CIBC Semiconductor Primer 4-0-0117

Equity Research
Industry Update
January 17, 2007 Semiconductors & Components

Sector Weighting:
Market Weight
Semiconductors: Technology and
Market Primer 4.0
A Comprehensive Guide to the Dynamic and
Complex Semiconductor Industry
CIBC's Technology and Market Primer 4.0 is an updated version of our

comprehensive "one-stop-shop" resource for semiconductor research. It is
designed for investors new to the space as well as for those seeking a
better understanding of key technological and market elements.
Inside you will find plain-English discussions of the technology behind the
semiconductor industry. We discuss the major drivers of the sector, its
cyclicality, and emerging trends. Finally, we dive into individual product and
end market segments, including forecasts and competitive positioning.
All figures in US dollars, unless otherwise stated. 07-70310 © 2007
CIBC World Markets does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may
Allan Mishan Rick Schafer have a conflict of interest that could affect the objectivity of this report.
1 (212) 667-7756 1 (720) 554-1119
Allan.Mishan@us.cibc.com Richard.Schafer@us.cibc.com Investors should consider this report as only a single factor in making their
Daniel M. Gelbtuch Sam Dubinsky investment decision.
1 (212) 667-8108 1 (212) 667-7348 See "Important Disclosures" section at the end of this report for important
Daniel.Gelbtuch@us.cibc.com sam.dubinsky@us.cibc.com
required disclosures, including potential conflicts of interest.
Daniel Morris Hugh Cunningham
See "Price Target Calculation" and "Key Risks to Price Target" sections at the
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daniel.morris@us.cibc.com hugh.cunningham@us.cibc.com end of this report, or at the end of each section hereof, where applicable.
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Semiconductors: Technology and Market Primer 4.0 - January 17, 2007
Bon Appétit
This CIBC Semiconductors: Technology and Market Primer 4.0 is an updated
version of the comprehensive “one-stop-shop” resource for the dynamic and
complex semiconductor industry we first issued in June 2003 and updated in
October 2004 and December 2005.
The report is targeted to those investors new to the sector as well as those
looking for a comprehensive resource to help them better understand key
technological or market elements within the industry. We also suggest it as a
“desk reference” for more experienced investors, as it has lots of forecast and
market share data as well as in-depth discussions of many of the important
trends affecting the semiconductor industry.
We start with basic semiconductor definitions and a simple review of
manufacturing processes. We then discuss the semiconductor cycle and key
fundamental indicators, and introduce some important concepts. We follow with
a discussion of the major semiconductor product groups, including revenue
forecasts and market share data. We then take a deep dive into the most
important end markets served by the semiconductor industry, highlighting key
players and company market shares for each application.
Product summaries cover analog, digital processors, logic, memory and discrete
devices. End market summaries cover computing, networking, telecom/
datacom, wireless, digital consumer and automotive semiconductors. We’ve
also included a section on “emerging technologies,” where we briefly discuss ten
technologies that are just getting off the ground and that will be exciting to
watch in 2007 and beyond.
Any comments that will help us make this a more successful document are
welcomed. Bon appétit and enjoy.
Allan Mishan
Executive Director
Sam Dubinsky
Director
Rick Schafer Daniel Gelbtuch
Managing Director Executive Director
Dan Morris Hugh Cunningham
Director Director
CIBC World Markets
Semiconductor Equity Research
Note on this version: Version 4.0 is a complete upgrade to last year’s Primer.
All historical data on companies is current as of 3Q06; and industry sales, unit,
and utilization data is also current up to September 2006. Market share data
has been updated to reflect the most recent third-party sources and our internal
estimates. All forecasts have been updated as well, and were also extended to
2010 (from 3.0’s 2009). Naturally, there were also changes to formatting and
the report structure to make it more readable.
Note that we also added two new end market sections: printers and WiMAX.
This brings the total number of end markets discussed to 25, plus ten emerging
technologies at the back of the report.
Also, don’t miss the company index at the very back of the report. The
semiconductor industry supports hundreds of public and private companies, and
it’s often hard to keep track of where they all participate.
2
Acknowledgments
We would like to acknowledge the contributions of our research colleagues at
CIBC whose help was invaluable in the preparation of this report.
Semiconductor Capital Equipment

Gary Hsueh
Optical Components
Jeff Osborne
Adam Hinckley
Communication Technology
Ittai Kidron
Glen Anderson
George Iwanyc
Electronics Manufacturing Services

Todd Coupland
Sean Peasgood
Enterprise Software
Brad Reback
Renaud DeVreker
Brian Denyeau
Entertainment Software
Brendan McCabe
Brad Reback
Brian Denyeau
Infrastructure Software
Shaul Eyal
Yair Reiner
Manish Hemrajani
Telecom Services
Timothy Horan
Srinivas Anantha
William Maina
Ned Baramov
3
Table of Contents
Section I: Semiconductor Basics .........................5 Section V: End Market Summary..................... 107
Semiconductor Definitions .................................. 6 Computing .................................................... 110
Semiconductor Device Structure .................... 8 PCs and Servers....................................... 111
Semiconductor Devices in Systems................. 9 PC Displays ............................................. 129
Semiconductor Manufacturing ........................... 12 Hard Disk Drives ...................................... 135
CMOS ....................................................... 19 Optical Drives .......................................... 149
Lithography ............................................... 20 Printers and Multi-Function Peripherals ....... 154
Wafer Size................................................. 23 Networking ................................................... 160
Manufacturing Strategies ............................ 25 Ethernet.................................................. 168
Geographic Centers .................................... 29 Wireless LAN (802.11) .............................. 179
Semiconductor Capital Equipment ................ 30 Bluetooth ................................................ 191
Storage................................................... 197
Section II: The Semiconductor Market ..............32
Telecom/Datacom.......................................... 211
Industry Basics................................................ 33
Central Office Line Cards ........................... 223
The Semiconductor Cycle.................................. 38 Modems .................................................. 226
Fundamentals ................................................. 46 PON........................................................ 241
Communications Infrastructure .................. 248
Section III: Market Segments and Competitors.53
Voice-over-IP........................................... 279
Semiconductor Device Types ............................. 54
Wireless ....................................................... 293
Key Competitors .............................................. 60 Wireless Handsets .................................... 298
Section IV: Product Summary ...........................64 Wireless Infrastructure ............................. 310
Analog............................................................ 67 WiMAX .................................................... 317
Analog SLICs ............................................. 68 Consumer Devices ......................................... 325
Analog ASSPs ............................................ 70 Digital Set-Top Boxes ............................... 326
Digital Processors ............................................ 72 Digital TV ................................................ 333
Microprocessors ......................................... 73 DVD Players and Recorders ....................... 343
Microcontrollers ......................................... 76 Digital Cameras and Camcorders................ 350
Digital Signal Processors ............................. 79 MP3 and Portable Media Players ................. 356
Video Game Consoles ............................... 361
Digital Logic .................................................... 81
Flash Memory Cards ................................. 370
Special Purpose Logic ................................. 82
Display Drivers .......................................... 84 Automotive ................................................... 374
General Purpose Logic ................................ 85 Emerging Technologies................................... 379
ASICs ....................................................... 86 NAND Cache in PCs .................................. 380
FPGAs/Programmable Logic Devices ............. 88 Ultra Wide Band/Wireless USB ................... 381
Memory .......................................................... 90 Zigbee .................................................... 383
DRAM ....................................................... 91 Infiniband ............................................... 384
SRAM ....................................................... 94 iSCSI ...................................................... 385
Flash ........................................................ 96 Next-Generation Backplanes...................... 386
Mask ROM, EPROM, Other NV Memory .......... 99 Mobile TV ................................................ 387
GPS ........................................................ 388
Discretes and Optoelectronics.......................... 101
IPTV ....................................................... 389
Discretes................................................. 102
Coax and Phone Line Networking ............... 390
Sensors .................................................. 104
Optoelectronics ........................................ 105 Company Index ................................................ 392
4
Section
Section I:
I: Semiconductor
Semiconductor Basics
Basics
This section deals with the basics of

semiconductors.
Topics include:
Semiconductor definitions
Manufacturing
- Semiconductor manufacturing process
- CMOS
- Lithography & Moore’s Law
- Wafer Size
- Manufacturing Strategies
- Geographic Trends
- Semiconductor Equipment
5
Semiconductor
Semiconductor Definitions
Definitions
A semiconductor is a solid-state substance that is

halfway between a conductor and an insulator. When
charged, the substance becomes conductive; when the
charge is eliminated, it loses its conductive status.
By combining conductive material, semiconductor
material, and insulators in a pre-determined pattern, the
movement of electricity can be precisely controlled.
Semiconductors are therefore ideal for building devices
that control the operation of electronic equipment.
A transistor is the basic

element used in building
semiconductor devices. A
transistor is fashioned from
semiconductor material and
acts as an on/off switch,
which opens and closes when
electrically activated. Source: Computer Desktop Encyclopedia, CIBC World Markets Corp.
A semiconductor is a solid-state substance that is halfway between a conductor and an insulator. When charged with
electricity or light, the substance becomes conductive. When that charge is eliminated, it loses its conductive status.
By combining conductive material, semiconductor material, and insulators in a pre-determined pattern, the movement
of electricity can be precisely controlled. Semiconductors are therefore ideal for building devices that control the
operation of electronic equipment.
The basic element used in constructing semiconductor devices is the transistor, which is simply a tiny on/off switch
fashioned from semiconductor material that opens and closes when electrically activated. The transistor is composed
of semiconductor material; thus, when it is in the “off” stage it is not conductive, and does not allow current to flow
through it. When a voltage is applied to the transistor, it moves to the “on” stage, becoming conductive and allowing
current to flow through it.
6
Semiconductor
Semiconductor Definitions
Definitions
The simplest semiconductor devices are comprised

of a single transistor; these are called discretes
and are usually used to control the flow of signals
and power within a larger electronic device.
More complex semiconductor devices are built by

combining multiple transistors and conductive
interconnect material to form logic gates.
These logic gates are arranged in a pre-defined
pattern to perform more complex processing or
storage functions. These devices are called
integrated circuits (ICs).
The simplest semiconductor devices are comprised of a single transistor. These devices are referred to as discretes,
and they are used in all types of electronic equipment used to control the flow of signals and power within a larger
electronic system.
When many transistors are combined, an integrated circuit is created that can be used to process or store data signals
in an electrical format. Engineers design pathways using transistors and conductive interconnect material set in
logical arrangements (called “logic gates”) to perform specific functions, and these pathways become the circuit
architecture etched onto the surface of the chip. Industry participants will often use the terms semiconductor,
integrated circuit, chip, or microchip interchangeably; usually they are referring to any microelectronic device built
around transistors.
All electronic devices are built around semiconductors—transistors make up logic gates, logic gates make up circuits
and circuits make up electrical systems. Key end applications are computing, telecommunications, data networking,
wireless communications, consumer electronics, automobiles, industrial equipment, and aerospace and military.
7
Semiconductor
Semiconductor Device
Device Structure
Structure
Semiconductor devices contain a transistor array,

which is etched onto a rectangular piece of silicon
called a die. The die is encased in a plastic or ceramic
package, and tiny wires called wire bonding are
used to connect the input/output gates on the chip to
the leads on the outside of the package.
Typically, the cost split for a fully packaged IC is
roughly 90% for the silicon and 10% for the package.
Plastic/Ceramic Package and
Substrate
Back View
Wire
Bonding
Silicon
Die
Package
Leads
Front View Back View Interior View

