Tuesday, March 28, 2006

iSuppli: China maker leaps to second place among MP3 player market’s chip suppliers

Chris Crotty at iSuppli pens a column for DigiTimes that states the fastest-growing company in the MP3 player market is not Apple or Samsung, but "actually China’s Actions Semiconductor, which supplies system-on-chip (SoC) semiconductors used to control MP3 players."

According to Crotty, "Actions in 2005 increased its shipments of such SoCs to 49.8 million units, up a staggering 308% from 12.2 million units in 2004. The company’s revenues from MP3 player SoCs correspondingly soared to US$147.9 million in 2005, up from US$54.1 million in 2004."

Based on this growth, Actions is:

  • slightly behind rival SigmaTel, which shipped an estimated 50.8 million units in 2005
  • PortalPlayer, the SoC supplier for all models of the Apple iPod, except the shuffle, retained its number-three rank with 26.6 million units
  • Another 9.1 million units from the remaining suppliers made up the rest of the market.
Actions' spectacular rise can be attributed to "the fast-expanding low-end segment of the MP3 market, which is based primarily in China. The company’s SoCs sell for around US$3 each, compared to an industry average of US$5.67 in 2005. Despite that low average selling price, Actions still enjoys margins in the 55-60% range."

Crotty writes that the company is also effectively marketing "its products through distributors and resellers to the many MP3 player manufacturers based in China. Six main distributors account for 80% of Actions’ revenues, and distributors overall account for 97% of sales."

Of course with success, patent infringement litigation is sure to follow. Crotty states that "SigmaTel in January filed suit in the US against Actions and its customer, Sonic Impact Technology, for patent infringement. Actions has only filed nine patents in China compared to nearly 300 filed or held by SigmaTel in various key countries. Soon after the U.S. court filing, SigmaTel followed up with a complaint to the International Trade Commission (ITC). SigmaTel this week said that ITC has ruled that Actions infringed two SigmaTel patents."

He also remarks that "the dispute has essentially prevented Actions from exporting its products to the US. It is also possible SigmaTel will try to bar Actions from selling into other countries besides the US."

While SigmaTel is being "squeezed between PortalPlayer on the high end and Actions on the low end," Crooty writes that the company "is fighting back with two new chip. However, one of the new chips, the 36xx platform has a new architecture, which is also targeted at the higher end market. This could limit adoption and "securing design wins could take time."

Crotty writes that Actions is beefing up R&D efforts and branching into "mixed signal and mobile video technologies." While "PortalPlayer continues to benefit from its strong relationship with Apple," Crotty says the company "recently scored notable design wins with SanDisk, Philips and Sirius," and is working on wireless technologies as well as "working diligently to add video decoding functionality into its controllers. The present flagship iPod relies on a Broadcom chip for video, and PortalPlayer is likely eager to win that socket as well."