid metal or VaporMg, portable device manufacturers seek unusual casing materials to differentiate their products both aesthetically and functionally. The role of materials in BOM will vary wildly by product category and tier.
- Miscellaneous – Peripherals, such as keyboards, headsets, docking stations, charging solutions etc., will remain important, particularly for niche markets and applications. Mechanical items – hinges, buttons, etc. – tend to be idiosyncratic to individual models and a bigger piece of BOM for more complex devices like ultrabooks.
These component opportunities are being addressed by established players and small entrants alike. Well positioned companies include: ARM, Qualcomm, and Nvidia in processors, Samsung, AU Optronics, LG Displays, Chimei Innolux and Toshiba in displays, Qualcomm, Avago, Skyworks, TriQuint, RFMD, TI and Broadcom in communications, Atmel, Cypress, TPK, Wintek, Qualcomm, Samsung, Sharp, Sony and others in sensors, Qualcomm, TI and Maxim in power management, Corning in materials, and Skullcandy in peripherals.
For our full research notes, please visit our published research site.