Source: CIBC World Markets Corp.
Typically, semiconductors are sold as stand-alone, fully functional packaged products that are ready to be
implemented in an electrical system. The transistor array, which is etched onto a rectangular piece of silicon (called a
“die”) during the wafer fabrication process, is housed in a plastic or ceramic package, and tiny wires called “wire
bonding” are used to connect the input/output gates on the die to the leads on the package. The semiconductor
device is snapped or soldered onto a printed circuit board, with the leads attached to conductive pathways along the
board.
For most semiconductor devices, the split in manufacturing value for a fully packaged semiconductor device is roughly
90% for the silicon and 10% for the package, although this can vary with the type of package and complexity of the
device. Lower end devices such as discretes can have 30% or more of its value in the package given the maturity of
the transistor process used at the trailing edge. On the other end of the spectrum, high-end devices such as
microprocessors sometimes need more complex packages to deal with the speed and heat dissipation of the device,
and therefore derive a higher value from the package as well.
Note that in many cases, IC vendors offer the same die in a variety of packages to accommodate different feature
sets, power requirements, device characteristics, platforms or customers. Depending on the design, the type of
package used can have a dramatic impact on the speed, power consumption, heat dissipation and footprint of the
device.
8
Semiconductor
Semiconductor Devices
Devices In
In Systems
Systems
Getting Designed In
Semiconductor devices are used as components in
larger electrical systems designed by an original
equipment manufacturer (OEM). Chip vendors will
sample their devices to OEMs, and are awarded
design wins as the OEM designs the part into their
systems. The chip vendor will then provide production
versions of the device, which will be qualified by the
OEM before going to full production.
Semiconductor devices can be custom designed for a
specific customer and platform; these are called ASICs
and are usually designed in cooperation with the OEM.
Merchant devices called ASSPs are not designed for
specific customers and can therefore be used by
multiple OEMs. For the most generic components,
OEMs will often buy off-the-shelf components, many
of which are sold through the distribution channel.
Semiconductor devices are used as components in larger electrical systems designed by an original equipment
manufacturer (OEM). Chip vendors supply samples of their devices to OEMs, sometimes based on specifications
dictated by the customer. They are then are awarded design wins as the OEM designs the part into their systems.
The chip vendor will then provide production versions of the device, which will be qualified by the OEM before going to
full production. This entire process can be as short as several weeks or as long as a year or even more.
Semiconductor devices can be custom designed for a specific customer and platform; these are called ASICs and are
usually designed in cooperation with the OEM. ASICs are generally used when performance is key (e.g., a core
router) or when volume on a single device is significant enough (e.g., a game console). Merchant devices called
ASSPs or simply “standard products” are not designed for specific customers and can therefore be designed in by
multiple OEMs. ASSPs are generally used when time-to-market and costs are key (e.g., PCs, MP3 players). For the
most generic components, OEMs will often buy off-the-shelf components, many of which are sold through the
distribution channel. This includes not only memory but also standard logic, analog and discrete devices.
Customer engagements take many forms. Sometimes the OEM issues straight purchase orders; other times they will
have a deeper engagement with a formal supply contract or even a technology partnership. The deeper the
engagement, the more customization the OEM will typically expect from the chip designer. Note that design wins are
awarded not only based on the performance of the device; factors such as pricing, software, service, support, existing
relationship, track record, strength of the roadmap, scalability and other factors are often just as important.
9
Semiconductor
Devices In
In Systems
Systems
System IP and Standards

For more complex electronic systems, semiconductor
vendors will incorporate system IP (intellectual
property) directly into their ICs. Often, they will try
to integrate as many logic functions as possible into a
single SoC (system-on-a-chip) or chip set in order
to reduce the OEM’s bill of materials. The IC vendor’s
system knowledge will be critical in winning the design.
Chip vendors design their devices to conform to the

needs of their target customer set. Sometimes, the
OEM will supply specifications directly to their chip
vendors. In mature, high-volume markets, the devices
will often adhere to specifications as defined by a
standard, set forth by a standards body. This
allows multiple chip and equipment vendors to
compete more easily, speeding time-to-market and
lowering the cost of the technology implementation.
When dealing with more complex systems, semiconductor vendors will incorporate system intellectual property (IP)
directly into the device, either in the form of logic gates or in software or firmware that runs on top of the device.
This is especially true in the case of application specific standard products, which get sold into multiple platforms at
multiple vendors. By incorporating the system IP, the chip vendor lowers the design cost for the OEM and also speeds
time-to-market, two factors that often matter more than simple performance or device pricing.
IC designers will usually try to integrate as many logic functions as possible into a single IC in order to reduce the
OEM’s bill of materials. Sometimes, it will prove too difficult or too costly to integrate certain functions, and the IC
vendor will offer a chip set, either internally or with a partner. In any case, the IC vendor’s system knowledge will be
critical to winning the design.
Chip vendors will design their devices to conform to the needs of their target customer set. Sometimes, the OEM will
supply specifications directly to its chip vendors, either in an ASIC arrangement or when multiple vendors compete for
a standard product win. In the more mature, high-volume markets, devices will often adhere to specifications as
defined by a standard, set by a standards body such as International Organization for Standardization (ISO) or the
Institute of Electrical and Electronics Engineers (IEEE). This allows multiple vendors to compete, speeds time-to-
market, and lowers the cost of the technology implementation across the supply chain. Chip vendors maintain seats
on the standards bodies alongside their OEM customers in order to influence the outcome of standards negotiations.
10
Semiconductor
Devices In
In Systems
Systems
The Evolving Electronics Supply Chain

The electronic equipment industry supply chain has
undergone significant changes in the last decade, as
OEMs increasingly outsource aspects of their production
process. Electronics manufacturing services
(EMS) companies build products for their OEM
customers. Original device manufacturers (ODM)
companies go a step further, taking over portions of the
design and procurement process. The PC industry also
has a large and mature motherboard sector that serves
both PC OEMs and the distribution channel.
Semiconductor vendors must maintain relationships

with their OEM customers’ outsourcing partners.
Component decisions are increasingly being pushed
toward the ODMs and EMS, favoring companies with
strong channel relationships.
The electronic equipment industry supply chain has undergone some significant changes in the last decade, as OEMs
have shifted their business models away from chasing hardware margins and increasingly toward cultivating software
and service businesses. This has driven hardware prices lower and forced sharper attention on costs.
In addition to shifting production to low-cost regions like Asia, OEMs are increasingly looking to outsource some
aspects of the production process. Electronics manufacturing services (EMS) companies are now responsible for a big
piece of PC, wireline, and wireless equipment production. Original device manufacturer (ODM) companies take it a
step further, taking over some aspects of the design process. The PC industry also has a large and mature
motherboard sector that serves both PC OEMs and the distribution channel.
In order to keep pace with the evolving supply chain, semiconductor vendors must maintain relationships with their
OEM customers’ outsource partners. Component decisions are increasingly being pushed toward the ODMs and EMS,
favoring companies with strong channel relationships. In the PC market, for example, servicing the motherboard
makers is just as important as winning designs with OEMs back in the U.S. and Japan.
11
Semiconductor
Semiconductor Manufacturing
Manufacturing
Semiconductor devices are manufactured in specialized

factories called wafer fabs using a process known as
wafer fabrication. Circular wafers of silicon are put
through a cycle of chemical processes in order to etch an
ion-charged transistor array as patterned on a set of
masks. On top of the transistor array, layers of metal
interconnect form pathways between the transistors;
the layers are insulated by a dieletric material.
After wafer processing, the

finished wafer is put
through a dicing process,
where individual die are
separated. These are sent
to a back end facility for
packaging and assembly
and final test.
Source: IBM
Semiconductor devices begin the manufacturing process in specialized factories called wafer fabs using a process
known as wafer processing or wafer fabrication. In this set of processes, known as “front end” manufacturing, circular
wafers of silicon are put through a cycle of chemical processes in order to etch a transistor array pattern on the wafer
(multiple units are etched onto each wafer; they are later separated into individual devices). During this process, a
stepper will image the circuit pattern from a set of masks that contain the device design. Through stages of
deposition, masking, etching and implantation using advanced photolithography, a series of intricate transistor arrays
are formed on the surface of the wafer.
Once the transistor array is complete, the interconnect layers will be built on top of the silicon transistors. These, too,
are patterned on a set of masks and are created through multiple cycles of deposition, masking and etching using
photolithography. Interconnect is applied layer by layer, with an insulating dieletric material deposited in between.
The interconnect material is usually aluminum or copper, while a variety of non-conductive materials are used for the
dieletric.
Once wafer processing is complete, the wafer is sliced into individual die with a diamond drill through a process called
dicing. The individual die are then transferred to a “back end” facility for final packaging and assembly and final test.
12
Semiconductor
Semiconductor Manufacturing
Manufacturing
Semiconductor Manufacturing Flow Diagram

Wafer Wafer Dicing Assembly &
Manufacturing Processing Packaging
Key Steps: Key Steps: Key Steps: Key Steps:

Crystal Pulling Chemical Vapor Deposition Dicing Die Attach
Crystal Slicing Coating Wire Bond
Wafer Lapping and Polishing Align and Expose Encapsulation and
Cleaning Develop and Bake Finishing
Oxidation Etch and Strip Resist Final Test
Ion Implantation
Physical Vapor Deposition
Chemical Mechanical Planarization (CMP)
Passivation
Wafer Probe/Test
Semiconductor manufacturing can be divided into four relatively discrete stages. These include wafer production,
wafer processing, dicing, and back end assembly and test.
• Wafer production: In this stage, silicon wafers are created from raw silicon. Separate wafer companies
perform this process; few semiconductor device makers produce their own wafers.
• Wafer processing: Wafers are run through a series of chemical and lithographical processes to etch the
transistor array and interconnects. Also called front end processing, this is the longest, most complex and
most costly stage of semiconductor manufacturing. “Fabbed” semiconductor producers and foundry suppliers
perform this process.
• Dicing: The processed wafer is chopped into individual die using a diamond drill. This is done at the
beginning of the back end process.
• Assembly and test: Individual die are placed into a plastic or ceramic package and tiny wire bonding is used
to connect the input/output gates on the chip to the leads on the outside of the package. The finished device
is then tested. Assembly is done either by fabbed semiconductor producers or by third-party outsourcers;
test is usually done in-house by both fabbed and fabless chip producers but can be outsourced.
The steps are discussed in further detail on pages 14-18.
13
Wafer
Wafer Manufacturing
Manufacturing
Silicon wafers are produced by heating a mixture of silica

and carbon in a furnace, creating wafer-grade silicon. A
seed is then dipped into the molten silicon and is slowly
twisted and pulled out. This creates a cylindrical ingot
several feet long, which is ground to an appropriate
diameter (200mm, 300mm, etc). The ingot is then sliced
into thin wafers for shipment to IDMs and foundries.
Source: MEMC, CIBC World Markets Corp.
The first step in building a semiconductor device is the manufacture of silicon wafers. A mixture of silica and carbon is
heated in a furnace, creating a molten mixture of wafer-grade silicon. A silicon seed is dipped into the melt and
slowly pulled out. This creates a cylindrical ingot several feet long, which is ground to the proper diameter (200 mm,
300 mm, etc.). The ingot is then sliced into thin wafers for shipment to IDMs and foundries. The pictures below
display crystals, ingots and finished wafers.
Source (all pictures): MEMC, IBM, Texas

Instruments, Computer Desktop Encyclopedia.
14
Wafer
Wafer Processing:
Processing: Pre -Metal
Pre-Metal
In the pre-metal stage, Oxidation/

Deposition
wafers are put through
an intense cycle of Coating
chemical processes in Light - Light - Light
order to etch a transistor

array patterned on a set Lithography
of masks.
Through cycles of Chemical
deposition/oxidation, Bath
photolithography,
Etching
etching, and ion
implantation, the
transistor array is Stripping
created. Charged ions Ions Ions
are then deposited to Implantation

enable transistor Silicon Wafer Soft Photoresist
functionality. Deposited Material Mask
Photoresist Ion Charged- Silicon
The first half of the front end process is called the pre-metal stage. In this stage the transistor array is etched onto
the wafer and ions are deposited in selected areas beneath the surface of the silicon.
Oxidation/deposition: In this first step, oxide material is deposited onto the surface of the wafer. This can be done
through oxidation, which involves the heating of the wafer in a furnace filled with oxide gas, or through physical (PVD)
or chemical (CVD) deposition of the material onto the surface of the wafer.
Photolithography: The wafer is then coated with a layer of photoresist—a material that is sensitive to light. A wafer
stepper then focuses an intense beam of light through a pre-formatted mask, softening the photoresist material in
certain areas of the wafer according to the pattern of the mask in front of the light source. The wafer is then sent
through a chemical bath to dissolve the soft photoresist.
Etching: Etching tools then remove the oxide material that is not still covered by photoresist. Once etched, the
remaining photoresist material is stripped away using special chemicals.
Ion implantation: At various stages throughout the process, implantation equipment creates charged regions within
the silicon wafer to enable transistor functionality. Ionic materials known as dopants are shot into the wafer, where
they remain under the surface of the silicon. Both positive and negative dopants are used.
15
Wafer
Wafer Processing:
Processing: Interconnect
Interconnect
After the transistors are created, they are connected

together to form the logic gates using an interconnect
material, usually aluminum or copper. The metal layers
are built with stages of deposition, lithography, and
etching, similar to the pre-metal stage but using separate
equipment and masks. Dieletric material is deposited
between the layers to insulate them from one another.
Passivation Layer 3rd Metal

Layer
Metal (Aluminum)
Tungsten Insulating Material (Dielectric) 2nd Metal
“plug” Layer
Metal (Aluminum)
Tungsten Dielectric 1st Metal
“plug” Layer
Metal (Al)
Tungsten
“plug” Gate
Gate Dielectric Gate
+ + - -
Source Drain Source Drain
N-well (negatively charged)
Positively charged silicon wafer
After the transistor array is created, the wafer is moved to The picture below displays an IBM-fabricated SRAM
the metal area of the fab, where interconnect layers are cell with the insulating oxide films removed.
deposited and etched to create the logic gates. The metal
interconnect layers are created through cycles of deposition,
photolithography and etching, similar to the pre-metal stage
but with separate equipment. In between each of the metal
layers, dieletric material is deposited to insulate the metal
layers from one another. A final passivation layer is added
above the top metal layer to protect the circuitry.
Most devices use aluminum or copper for the interconnect
layers. Aluminum tends to resist the flow of electricity as
wires are made thinner and narrower; therefore, most
device manufacturers shifted to higher performance copper
interconnects when they began 0.13-micron production. The
number of metal layers varies by device; the highest
performance devices can have as many as nine metal layers. Source: IBM.
16
Dicing
Dicing
After the wafer is processed, a diamond drill is used to

slice the wafer into individual die. Each die is tested
before being sent to the back end facility.
Semiconductor Finished Wafer and

Dicing Diamond Drill Individual Die
Source: IBM Source: LSI Logic, Denali Software
Once the wafer is fully processed and all pre-metal, metal and inter-metal layers are built, a diamond circular saw is
used to separate the individual die. The die are then tested for defects and the good die are sent to a back-end line
for packaging and final test.
17
Back
Back End:
End: Assembly
Assembly &
& Test
Test
The individual die are sent to a back end assembly

facility, where they are attached to a package, wire
bonded, encapsulated, and run through final test.
Die Wire Encapsulation & Final Test

Attach Bonding Finishing
Back View
Front View
Once diced, the individual die are then

packaged and tested. Each die is first
attached to a package, and wire bonding is
used to connect the input/output gates on
the die to the leads on the outside of the
package. The device is then encapsulated,
sealed and markings are affixed. A final
test is conducted before shipment.
Note that many devices are now using a
process called flip chip, where the die is
flipped during packaging. This increases
the performance of the device but is also
more costly.
The pictures to the right displays an IBM
semiconductor package, with a close-up
displaying wire bonding. Source: IBM.
18
Manufacturing:
Manufacturing: CMOS
CMOS
CMOS (Complementary Metal Oxide

Semiconductor) is the most widely used type of
semiconductor design and manufacturing process.
CMOS processes use standard silicon wafers and
combine both positive and negative transistors.
In general, devices fabricated in CMOS will be
cheaper to manufacture and will consume less
power than other devices. Designs done in CMOS
are also easier to scale to smaller transistor sizes.
Most semiconductor designers and manufacturers will
use standard CMOS wherever possible. However,
certain high-performance or specialized applications
require the use of bipolar or compound
semiconductor manufacturing processes.
CMOS (pronounced “see-mos”), which stands for complementary metal oxide semiconductor, is the most widely used
type of semiconductor design process in production today. The CMOS process uses standard silicon wafers and
combines PMOS (positive) and NMOS (negative) transistors in specific ways, so that the final product consumes less
power than PMOS-only or NMOS-only circuits. Devices fabricated in CMOS are cheaper to manufacture and consume
less power than devices fabricated using other processes, and CMOS is therefore generally used whenever possible.
Other types of manufacturing involve certain compounds more suited to specific types of applications, primarily for
high-speed communications or power management and amplification. Silicon germanium (SiGe) is a commonly used
compound for high-speed physical layer devices in wireline communications. Gallium arsenide (GaAs) is used in
wireless handsets and set-top boxes, as it is better suited to high-voltage RF (radio frequency) applications. It is also
used in optoelectronic devices for wireline communications. Other exotic semiconductor processes include silicon
bipolar (BiCMOS), indium phosphide (InP), indium gallium phosphide (InGaP) and indium gallium arsenide (InGaAs).
In general, these specialized processes are more costly to design and manufacture than standard CMOS and are more
difficult to scale down to smaller process technologies (see section on lithography starting on the next page).
Therefore, wherever possible, designers tend to choose CMOS over these processes.
Although CMOS should represent the bulk of manufacturing in the near future, we note that several large IDMs,
including Intel, IBM, AMD and Texas Instruments, have developed a process known as strained silicon, which allows
for the use of silicon germanium transistors alongside standard CMOS transistors.
19
Manufacturing:
Manufacturing: Lithography
Lithography
Lithography, also known as geometry or

simply process technology, describes the level
of “smallness” the manufacturing process can
achieve, which determines the size of the
transistors on the die.
Smaller transistors mean:

1) electrons move quicker between them
faster devices
2) more transistors per square inch
smaller die sizes
cheaper devices
3) less electricity needed to power them
lower power consumption
Lithography, as mentioned in the section on wafer processing, is a general term used for the set of processes that
transfer the transistor array and interconnect design from the mask onto the silicon wafer. The level of “smallness”
the manufacturing process can achieve is therefore determined by the lithography equipment; this in turn determines
the size of the transistors on the die. The industry continually shrinks transistor size, also known as feature size, by
moving to more advanced lithography equipment. On average, the industry moves to a new process geometry node
every two years.
The advantages of moving to smaller lithography are threefold. First and foremost, smaller transistors mean faster
devices. The smaller the transistor, the less time it takes for the electrical charge to move across it. Second, smaller
transistors mean smaller overall die size, which means more devices per wafer, which translates into lower cost per
device. The ability to integrate additional logic, analog, discrete and memory content more cost-effectively stems
from this as well. Third, smaller transistors mean lower power consumption and therefore cooler running devices.
In order to achieve smaller geometries, manufacturers must invest in new lithography equipment and must alter their
designs to take advantage of the new transistors. Certain technology challenges also need to be addressed (in
addition to the normal yield issues that result from any new manufacturing process), such as current leakages,
increased source and drain resistance and difficulty in sending thinner laser light through glass. Most recently, the
industry has required innovations such as copper interconnect and low-K dialetrics in order to meet these challenges;
future innovations currently under development include high-K dieletric and extreme ultra-violet (EUV) lithography.
20
Manufacturing:
Lithography
Moore’s Law
Advancement towards finer lithography, which enables
smaller and smaller transistors, is the primary driver
behind the dramatic improvement in semiconductor
device performance over the past few decades.
Moore’s Law states that the number of
transistors on a chip doubles about every two
years. The phenomenon was first noticed by
Intel founder Gordon Moore, and has held
basically true for the past 40 years or so.
In addition to the doubling of transistor density, each

new lithography generation usually brings 0.7X minimum
feature scaling, 1.5X faster transistor switching speed,
reduced chip power, and reduced chip cost.
The continuing advancement toward more advanced lithography,

which enables smaller and smaller transistors, is the primary
driver behind the dramatic improvement in semiconductor device
performance over the past few decades.
These advancements drive Moore’s Law, which states that the
number of transistors on a chip doubles about every two years.
Intel co-founder and industry legend Gordon Moore first noted the
trend in DRAM densities and the law has held true for the past 40
years or so.
In addition to the doubling of transistor density, each new
lithography generation usually brings 0.7X minimum feature
scaling, 1.5X faster transistor switching speed, reduced chip
power, and reduced chip cost.
The diagram to the right displays the number of transistors on
each successive generation of Intel microprocessors.
© Intel Corporation
21
Manufacturing:
Lithography
Transistor sizes are measured in microns or nanometers
(1 micron = 1,000 nm). About 35% of wafer production in
2005 was at geometries of 0.5-micron and above, with
another 15% in 0.25- and 0.35; these are mostly discretes
and analog ICs. More complex logic uses 0.18- and 0.13-
micron, while the most advanced devices use 90-nm
(0.09-micron) or bleeding edge 65-nm (0.065-micron).
2005 Production By Monthly Production By
Process Technology Process Technology
100%
65-nm
2% >500-nm
90-nm
250/350-nm
19% 80%
180-nm
130-nm
>500-nm
35% 60% 90-nm
65-nm
40%
130-nm 20%
19%
0%
Sep-01
Sep-02
Dec-02
Sep-03
Dec-03
Sep-04
Dec-04
Dec-05
Mar-99
Jun-99
Sep-99
Dec-99
Mar-00
Jun-00
Sep-00
Dec-00
Mar-01
Jun-01
Dec-01
Mar-02
Mar-03
Mar-04
Mar-05
Sep-05
Mar-06
Sep-06
Jun-02
Jun-03
Jun-04
Jun-05
Jun-06
250/350-nm 180-nm
15% 10%
Note: Data displayed in MSI (millions of square inches of wafer) Note: Data displayed in MSI (millions of square inches of wafer)
Source: VLSI, CIBC World Markets Corp. Source: VLSI, CIBC World Markets Corp.
Transistor size is measured in microns, or one millionth of a meter, although it is increasingly being quoted in
nanometers (abbreviated “nm”). Most devices built today use deep sub-micron transistors, with prevalent geometries
being 0.130-micron (130 nm) and below. The majority of advanced ICs in production today use 90-nm (0.09-micron)
processes, though IDMs are ramping to volume on devices using 65-nm (0.065-micron), which we estimate will
represent 5%-10% of shipments in 2006. On average, the industry moves to a new process geometry node every
two years and 45-nm (0.045-micron) products are expected to be commercially available in mid 2007 to early 2008.
Traditionally, high-volume processor and logic (usually DSP and ASIC) manufacturers lead the charge at each
transistor node; these are the manufacturers that are ramping 65-nm in volume today. High volume commodity
DRAM and NAND flash providers are a half-step behind, though memory processes are typically much simpler (fewer
metal layers, etc.) than processors and logic, so at times memory vendors may actually pull ahead of logic vendors.
Just behind the logic and memory manufacturers are the leading edge foundries, which typically load their most
advanced fabs with graphics and PLD chips as well as DSPs. The advanced foundries today concentrate on 0.13-
micron and 90-nm process, and plan to ramp 65-nm in 2007. The foundries are followed by SRAM and NOR flash
memory producers, though many of these have been moving to an outsourcing model in the last few years.
Sitting at the trailing edge are discrete device manufacturers, today mostly at 0.25-micron and above. Analog
semiconductor production generally takes place on separate processes, typically several generations behind.
22
Manufacturing:
Manufacturing: Wafer
Wafer Size
Size
Wafer size is the diameter of the wafer used in

manufacturing.
Larger wafers more die per wafer
lower cost per die
Most fabs today use 150 mm (6-inch) or 200 mm (8-
inch) wafers. 300 mm (12-inch) fabs are in volume
production now; the larger wafers yield more than twice
the die per wafer of a 200 mm equivalent.
Source: VLSI Research, Intel. Source: Promos
Wafer size refers to the diameter of the silicon wafer used in manufacturing. The majority of manufacturers use 150
mm (6-inch) or 200 mm (8-inch) wafers, with 300 mm (12-inch) reserved for the most advanced, highest volume
production.
The advantages of using larger wafers are purely lower cost: the larger the wafer size, the more die can fit on a
single wafer with a less than proportional increase in cost per wafer. No additional chip performance is attained, just
more die are produced at lower average cost per die (once the process reaches volume production and start-up costs
are amortized).
Presently, the industry is moving from 200 mm wafers to 300 mm wafers. Note that the 50% increase in wafer
diameter translates to a 2.25X increase in usable wafer area (remember that the area of a circle is determined by r2;
some additional gains are realized on the periphery of the wafer, where the larger circumference yields smoother
curves). For example, a 200 mm process running a die size of 12 cm x 12 cm would yield 180 gross die per wafer; a
300 mm process running the same die would yield 432 gross die.
In order to move to larger wafer size, most equipment in the fab must be replaced, and in many cases, an entirely
new facility must be constructed. Consequently, moves to larger wafers occur once every few years and the time
between moves has been steadily rising (Intel estimates that its next move, to 450 mm (18-inch) wafers, will not
happen until at least 2015).
23
Manufacturing:
Manufacturing: Wafer
Wafer Size
Size
The ramp of 300 mm continues at a steady pace, with new
fabs coming on-line from logic and memory manufacturers
as well as foundries. 300 mm wafers represented roughly
18% of total industry production in 2005, and wafer
shipments are likely to increase over 70% in 2006. Most
manufacturers have paired 300 mm wafers with their
most advanced lithographies.
2005 Production By Monthly Production By
Wafer Size Wafer Size
100%
<150 mm
300 mm
5%
18%
150 mm 80%
19%
60%
40%
<150 mm
150 mm
200 mm
20%
300 mm
0%
May-99
Sep-99
Jan-00
May-00
Sep-00
Jan-01
May-01
Sep-01
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-04
200 mm
58%
Note: Data displayed in MSI (millions of square inches of wafer) Note: Data displayed in MSI (millions of square inches of wafer)
The ramp of 300 mm continues at a steady pace in 2006. Three hundred mm wafer production increased 58% in
2005 and represented 18% of the industry’s overall production. In 2006, 300 mm production should increase over
70%, representing a mid-twenties percentage of total industry production. Note that 300 mm wafers represented an
even larger percentage of the leading edge production, as most manufacturers have paired 300 mm wafers with their
most advanced lithographies.
In general, the companies that have led the charge are both manufacturers of the highest-volume products and
companies for whom manufacturing is a key competitive advantage. The most aggressive 300 mm manufacturers
include Intel, Texas Instruments, Samsung, TSMC, Hitachi, and Elpida.
24
Manufacturing:
Manufacturing: Strategies
Strategies
Integrated Device Manufacturers (IDMs)

manufacture their own devices. Typically, these are
mature vendors dealing in high volume products. IDMs
have lots of operating and cyclical leverage.
Examples: Intel, Texas Instruments, Samsung, Toshiba, Renesas
Fabless companies design devices themselves but

contract the manufacturing to others. These companies
are more focused on design, and enjoy more margin and
earnings stability as well as lower capital requirements.
Examples: Broadcom, Qualcomm, NVIDIA, Xilinx, Marvell, MediaTek
Foundries and Assembly and Testers are specialized

third-party manufacturers that perform wafer fabrication
or back-end processing for others on a contract basis.
Examples (foundry): Taiwan Semiconductor, UMC, SMIC, Chartered
Examples (assembly and test): ASE, Amkor, Siliconware Precision
Semiconductor companies can be divided along manufacturing lines into three segments: IDMs, fabless and
foundries. IDMs design and manufacture their own devices, fabless companies design their devices but don’t
manufacture them and foundries perform manufacturing but no design. Increasingly, IDMs are moving toward hybrid
strategies, retaining some manufacturing in-house while contracting out for some additional capacity. These hybrid
strategies offer more production flexibility while minimizing the level of critical capacity investments. Others have
given up on manufacturing altogether and are going fabless.
Front End Manufacturing Strategies

Integrated Device Manufacturer
Integrated device manufacturers, or IDMs, design and manufacture their own devices. Typically, these will be the
more mature semiconductor manufacturers that deal in very high-volume products. These vendors also typically
consider manufacturing expertise a key competitive advantage and a core competency for their businesses, either for
technology reasons (e.g., they want to be first to market with next generation lithography, or they have specialized
processes, etc.), to leverage economies of scale, to control their supply, or for a host of other reasons.
IDMs enjoy high margins in the boom part of the cycle as their fixed costs do not change, but suffer low margins in
the trough of the cycle as capacity goes unused. This effect should not be underestimated, as fixed costs (including
25
depreciation and fixed material and labor costs) can run as high as 80% of semiconductor manufacturing costs. IDMs
must also maintain large capital expenditure budgets to stay ahead of the competition in order to ensure that they do
not suffer performance or cost disadvantages; consequently, their ongoing cash needs are greater.
Key examples of IDMs include Intel, Samsung, Micron, as well as nearly all the Japanese semiconductor suppliers. We
also consider partial-outsourcers like Texas Instruments, STMicroelectronics, Infineon, and Freescale to be IDMs, as
manufacturing is still a big part of what these companies do.
Fabless
Fabless companies are those that design devices themselves but contract the manufacturing to third parties. These
vendors typically focus on design, leaving manufacturing competencies to others. The benefits of a fabless model
include a lack of fixed costs, which translates into lower capital investment requirements, more consistent margins
and better earnings predictability. Fabless companies have the opportunity to gain share vs. IDMs in the downturn
(since wafer costs for them will decline while unit costs for IDMs rise with declining output) and will lose share at the
peak of the cycle (because of the opposite effect). This effect can be neutralized if all direct competitors are fabless.
Key fabless vendors include Broadcom, Qualcomm, Marvell, Xilinx, Altera, NVIDIA, Conexant, and PMC-Sierra. The
list of fabless companies has been growing nicely, as the vast majority of semiconductor start-ups are fabless. Also, a
number of IDMs have gone fabless in the past few years, including Agere, LSI Logic, AMCC, and Vitesse.
Foundry
Foundries are specialized third-party manufacturers that perform wafer fabrication for others on a contract basis.
Foundries do not design any devices themselves, rather they manufacture the designs of fabless companies and IDMs.
Key foundries include Taiwan Semiconductor (TSMC) and United Microelectronics (UMC) in Taiwan, Chartered
Semiconductor in Singapore, SMIC in China, DongbuAnam in Korea and IBM Microelectronics in the U.S.
Hybrid Strategies
As mentioned above, many vendors use a hybrid manufacturing strategy. Most IDMs use external foundries for at
least some of their production, usually when in-house capacity becomes tight or for specific leading edge devices.
This trend has accelerated in the last cycle, as IDMs found themselves burned by too much capacity in the 2001
downturn. As mentioned above, big-name IDMs like Texas Instruments, STMicroelectronics, Infineon, and Freescale
all outsource a significant portion of their production.
Others use a “fab-light” strategy, outsourcing most of their manufacturing but keeping some in-house (usually, the in-
house facility will be used either for older, more mature manufacturing or for specialized processes).
Another hybrid strategy, though less common, is where IDMs manufacture their own designs and also sell the excess
capacity to fabless companies as a foundry for additional revenue.
Back End Manufacturing Strategies

On the assembly and test side, the same three types of companies exist: those with internal facilities, those that
outsource and specialty assembly and test outsourcers. We note that very few IDMs will do 100% of the packaging
themselves, as packaging types in the industry number in the hundreds and most IDMs are unwilling to invest in all
the necessary equipment. Further, many IDMs (particularly high performance IC manufacturers) will focus on leading
edge packaging technologies in-house, but will leverage low-cost outsourcers in Asia for the mainstream processes.
Still others (particularly low cost producers) will do most of the bulk processes in-house but will contract out some of
the higher performance packages.
Test functions are often conducted in the same facility as packaging and assembly. However, many fabless
companies will outsource the packaging of their devices but will perform testing in-house; this allows them to more
quickly identify design flaws.
The outsourced assembly and test market is less consolidated than the foundry market, with key vendors being ASE
Test, Amkor Technology, Siliconware Precision, and STATS-ChipPAC. Almost all test activity is conducted in the Far
East, as it is more labor-intensive than front-end processes and also carries less stringent cleanroom requirements.
26
Manufacturing:
Strategies
Foundries
The rising costs of semiconductor factories have made it
prohibitively expensive for all but the largest vendors to do
their own manufacturing. This has accelerated the trend
towards outsourcing. The major foundries—TSMC, UMC,
SMIC, and Chartered—have therefore nicely outpaced
industry revenue growth for the past several years.
Foundry vs. 2005 Semiconductor
Semiconductor Revenue Foundry Market Share
$20 $400
Others
Foundry Revenue
16%
$350
Semiconductor Revenue
$16 Hua Hong NEC
$300
Semiconductor Industry Revenue ($B)
2%
DongbuAnam
Foundry Sector Revenue ($B)
2%
$250 Vanguard
$12
2%
Magnachip TSMC
$200 45%
2%
$8 IBM
$150 4%
$100 Chartered
$4 6%
$50
SMIC
6%
$0 $0 UMC
15%
99
00
01
02
03
04
05
19
20
20
20
20
20
20
Source: Dataquest, WSTS, CIBC World Markets Corp. Source: Dataquest, CIBC World Markets Corp.
The rising costs of semiconductor factories and equipment over the past few years have made it prohibitively
expensive for all semiconductor vendors to do their own manufacturing in house. This has forced many high-volume
players to search for partners to do their wafer fabrication. Fabless designers have also grown in importance, and
even control certain sub-segments of the semiconductor industry (graphics, PLDs, etc.); and since they are 100%
outsourced, the foundries have had to grow to meet their supply needs.
At the same time, the major foundries have done an excellent job of ramping leading edge capacity with world-class
yields. The traditional top-three foundries—TSMC, UMC, and Chartered—were all very aggressive in getting to 0.13-
micron and have carried that through to 90-nanometer as well. Shanghai start-up foundry SMIC has also gained a lot
of ground with logic and memory producers, and even overtook Chartered in 2005 in terms of revenue.
Revenue growth trends tell the story well: in foundry, revenue growth has outpaced semiconductor industry growth in
four of the last six years, and over that period has risen by 145% vs. the industry’s 52%. Going forward, we expect
foundry revenue growth to continue to outpace the overall industry, though the rate will likely decelerate somewhat.
In terms of market share, TSMC was the leading foundry provider in 2005, with 45% overall revenue share. UMC
followed with 15%. SMIC and Chartered each held 6%, and IBM held 4%. Other vendors include Magnachip (which
spun out from Hynix), Vanguard International, DongbuAnam, Hua Hong NEC, X-Fab, compound semiconductor
foundry Jazz Semiconductor, and Japanese IDMs Fujitsu and Toshiba.
27
Manufacturing:
Strategies
Assembly and Test Services

The trend toward outsourcing has also benefited back end
providers, though not as dramatically as the foundries.
IDMs often keep back end production in-house because
they can realize lower costs, though fabless companies
usually outsource. Top assembly and test houses include
ASE, Amkor, Siliconware Precision, and STATS-ChipPAC.
Assembly and Test vs. 2005 Assembly and
Semiconductor Revenue Test Market Share
$16
Assembly and Test Revenue
$300 ASE Group
Outsourced Assembly and Test Services Sector Revenue ($B)
Semiconductor Revenue 17%
$250
$12
Semiconductor Industry Revenue ($B)
Others
$200 41%
$8 Amkor
$150 14%
$100
$4
Siliconware
$50 Precision
KYEC 9%
2% STATS
$0 $0 Carsem UTAC ChipMOS
ChipPAC
2% 2% PowerTech 3% 8%
99
00
01
02
03
04
05
19
20
20
20
20
20
20
2%
Source: Dataquest, WSTS, CIBC World Markets Corp. Source: Dataquest, CIBC World Markets Corp.
The trend toward outsourcing has also benefited back end providers, though not as dramatically as the foundries.
IDMs have tended to keep more of their back end production in-house because they can realize lower costs and the
capital investment required is not nearly as large. As mentioned above, however, very few IDMs will do 100% of the
packaging themselves, as packaging types in the industry number in the hundreds and most IDMs are unwilling to
invest in all the necessary equipment. Further, many IDMs (particularly high performance IC manufacturers) will
focus on leading-edge packaging technologies in-house, but will leverage low-cost outsourcers in Asia for the
mainstream processes. Still others (particularly low-cost producers) will do most of the bulk processes in-house but
will contract out some of the higher performance packages.
The outsourced assembly and test market is less consolidated than the foundry market. Almost all assembly and test
activity is conducted in the Far East, with the top two vendors in 2005 being ASE (Taiwan) and Amkor (Korea) , with
17% share and 14% share, respectively. Other key vendors include Siliconware Precision, STATS-ChipPAC, ChipMOS,
PowerTech, UTAC, Carsem, KYEC, and Shinko Electric.
28
Manufacturing:
Manufacturing: Geographic
Geographic Centers
Centers
The largest geographic centers for semiconductor front

end production are Japan and Asia, each about 1/3 of
total production, with the final 1/3 split roughly evenly
between North America and Europe.
Asia has grown in importance over the past two
decades: Korea is a major center for memory, displays,
and commodities, and Taiwan hosts the largest
foundries as well as some memory producers. China is
also ramping up with several fabs under constructions.
North Europe and
Japan America Israel Taiwan Korea China
Renesas Intel Infineon Winbond Samsung

Key Toshiba Texas Instruments STMicro Nanya Hynix
IDMs NEC Electronics Freescale NXP/Philips Powerchip Magnachip
Sharp IBM AMD Promos
Spansion Micron Intel
Matsushita Analog Devices Robert Bosch
Sony
Major Toshiba IBM Micro X-Fab TSMC Magnachip SMIC

Foundries Seiko-Epson Jazz Semi Tower Semi UMC DongbuAnam ASMC
Fujitsu Grace
Microcontrollers MPUs, MCUs, DSPs Logic, ASSPs Logic, ASSPs Memory Memory
Key Discretes Logic, ASSPs Analog Memory Logic, ASSPs Logic
Products Memory Analog MPUs Display Drivers Display Drivers
Logic, ASSPs Memory Discretes
Analog Discretes Memory
The largest geographic centers for semiconductor front end production are Japan and Asia. Japanese electronics
OEMs have historically been vertically integrated and thus retain fabs for their own semiconductor production. They
are also large suppliers of microcontrollers, discretes, general purpose logic, and analog ICs to the broader market.
DRAM, a big priority in Japan in the 1980s, has shifted away from Japan for the most part, but flash has ramped up
for both NOR and NAND. Still, Japan accounts for about 34% of semiconductor capacity.
Asia ex-Japan has clearly grown in importance over the last two decades, now equal to Japan at 34% of capacity.
Korea (11% of total) is a major center for memory, displays and commodities and electronics giant Samsung
continues to invest and grow in importance. Taiwan (11% of total) hosts the largest foundries as well as some
memory producers. China (9% of total) is also ramping up, mostly with foundry production for memory and logic.
The U.S. (17% of total) is still the most important region for high-end logic, with most CPU and DSP production as
well as microcontrollers and ASSPs. Custom ASICs, a wide array of memories, analog ICs and commodities also have
a large presence. Europe (15% of total, including fabs there owned by U.S. companies) has a similar mix; Infineon,
STMicroelectronics, and NXP/Philips are large diversified players that compete across these categories, and Intel and
AMD each run large microprocessor fabs in the region (Intel in Ireland and Israel, AMD in Germany).
Note that back end factories are more weighted toward Asia due to the large labor component. Back end facilities are
spread throughout the region, not only in Taiwan and Korea but also in China, Malaysia, Singapore, and elsewhere.
29
Semiconductor
Semiconductor Equipment
Equipment
The semiconductor industry has a large and relatively

independent supporting industry that supplies
equipment for front and back end processing.
Top equipment suppliers include Applied Materials,
Tokyo Electron, ASM Lithography, Advantest, KLA-
Tencor, Nikon, Lam Research, and Novellus.
Applied
Automation and
Materials
14% Front End Process Control
Others
Applied Materials KLA-Tencor
41%
Tokyo
Tokyo Electron Hitachi
Electron
11% ASML Brooks Automation
Nikon Asyst
Lam Research Applied Materials
Novellus Daifuku
ASML Dainippon HP
8%
Packaging & Automated
Advantest
Assembly Test
6%
Hitachi Tokyo Seimitsu Advantest
2% Nikon
KLA-Tencor ASM Intl. Teradyne
Novellus 5%
Dainippon 3% Lam Research 4% Tokyo Electron Agilent
3% 3% Kulicke & Soffa Credence
Shinkawa Yokogawa
Source: Dataquest, CIBC World Markets Corp. BE Semiconductor LTX
The semiconductor industry has a large and relatively Semiconductor Equipment Spending, 2005
independent supporting industry that supplies wafer
Automated
fabrication, assembly and test equipment as well as factory Test Deposition
automation and process control software and hardware. 9% 13%
Few IDMs or foundries make their own equipment, though Packaging
Diffusion,
some of the larger manufacturers will partner with and
RTP, Implant
Assembly
equipment suppliers to help define the functionality of next- 10%
6%
generation tools.
Automation
In 2005, the semiconductor capital equipment industry 5%
Lithography
totaled $34.5 billion in sales. Approximately 61% of this Process 17%
total was for front-end fab equipment, which includes CVD Control
9%
and sputtering deposition, diffusion/oxidation and RTP,
lithography and ion implantation. Another 5% was for
factory automation and 11% was for process control. About Other Front Etch, Clean,
23% of equipment spending was for back-end equipment, End Planarization
16%
15%
including packaging, assembly and automated test
equipment. The exhibit to the right displays this breakdown. Source: Dataquest, CIBC World Markets Corp.
30
Top front end equipment suppliers include Applied Materials, strong in deposition, RTP (rapid thermal processing),
CMP (chemical mechanical planarization), and etch; Tokyo Electron, prominent in thermal diffusion, photoresist
processing, and etch; ASML Holding, dominant in lithography scanners; Nikon, also in lithography scanners; Lam
Research in etch; Novellus in deposition; and Dainippon Screen in etch, clean, and planarization. Together, these
vendors account for just under 75% of total front end equipment.
On the process control front and automation front, top vendors include KLA-Tencor, strong in wafer and reticle
inspection/metrology; Hitachi, also strong in wafer metrology; Brooks Automation, dominant in tool automation
hardware and software; Asyst Technologies in fab automation hardware; Applied Materials mostly in defect review;
Daifuku in fab automation hardware; and HP in automation software.
Back-end equipment suppliers include assembly and packaging equipment makers Tokyo Seimitsu, ASM International,
Tokyo Electron, Kulicke & Soffa, Shinkawa, BE Semiconductor, and Advantest. On the test side, the key vendors are
Advantest, Teradyne, Agilent, Credence, Yokogawa, and LTX.
The exhibits below display fab equipment market shares for front end and back end equipment as well as automation
and process control.
2005 Front End Equipment Market Share 2005 Automation and Process Control Market Share
Others Applied
21% Materials Other
22% 30 % KLA-Tencor
30 %
Hitachi
1%
Canon
4% z z
IBM
Dainippon Tokyo 3%
5% Electron
17% HP
Novellus Hitachi
3%
5% 10 %
Daifuku
Lam 4%
Research Applied Brooks
5% Nikon ASML Materials Asyst Automation
7% 13% 6% 7% 7%
2005 Packaging and Assembly Market Share 2005 Automated Test Equipment Market Share
Tokyo LTX Others

Seimitsu 3% 4%
11% Yokogawa
5%
ASM Intl. Credence
8% 7%
Tokyo
Others Electron
48% z 7% Advantest
Agilent 50 %
Kulicke & 14 %
Soffa
6%
Shinkawa
5%
BE
Semiconductor
Unaxis Advantest Teradyne
4%
3% Delta Design 4% 17 %
4%
Source: Dataquest, CIBC World Markets Corp.
31
Section
Section II:
II: The
The Semiconductor
Semiconductor Market
Market
This section discusses the semiconductor

market, industry fundamentals, and the
semiconductor cycle.
Topics include:
Industry Basics
The Semiconductor Cycle
Fundamentals
32
Industry
Industry Basics:
Basics: 40
40 Years
Years of
of Growth
Growth
As the enablers of electronic hardware, semiconductors

have been at the heart of the technology revolution.
The market has grown tremendously over the past 40
years, topping $227 billion in 2005.
$250 75%
$200 50%
Semiconductor Revenue ($M)
Year-Over-Year Growth
$150 25%
$100 0%
Semiconductor Sales
$50 -25%
Year-over-Year Growth
$0 -50%
63
65
67
69
71
73
75
77
79
81
83
85
87
89
91
93
95
97
99
01
03
05
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
Source: WSTS, CIBC World Markets Corp.
As the enablers of electronic hardware, semiconductors 5-Year Moving Average of 5-Year CAGR
have been at the heart of the technology sector. The 25%
market has grown tremendously in the past 40 years,

sustaining a CAGR of 14% over that period of time.
20%
Growth has been slowing, however, as the industry has
grown and matured; with the 20-year CAGR at 12%, the
10-year CAGR at 5%, and the 5-year CAGR at 2% (note 15%
that this 2% figure is based off of the 2000 bubble year

and is therefore less significant).
10%
Looking at it another way, we have plotted a 5-year
moving average of the industry’s 5-year CAGR on the 5-year rolling average of 5-year industry
graph to the right. After hovering in the mid-to-high 5% CAGR
teens for more than two decades, we see the average

dropping in the post-bubble period. We would expect the
CAGR to drift upward as we roll off the difficult comps of 0%
the bubble, but for growth to remain in the single digits.

7
5
7
0
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
33
Industry
Industry Basics:
Basics: Demand
Demand
Semiconductor demand is closely tied to the demand for

electronics. The largest consumers of semiconductors
are the computing/data processing, communications,
and consumer electronics markets. Semiconductor
revenue has also been growing as a percentage of
electronics revenue as chipmakers have absorbed more
and more of the system IP into their devices.
Electronics Revenue By Semi Revenue as a
End Market Percentage of Electronics
$1400 25%
Military/Civil Aerospace Electronics All Semiconductors
Industrial Electronics All Integrated Circuits
$1200
Semiconductors as a % of Electronics Factory Revenue
Integrated Circuits ex. Memory

Automotive Electronics
20%
Consumer Electronics
$1000
Communications Electronics
Data Processing Electronics
($ in billions)
$800 15%
$600
10%
$400
5%
$200
$
0%
8
5
8
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
20
Source: Dataquest, CIBC World Markets Corp. Note: Data displayed is five-year average to smooth price volatility.
Source: Dataquest, WSTS, CIBC World Markets Corp.
Semiconductor companies support the large and diverse electronics industry. Semiconductor demand is thus a
function of the demand for electronic equipment and the percentage of electronic equipment bill-of-materials devoted
to semiconductors.
Electronics Demand
The electronics industry totaled about $1.26 trillion in 2005, up 9% from 2004. Note that electronics revenue in 2005
exceeded the 2000 bubble year by 12%, with much healthier fundamentals behind it.
By end market, the most important applications are computing/data processing, communications and consumer
electronics. In 2005, 29% of electronics revenue was derived from data processing, which includes PCs and servers,
PC peripherals, handheld devices, displays and storage. Twenty-three percent was derived from communications,
including cellular handsets, networking equipment, telecom and wireless infrastructure, and voice and data access
equipment. Twenty-two percent was derived from consumer electronics, including analog and digital TVs,
audio/visual equipment, game consoles, set-top boxes, appliances and white goods. Another 12% was derived from
industrial electronics, 7% from military and aerospace and 7% from automotive.
The exhibits on the following page detail electronics revenue by application.
34
2005 Data Processing Equipment Revenue (29%) 2005 Communications Equipment Revenue (23%)
Other Other Comm

17% 13%
Legacy
Phones
Flash
2%
Cards/Drives
3%
Wireless
PDAs PCs Infrastructure
1% 44% 8% Handsets
48%
Storage Broadband
7% 3%
Displays
8% Telecom
Infrastructure
PC 17%
Peripherals Networking
7% Servers
13% 9%
2005 Consumer Electronics Revenue (22%) 2005 Other Electronic Equipment Revenue (26%)
Analog CRT TV
Other 5%
Consumer Military/Civil Automotive
22% Digital TV Aerospace Electronics
16% Electronics 26%
26%
Analog A/V
5%
Digital A/V
Appliances 15%
31%
Digital Set- Industrial
Top Box Electronics
Game 48%
Console 3%
3%
Semiconductors as a Percentage of Electronics

On top of electronics demand, semiconductor revenue has been growing as a percentage of the bill-of-materials and
of total electronics revenue. In 2005, this ratio topped 16% (using a five-year average, intended to smooth
semiconductor price volatility), having climbed steadily from the 10% range in the early 1990s. This increase has
been due to a number of factors, including:
• Chipmakers have absorbed more and more system IP into their devices. Chip prices increasingly include
software components and other costs.
• Outside of the memory market, chipmakers have for the most part retained pricing power in their devices,
whereas OEMs have been subject to tough competition, pressuring their pricing.
• OEMs have been able to take costs out of the box through outsourcing, just-in-time inventory, etc.
Chipmakers have benefited from Moore’s Law, but fab costs have continued to rise, as have R&D costs.
• OEMs have increasingly diversified their revenue streams by charging their customers for software, services,
maintenance contracts and other non-equipment products. This has allowed them to charge lower margins on
equipment. Semiconductor vendors, in contrast, continue to charge only for actual physical product (though
they provide some software, this is usually embedded in the price of the IC).
35
Industry
Industry Basics:
Basics: Supply
Supply
Semiconductor supply is driven by wafer fab capacity.
Long construction and equipment installation cycles as
well as high cost of plant and equipment mean that
capacity plans must be put into place far in advance,
causing inevitable periods of surplus and shortage.
While IDMs and foundries try to match supply to demand,
wafer capacity moves very slowly in both directions, and
capital expenditure budgets can be volatile.
Wafer Fab Capacity Semiconductor Cap-Ex
600 $70,000 35%
65-nm Capital Expenditures
Capital Expenditures As a Percentage of Semiconductor Sales

90-nm Cap-ex As a Percentage of Sales
Monthly Wafer Capcity (Millions of Square Inches of Wafer)
130-nm $60,000 30%

500 180-nm
250/350-nm
>500-nm $50,000 25%
Capital Expenditures ($M)
400
$40,000 20%
300
$30,000 15%
200
$20,000 10%
100
$10,000 5%
- $0 0%
Dec-99
Dec-01
Dec-03
Sep-04
Dec-04
Mar-05
Dec-05
Mar-99
Jun-99
Sep-99
Mar-00
Sep-00
Dec-00
Mar-01
Sep-01
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Sep-03
Mar-04
Jun-04
Sep-05
Mar-06
Jun-06
Sep-06
Jun-00
Jun-01
Jun-03
Jun-05
9
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
8
8
19
19
20
20
19
19
19
19
19
19
19
19
19
19
20
20
20
20
Source: VLSI Research, CIBC World Markets Corp. Source: WSTS, CIBC World Markets Corp.
Semiconductor supply is primarily a function of wafer fab capacity. Long construction and equipment installation
cycles as well as high cost of plant and equipment mean that capacity plans must be put into place far in advance,
causing inevitable periods of surplus and shortage. While IDMs and foundries try to match supply to demand, wafer
capacity moves very slowly in both directions, much slower than changes in demand. Capital expenditure budgets
can therefore be very volatile as chip suppliers adjust to the changes in demand.
Note that the costs of a leading edge fab have risen dramatically over the past few years, leading to a consolidation of
wafer supply in the hands of just a few players. Gone are the days when all semiconductor companies did their own
manufacturing; now a company will only choose to do their own manufacturing if:
1) Access to leading edge technology is core to their business model (e.g., Intel, AMD, TI, Samsung, Micron).
2) They run such high volume that they can absorb the fixed costs (e.g., Samsung, Intel, TI, Freescale, Micron).
3) They utilize niche processes (e.g., Maxim, Linear, RF Micro Devices, Anadigics).
4) They have a low-cost strategy that involves manufacturing (e.g., Fairchild, On Semiconductor, IDT, Cypress).
The industry has sustained a long-term cap-ex to sales ratio of roughly 20%-25%. When cap-ex rises above (or
below) this range for too long, oversupply (or shortage) usually results. Note that due to improvements in capital
efficiency, the cap-ex rate has drifted lower, from 25-30% in 1980s to mid-1990s to around 20% today.
36
Industry
Industry Basics:
Basics: Seasonality
Seasonality
The semiconductor industry is somewhat seasonal, based

on demand patterns for electronics. Typically, 48% of
sales fall in the first half of the year, while 52% fall in the
second half. On a quarter-to-quarter basis, sales typically
fall in Q1, are flat +/- in Q2 and rise in Q3 and Q4. In
general, devices sold into consumer channels (CE,
handsets, PCs) are typically more seasonal than those sold
to industrial, enterprise, or service provider customers.
Percentage Of Yearly Historical Quarterly
Sales By Quarter Sequential Growth
27% 6%
Last 20 years
5%
Last 15 years
26% Last 10 years 4%

Last 5 years
3%
% of Yearly Sales
% of Yearly Sales
25% 2%
1%
24% 0%
1Q 2Q 3Q 4Q
-1%
Last 20 years
23% -2%
Last 15 years
-3% Last 10 years

Last 5 years
22% -4%
1Q 2Q 3Q 4Q
Source: WSTS, CIBC World Markets Corp. Source: WSTS, CIBC World Markets Corp.
The semiconductor industry is somewhat seasonal, based on demand patterns for electronics but with a slight lead
due to the time it takes to build, test and ship the end product (semiconductors will usually go on the board in the
early stages of production). These demand patterns tend to favor Q4, which sees a bump in demand for the holiday
selling season; and also for Q3, which sees the “holiday build” as well as a somewhat less significant “back to school”
season. This is especially true for devices sold into the consumer channel, including consumer electronics, handsets
and PCs. Demand for semiconductors sold into enterprise and service provider will see smoother demand, though
there can sometimes be a budget flush at the end of the year.
Typically, 48% of sales fall in the first half of the year, while 52% fall in the second half. On a quarter-to-quarter
basis, sales typically fall in Q1, are flat +/- in Q2, and rise in Q3 and Q4. Note that we have witnessed a slight shift in
seasonality from Q4 into Q1 as electronics consumption in Asia becomes more meaningful; Asian consumers have a
holiday selling season around Chinese new year, which usually falls in late January or early February.
37
The
The Semiconductor
Semiconductor Cycle
Cycle
The semiconductor industry is very cyclical, and identifying
the phase of the cycle is critical to investment success.
Phase One Phase Two Phase Three Phase Four
"The Downturn" "The Recovery" "The Expansion" "The Peak"
Fundamentals
Macroeconomics
Economic activity Slowdown Picking up Expansion Stable growth
Pricing
Logic Decreasing Decreasing to stable Increasing Stable
Analog Decreasing Decreasing Stable to increasing Increasing
Commodities Decreasing rapidly Decreasing Increasing Peaking
Lead times
Analog/logic Contracting Stable Stable to expanding Expanding to peaking
Commodities Contracting rapidly Contracting to stable Expanding Peaking - on allocation
Capital additions
Production line additions No (over-capacity) Some Yes Yes (too many)
New capacity additions No (over-capacity) None Yes Yes (too many)
OEM/distributors
Orders Falling off a cliff Picking up Strong Frenzied
Double ordering No No No Yes
Order cancellations Accelerating Falling Very few, if any Limited
Inventory levels Too high Low Too low Building
Verticle end markets

Sell-through Even slower Growing Strong Slowing
Forward outlook Cautionary Cautionary Cautiously optimistic Optimistic
Investment Implications
Group stance Underweight Overweight Overweight to market weight Market weight
Which stocks to buy Sell across the board; Large cap, franchise Smaller cap stocks with Need to be selective;
if exposure to the group companies greater upside potential choose companies that
is mandatory, stick with (the rising tide will will continue to take
franchise names fift all boats) market share
The semiconductor sector is highly cyclical. A typical cycle can generally be broken down into four key phases:
• Downturn: This phase follows the peak in revenues of the previous cycle and is usually sparked by slowing
economic activity. Orders dry up and cancellations begin to happen. OEMs start to work through too-high
inventories. Pricing begins to fall as sales fall and capacity built during the boom period pressures pricing.
IDMs and foundries cancel pilot line additions and may even close down or consolidate trailing-edge fabs.
• Recovery: The recovery is a period of stabilization following the free-fall of the downturn. In this phase,
prices stabilize but remain at low levels and unit demand starts to pick up with increased economic activity.
Orders pick up and cancellations decrease and inventories at IC vendors, distribution and at OEMs subsist at
low levels after a long burn-off. In general, capacity is not being added and may even be decreasing.
• Expansion: Following the recovery comes the new expansion. Economic activity drives end demand, which
causes stronger orders and few cancellations. Prices begin to rise and IDMs begin to cautiously add capacity
to meet increasing output forecasts. Lead times stretch out and order visibility improves.
• Peak: Eventually, the expansion phase leads to a peak as economic activity enters a period of stable growth.
Prices remain strong as capacity additions from the expansion phase do not yet flow through to hit pricing.
Orders continue to arrive at a frenzied pace with limited cancellations. Double ordering begins and inventory
builds in the channel. IDMs and foundries continue to add capacity, until a downturn begins.
38
The
The Semi
Semi Cycle:
Cycle: Sales
Sales
Monthly year-over-year sales growth has been volatile
over the past few years and has cycled as high as 42%
and as low as -2%. The market was in a
recovery/upturn from 2002-2004 and has since
vacillated between a downturn and a recovery.
$24.0 60%
50%
$20.0 40%
30%
Monthly Semiconductor Revenue ($B)
$16.0 20%
10%
$12.0 0%
-10%
$8.0 -20%
-30%
$4.0 YoY Growth -40%

Three-Month Average Sales
-50%
$0.0 -60%
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
The breakout growth of electronic hardware has driven Semiconductor Sales Long Term CAGR, YoY Growth
dramatic growth in semiconductor sales over the long Averages and Standard Deviation
term. Still, the cyclical nature of the semiconductor
industry has caused phenomenal boom periods and 2005 Mean Median Standard
destructive downturns. Fundamental industry CAGR YoY Gr. YoY Gr. Deviation
characteristics such as long product production cycles,
40 years 14% 16% 18% 19%
the quick pace of innovation (funded by increasingly tech-
centric capital markets), volatile pricing, inventory effects 30 years 14% 14% 18% 18%
and capacity builds have caused wild sales volatility year- 20 years 12% 13% 10% 19%
to-year. 15 years 11% 12% 9% 19%
10 years 5% 10% 7% 22%
The data reflects this quite clearly: while the mean year-
over-year revenue growth rate has been in the low- to 5 years 2% 10% 13% 24%
mid-teens over any long-term period we look at, the
standard deviation for this growth rate has approached or
topped 20% in every instance (and in fact spiked in the
bubble and post-bubble period). The exhibit to the right
displays this data.
39
The
The Semi
Semi Cycle:
Cycle: Units
Units and
and ASPs
ASPs
Unit growth has been slightly less volatile than sales; it

has has cycled as high as 33% and as low as -3%.
Long production cycles and double-ordering cause
inventory builds and corrections through each cycle.
ASPs have remained volatile and generally add to the
boom during periods of strong unit demand (and when
inventories build) and exacerbate the downturn when
demand softens (and inventories decline).
Unit Shipments Average Selling Price
14.0 50% $1.00 $3.00
40% $0.90
12.0
$2.50
30% $0.80
10.0 20% $0.70

Monthly IC Unit Shipments (B)
Monthly Semiconductor ASP
$2.00
$0.60
Monthly IC ASP
10%
8.0
0% $0.50 $1.50
6.0
-10% $0.40
$1.00
-20% $0.30
4.0
-30% $0.20
Three-Month Average Semiconductor ASP $0.50
2.0 YoY Growth
-40% $0.10
Three-Month Average IC Units Three-Month Average IC ASP
0.0 -50% $0.00 $0.00

Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Source: WSTS, CIBC World Markets Corp. Source: WSTS, CIBC World Markets Corp.
Semiconductor unit shipments have also proved volatile, though they generally show more stability than revenues.
While the long-term trend has been up, shipments are affected by periods of double-ordering and subsequent
inventory corrections, which exaggerate more muted upturns and downturns in end demand. This volatility can be
seen best in the last major boom/bust of the late 1990s/2000s, where year-over-year growth in unit shipments
ranged from the 40% level on the high side down to -35% on the low side. This range is about 40% smaller than the
range for revenue growth, but is still plenty of volatility for such a large industry.
The market has been quite resilient since the last major downturn. Since 2002, year-over-year growth in unit
shipments ranged from as high as 33% to as low as -3%. This is likely attributable to more effective management of
supply chains by both semiconductor vendors and customers; recent inventory builds and corrections over the past
few years have been relatively mild.
Pricing has also moved around over time, adding to the boom during periods of strong unit demand and exacerbating
the downturn when demand decelerates. The commoditization of memory products like DRAM and flash has added to
this phenomenon as it represents such a large percentage of industry sales. Note that the trend of semiconductor
companies outsourcing production to foundries has mitigated ASP volatility to some extent.
40
The
The Semi
Semi Cycle:
Cycle: Capacity
Capacity Utilization
Utilization
Capacity utilization is the link between units and ASPs.

As unit production rises, capacity utilization also rises, and
producers slow down price decreases (or even raise prices).
Eventually, new capacity comes on line to meet demand.
In the downturn, capacity becomes a liability as IDMs and
foundries try to fill up their fabs by offering price
concessions. Eventually, restructuring removes excess
capacity and prices stabilize until unit demand returns.
Capacity vs. Production Capacity Utilization
600 100%
500
90%
Millions of Square Wafer Inches
400
80%
300
70%
200
60% Three-Month Average W.W. Front End Utilization

100 Chip Capacity
Three-Month Average W.W. Test Utilization
Chip Production
Three-Month Average W.W. Assembly Utilization
- 50%
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06
Capacity utilization provides the link between units and ASPs. During cyclical expansions, rising unit demand pushes
utilization higher and IDMs become less willing to offer price concessions to customers. Foundries also slow price
declines for wafers to their customers, which in turn prompts fabless competitors to react with their own pricing
adjustments. Thus, when utilization rates run high, price curves for high-volume products slow down or in some
cases prices actually rise, especially for commodities. Since the positive pricing effects happen at the same time as
increasing unit shipments, revenue is doubly affected. Note that lead times also stretch out during this period, as
OEMs are forced to order further in advance to guarantee component supply.
Rising utilization and prices generally spark IDMs and foundries to bring on more capacity to meet the demand. As
this capacity ramps, prices usually stabilize at the higher output level. When unit demand slows, this additional
capacity becomes a liability and IDMs begin to offer lower prices to win competitive business in order to fill up their
fabs. Foundries also offer lower wafer prices to their fabless customers, which in turn adjust their pricing schemes as
they seek to win market share by dropping price. Prices begin to fall; as this happens at the same as unit demand
declines (or slows), revenue is doubly affected. Lead times usually contract, as component availability improves and
OEMs begin to place orders closer to their needs to take advantage of falling prices.
As the downturn progresses, IDMs will take steps to restructure their manufacturing, first by cutting heads, then
consolidating facilities or even disposing of old equipment. Eventually, unit demand returns to absorb the lower
capacity, prices improve, lead times stretch out, and the cycle begins again.
41
The
The Semi
Semi Cycle:
Cycle: Capital
Capital Spending
Spending
Capital spending is the primary source of the

semiconductor industry’s cyclicality: pricing is dependent
on capacity utilization, which in turn is dependent on the
interaction between unit demand and capital spending.
During the boom, IDMs increase spending to meet rising
unit demand. They inevitably spend too much, sparking
price deflation when demand dries up. They then spend
too little in the downturn, sparking a cyclical expansion.
Semiconductor Cap-ex Sales and Cap-ex
$70 $250 35%
Semiconductor Capital Spending
Semiconductor Capital Spending Semiconductor Sales
$60 Cap-ex to Sales
$200 30%
$50
% of Semiconductor Sales
Dollars in Billions
Dollars in Billions
$150 25%
$40
$30
$100 20%
$20
$50 15%
$10
$0 $0 10%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: VLSI, CIBC World Markets Corp. Source: VLSI, WSTS, CIBC World Markets Corp.
Though we tend to measure the cycle in terms of semiconductor industry revenue, capital spending holds the key to
the industry’s cyclicality. Semiconductor industry revenue is, at its core, a function of unit demand and pricing. While
unit demand is based on end demand for components (though some elasticity does exist, allowing pricing to influence
end demand), pricing is based on capacity utilization, as IDMs and foundries will generally be flexible with pricing so
long as they have excess capacity and the fab economics make sense. Capacity utilization, in turn, is dependent on
the interaction between wafer demand and capital spending.
A typical cycle (peak-to-peak) will begin with an overspend/overcapacity situation. During the expansion preceding
the peak, IDMs and foundries increase spending on capacity to meet rising demand. End demand for electronics is
difficult to predict, and fab projects take years to complete; consequently they inevitably overspend at the peak of the
cycle. This sparks price deflation as demand growth begins to slow, at the same time that new capacity comes online.
The downturn brings a wave of restructuring, and IDMs look to slash capital spending to conserve cash and reduce
depreciation expenses. The length of the downturn is difficult to predict, and further, the deeper the downturn, the
less available incremental funds become for new capital projects. Thus, IDMs inevitably spend too little in the
downturn, sparking a new cyclical expansion as prices firm up, demand increases and margins begin to improve.
In general, we view 23%-25% of sales to be a “normal” level of capital spending for the semiconductor industry.
When the ratio sits outside this range for any length of time, over/undercapacity usually results.
42
Past
Past Cycles
Cycles
$5,000
1984-1990 14,000 $14,000
1990-1995 25,000
3-Monthly Average Sales 3-Monthly Average Sales
$4,500 3-Monthly Average Units 3-Monthly Average Units
12,000 $12,000
ASP (on Unit Axis)
Semiconductor Monthly Unit Shipments (M)

ASP (on Unit Axis)
$4,000 20,000
Semiconductor Monthly Revenue ($M)
Cyclical Peak

Cyclical Peak

10,000 $10,000
$3,500
$3,000 15,000
8,000 $8,000
$2,500
6,000 $6,000
$2,000 10,000
$1,500 4,000 $4,000
$1,000 5,000
2,000 $2,000
$500
$0 0 $0 0
Jun-90
Feb-91
Jun-91
Feb-92
Jun-92
Feb-93
Jun-93
Feb-94
Jun-94
Feb-95
Jun-95
Feb-96
Oct-90
Oct-91
Oct-92
Oct-93
Oct-94
Oct-95
Jun-84
Oct-84
Jun-85
Oct-85
Jun-86
Oct-86
Jun-87
Oct-87
Jun-88
Oct-88
Jun-89
Oct-89
Jun-90
Oct-90
Feb-85
Feb-86
Feb-87
Feb-88
Feb-89
Feb-90
Feb-91
$14,000
1995-1997 25,000 $20,000
1997-2000 40,000
3-Monthly Average Sales
$18,000 3-Monthly Average Units
$12,000 35,000
ASP (on Unit Axis)
20,000 $16,000

Cyclical Peak

30,000
$10,000 $14,000
25,000
15,000 $12,000
$8,000
$10,000 20,000
$6,000
10,000 $8,000
15,000
$4,000 $6,000
10,000
3-Monthly Average Sales
5,000 $4,000
3-Monthly Average Units
$2,000 5,000
ASP (on Unit Axis)
$2,000
Cyclical Peak
$0 0 $0 0
Sep-95
May-96
Sep-96
May-97
Sep-97
Aug-97
Apr-98
Aug-98
Apr-99
Aug-99
Apr-00
Aug-00
Jul-95
Nov-95
Jan-96
Mar-96
Jul-96
Nov-96
Jan-97
Mar-97
Jul-97
Nov-97
Jan-98
Mar-98
Jun-97
Dec-97
Feb-98
Jun-98
Dec-98
Feb-99
Jun-99
Dec-99
Feb-00
Jun-00
Dec-00
Feb-01
Oct-97
Oct-98
Oct-99
Oct-00
We depict above four historical semiconductor cycles, showing revenue, units and ASPs (we define a cycle as the
period of time between revenue peaks on a three-month average basis; we also display the six-month period before
and after each cycle). There are a number of consistent trends that can be seen in these charts:
• Each cyclical downturn in sales begins with a decline in units followed by a more severe drop in ASPs.
• Units typically recover faster than ASPs, if ASPs recover at all.
• Units tend to grow at a faster rate than revenue during a given cycle; however, when units decline, they rarely
decline more than revenue. This reflects the elasticity of demand and OEMs trying to anticipate future changes in
prices for their components.
• Cycles can last as little as two years or as long as six years.
• There is little consistency between cycles in the growth rate over the course of the cycle, as this is dependent
more on macro demand trends.
43
The
The Last
Last Cycle:
Cycle: A
A Long
Long Recovery
Recovery
The 2001 downturn was the steepest and longest in
industry history. Demand contracted following Y2K and
the telecom bubble, and the recovery took several quarters
as excess supply was digested. The sector enjoyed a nice
expansion in 2003 and 1H04 before peaking later in 2004.
$20,000 45,000
$18,000 40,000
$16,000

35,000
$14,000
30,000
$12,000
25,000
$10,000
20,000
$8,000
Downturn Recovery Expansion Peak 15,000
$6,000
10,000
$4,000 3-Monthly Average Sales
3-Monthly Average Units
$2,000 ASP (on Unit Axis) 5,000
Cyclical Peak
$0 0
May-00
May-01
May-02
May-03
May-04
Aug-00
Nov-00
Feb-01
Aug-01
Nov-01
Feb-02
Aug-02
Nov-02
Feb-03
Aug-03
Nov-03
Feb-04
Aug-04
Nov-04
Feb-05
The last semiconductor cycle began in late 2000 and ended in late 2004. The year 2001 proved to be the industry’s
worst year ever, with sales falling 32% year over year. The severity of the downturn was a direct consequence of the
magnitude of the preceding boom period: surging demand for telecom, Internet and IT infrastructure dried up,
eliminating a major driver of end demand. Inventory built up from months and months of double-ordering remained
in the channel, further exacerbating unit shipments. At the same time, capacity that had been built to support
unfulfilled growth forecasts came online to slaughter pricing. Note that unlike other downturns, the 2001 downturn
was driven by a sharp, sustained falloff in end demand; thus, the supply-side pricing lever only kicked in after units
had declined. Note that the first down month was November 2000 and sales finally hit bottom in January 2002, at
54% of peak levels.
The recovery phase was slower and longer than in past cycles, not surprising given the sharpness of the decline.
Monthly sales at the peak only slightly exceeded the 2000 peak, and it took nearly four years to get there. The
industry went through some pretty dramatic change over the course of the cycle, with the trend toward outsourcing
sharply accelerating as many IDMs sought to reduce the systematic risk inherent in their business models by
leveraging outside supply. Some went as far as turning fabless (e.g. Agere, AMCC, Vitesse), while many adopted
strategies of outsourcing a percentage of their supply to help smooth peaks and valleys (e.g., Texas Instruments,
STMicroelectronics, Infineon, Freescale, etc.).
44
The
The Current
Current Cycle:
Cycle: Stalled
Stalled Momentum
Momentum
The current cycle has hovered between a downturn and a
recovery for the past two years. In 2005, oversupply
muted growth prospects, though end demand actually
held up quite well. In 2006, supply tightened but weaker
demand sparked a mid-cycle inventory correction.
$25,000 60,000
50,000
$20,000

40,000
$15,000
30,000
$10,000
20,000
$5,000 3-Monthly Average Sales

3-Monthly Average Units 10,000
ASP (on Unit Axis)
Cyclical Peak
$0 0
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
The current cycle has hovered between a downturn and a recovery for the past two years. The cycle began in 2005
with a moderate oversupply situation, characterized by excess inventory at customers, declining lead times, and over
capacity at foundries and IDMs. Still, end demand actually held up and inventory issues were largely worked through
exiting the year; it appeared we were headed for a recovery in 2006.
The demand environment moderated in 2006 for the major semiconductor verticals. Though inventories entered the
year at lean levels, they built quickly in 1H06 as back end tightness sparked double ordering. As the back end eased
in 2H06 along with more moderate demand, an inventory correction began that is expected to last at least through
year end and possibly into early 2007. We still believe there is a chance for the start of an upturn in 2007, though
this will be largely dependent on the demand environment and the health of overall economy.
45
Fundamentals:
Fundamentals: Gross
Gross Margin
Margin
Gross margins for the industry are generally in the mid-

40% range, though they compress during periods of low
utilization or difficult pricing. Outsourcing trends have
resulted in less margin volatility since the 2000 bubble.
60%
Gross Margin
Last ten years average
Last five years average
50% Last three years average
40%
30%
20%
10%
0%
Ju r-99
D 99
Ju r-00
Ju r-01
Ju r-02
De 0 2
Ju -03
Ju r-04
D 04
Ju r-05
Ju r-06
M -98
Se -99
M -99
Se -00
D -00
M -00
Se -01
D 01
M -01
Se -02
M -02
Se -03
D -03
M -03
Se -04
M -04
Se -05
D -05
M -05
Se -06
06
p-
p-
p-
p-
p-
ec
ec
ec
ec
ec
ec
ec
n
ar
n
p
n
p
n
n
a
a
D
Source: Bloomberg, CIBC World Markets Corp.
Gross margins for semiconductor companies have generally hovered around the 40%-50% range. A hefty portion of
COGS is driven by depreciation of plant and equipment, with the remainder in fixed and variable labor and material
costs. In general, companies whose products are more differentiated and proprietary tend to have higher margins;
this would include vendors of analog and mixed signal ICs, PC microprocessors, DSPs, FPGAs, ASICs and special
purpose logic (ASSPs). Companies whose products are more commoditized and thus differentiate themselves based
on their manufacturing competencies tend to have lower margins; this would include vendors of memory,
microcontrollers, discretes, optoelectronics and general purpose logic.
Gross margins tend to compress rapidly during periods of difficult pricing or low utilization and expand quickly when
prices firm and utilization is on the rise. The effect can be exaggerated by industry accounting practices employed by
many IDMs, whereby fixed costs are allocated to inventory each quarter at an estimated standard utilization rate and
excess fixed costs (positive or negative) are charged to the cost of goods line. In periods of low utilization, actual
production trails the estimate, hurting gross margin in the current period. In periods of high utilization, actual
production leads the estimate, leading to negative charges to cost of goods and a boost to gross margin.
Note that outsourcing trends have mitigated margin volatility since the 2001 downturn, and now only a handful of
semiconductor vendors (mostly memory vendors) do not outsource at least 10% of their supply needs. This
eliminates much of the margin leverage we are used to seeing in IDM business models. Even amid challenging
conditions in 2005 and 2006, industry gross margins still held above 40%.
46
Fundamentals:
Fundamentals: Operating
Operating Margins
Margins
Operating margins have historically averaged near 15%.

Margins turned negative in 2001, and were slow to
recover as many vendors were unwilling to restructure.
Since 2004, more consistent demand and a greater focus
on profitability have generated more consistent margins.
30%
Operating Margin
25% Last ten years average
Last three years average
20%
15%
10%
5%
0%
D 99
De 0 2
D 04
M -98
Ju r-99
Se -99
M -99
D 00
M -00
Ju r-01
Se -01
D -01
M -01
Ju r-02
Se -02
M -02
Se -03
D -03
M -03
Ju r-04
Se -04
M -04
Se -05
D -05
M -05
Ju r-06
Se -06
06
Ju r-00
Se -00
Ju -03
Ju r-05
p-
p-
p-
p-
p-
ec
ec
ec
ec
ec
ec
ec
n
n
p
ar
n
p
n
p
n
-5%
a
a
D
-10%
-15%
-20%
Operating margins for semiconductor companies have historically averaged around 15%, with the average company
spending about 20%-25% of sales on R&D and SG&A expenses. Operating margins above 20% are not uncommon,
especially for best-in-breed companies; or even for laggards in the expansion and peak phases of the cycle.
Operating margin turned negative during the 2001 downturn and only climbed back to historical levels as the
expansion was getting under way in late 2003. Operating margin did not, however, exceed 20% for any length of
time even at the peak of the cycle, reflecting the fact that many vendors were reluctant to take deep enough
restructuring actions during the downturn, especially on the R&D line. The technology boom of the late 1990s has left
many semiconductor vendors flush with cash, be they with profitable business models or not.
In the current cycle, operating margins have held steady in the mid-teens, despite the challenging environment.
Many semiconductor vendors have been focused on maintaining profitability and have undertaken some level of
restructuring, including the move to more flexible outsourcing models, headcount reductions, and strategy shifts.
Demand, too, has been relatively consistent, with just shallow cyclicality even during the 2004 and 2006 inventory
corrections. Note that average operating margins have not dipped below 14% since 2004.
47
Fundamentals:
Fundamentals: Receivables
Receivables
Receivables at semiconductor vendors have

historically held 45-50 days. Receivable days
sometimes spike during demand downturns as OEMs
conserve cash, stretching payment cycles, but they
usually correct after a couple of quarters.
70
DSOs
60 Last five years average
50
40
30
20
10
-
Ju r-99
D -99
Ju r-01
Ju r-02
De - 0 2
Ju r-04
D -04
Ju r-06
M -98
Se -99
M -99
Ju r-00
D -00
M -00
Se -01
D -01
M -01
Se -02
M -02
Ju -03
Se -03
D -03
M -03
Se -04
M -04
Ju r-05
Se -05
D -05
M -05
Se -06
06
Se -00
p-
ec
ec
ec
ec
ec
ec
ec
p
ar
p
n
n
a
a
D
Turning to the balance sheet, receivables at semiconductor vendors have historically held 45-50 days and are
seasonally affected. During downturns, receivables can spike as OEMs look to conserve cash by stretching payment
cycles. The DSO ratio can also be affected by the quick drop in the sales numerator.
48
Fundamentals:
Fundamentals: Inventories
Inventories
Inventories at semiconductor vendors have trended up

over the past few years. OEMs are reluctant to hold
inventories except in the tightest supply environment.
At the same time, the rise in outsourcing allows chip
vendors to hold more inventory with less risk.
90
Inventory Days
80 Last five years average
70
60
50
40
30
20
10
-
Ju r-99
D -99
Ju r-01
Ju r-02
De - 0 2
Ju r-04
D -04
Ju r-06
M -98
Se -99
M -99
Ju r-00
D -00
M -00
Se -01
D -01
M -01
Se -02
M -02
Ju -03
Se -03
D -03
M -03
Se -04
M -04
Ju r-05
Se -05
D -05
M -05
Se -06
06
Se -00
p-
ec
ec
ec
ec
ec
ec
ec
p
ar
p
n
n
a
a
D
Inventory days at semiconductor vendors have varied considerably over the past few cycles. Inventory days rose
dramatically during the 2001 downturn (peaked at 80 days), as the cost of sales numerator declined rapidly and while
OEMs worked through their own excess inventories. Inventories began to trend down in 2002 and 2003 as vendors
held production firm as the demand environment improved, but then rose in 2004 as IC vendors put stocks in place to
support more optimistic forecasts in a period of tight supply. As supply eased, inventory levels peaked once again at
78 days in 1Q05 and took most of the year to work through. Inventories gradually crept up through most of 2006
and now sit near historical highs at 79 days as the demand environment proved softer than many had anticipated.
Though inventory levels are highly tied to the semiconductor cycle, the historical increase in inventory days is also
attributable to OEMs’ reluctance to hold excess inventory. As a result, semiconductor vendors have shown increased
focus on developing an inventory strategy to meet their customers’ needs, which may mean relatively high inventory
stocks for the foreseeable future. The rise of outsourcing supports this increased inventory with less risk. Note that
historical averages have been increasing over time (10-year average is 67 days, 5-year average is 72 days, and the
3-year average is 74 days).
49
Fundamentals:
Inventories
Even more important than inventories at semiconductor

vendors themselves are inventories downstream, at the
OEMs, EMS providers, and distributors. These are a key
variable exacerbating the cyclicality of the industry.
When these inventories run too low, OEMs tend to
double-book in order to guarantee supply to meet
demand forecasts. When they run too high, OEMs tend
to cancel and push out orders until end demand returns.
PC & Server OEMs Hard Disk Drive OEMs
50 35
PC and Server OEM Inventory Days Hard Disk Drive Inventory Days
45 Last ten years average Last ten years average
30
Last five years average Last five years average
40 Last three years average Last three years average
25
35
30
20
25
15
20
15 10
10
5
5
- -
M -98
06
Ju 99
Se -99
D 99
M -99
Ju 00
Se -00
D 00
M -00
Ju 01
Se -01
De 01
M -01
Ju 02
Se 02
D 02
M -02
Ju 03
Se -03
D 03
M -03
Ju 04
Se -04
D 04
M -04
Ju 05
Se -05
De 05
M -05
Ju 06
Se -06
M -98
Ju 99
Se -99
D 99
M -99
Ju 00
S -00
D -00
M -00
Ju 01
Se -01
De -01
M -01
Ju 02
Se -02
De 02
M -02
Ju 03
D 03
M -03
Ju 04
Se -04
D 04
M -04
Ju 05
Se -05
De 05
M -05
Ju 06
S -06
6
Se 03
-0
n-
p-
p-
p-
p-
p-
-
p-
p-
p-
-
-
-
-
p-
p-
n-
p-
p-
p-
ar
n
n
ec
ec
ec
ec
ec
ec
c
ar
ar
ar
ar
ar
ar
ar
n
n
ec
ec
ec
ec
c
ar
ar
ar
ar
ar
ar
ar
ar
n
ep
n
p
ep
ec
D
D
Source: Bloomberg, CIBC World Markets Corp. Source: Bloomberg, CIBC World Markets Corp.
Continued...
Even more important than inventories at semiconductor vendors themselves are inventories downstream, at the
various classes of OEMs and EMS providers, which are a key variable in exacerbating the cyclicality of the industry.
When these inventories run too low, OEMs tend to double-book in order to guarantee supply to meet demand
forecasts. When they run too high, OEMs tend to cancel and push out orders until end demand returns. We
summarize below (and on the next page) the state of inventories by end market:
• PC and Server OEMs: The decline in inventory days at PC and server OEMs has been nothing short of
remarkable, with inventory days dropping from 65 days to 20-25 days during the past 10 years. This drop
has been critical in reducing PC price points and retaining profit margins, especially since the cost of
microprocessors and DRAM— two major components in the PC—are among the fastest dropping in the
industry (when measured on a per-MHz or per-bit basis). The move to just-in-time inventory has also played
a huge role, and the impact by Dell alone—with its 5 days of inventory on hand—have affected the industry
figure significantly. At present, PC and server hardware OEM inventories are at slightly elevated levels.
• Hard Disk Drive: HDD drive inventory days tend to be relatively low—about 20-25 days—but can fluctuate
considerably as OEMs contend with choppy demand and manage the transition to larger densities and more
integrated designs—events that do not always coincide with the ramp of new PC models. Most recently, HDD
inventory sits at 30 days, near an all time high, as the industry copes with consolidation (Seagate/Maxtor)
and a soft PC demand environment.
50
Fundamentals:
Inventories
Wireline Comm OEMs Wireless Comm OEMs

140 90
Wireless OEM Inventory Days
Wireline OEM Inventory Days Last ten years average
80
120 Last ten years average Last five years average
Last five years average Last three years average
70
100
60
80 50
60 40
30
40
20
20
10
- -
Ju 99
D 99
Ju 00
M -00
Ju 01
Ju 02
Ju 03
Ju 04
Ju 05
Ju 06
D -00
Ju 02
Ju 03
M -03
Ju 04
Ju 05
06
M -98
Se -99
M -99
Se -00
D 00
Se -01
D 01
M -01
Se -02
D 02
M -02
Se -03
D 03
M -03
Se -04
D 04
M -04
Se -05
D 05
M -05
Se -06
06
M -98
Ju 99
Se -99
D 99
M -99
Ju 00
S -00
M -00
Ju 01
Se -01
De 01
M -01
Se 02
D 02
M -02
Se -03
D 03
Se -04
D 04
M -04
Se -05
D -05
M -05
Ju 06
Se -06
-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
p-
n-
ar
ar
ar
ar
ar
ar
ar
ar
ar
n
ep
n
ec
ec
ec
ec
ec
ec
ec
ec
ec
ec
ar
ar
ar
ar
ar
ar
ar
n
p
ec
ec
ec
ec
ec
D
D
EMS Providers Distributors
90
EMS Inventory Days
50
80 Last ten years average
70 Last three years average
40
60
50 30
40
20
30 Distributors Inventory Days
20
10
10
- -
Ju 99
Ju 00
Ju 01
Ju 02
Ju 03
Ju 04
Ju 05
Ju 0 6
M 98
Se 99
M 99
Se 00
M 00
Se 01
M 01
Se 02
M 02
Se 03
M 03
Se 04
M 04
Se 05
M 05
Se 06
De 99
De 00
De 01
De 02
De 03
De 04
De 05
06
M -98
Ju 99
Se -99
D -99
M -99
Ju 00
Se -00
D 00
M -00
Ju 01
D 01
M -01
Ju 02
Se -02
De 02
M -02
Ju 03
Se -03
D 03
M -03
Ju 04
S -04
D -04
M -04
Ju 05
Se -05
D -05
M -05
Ju 06
Se -06
06
Se -01
c-
-
n-
c-
-
n-
c-
-
n-
c-
-
n-
c-
-
n-
c-
-
n-
c-
-
n-
c-
-
n-
p-
p-
p-
p-
p-
p-
p-
p-
-
-
p-
p-
p-
p-
p-
ar
ar
ar
ar
ar
ar
ar
ar
ep
n
ec
ec
ec
ec
ec
ec
ec
ar
ar
ar
ar
ar
ar
ar
ar
p
n
c
De
• Wireline OEMs: Given the long product design and life cycles associated with wireline infrastructure
equipment, wireline OEMs have traditionally held higher levels of inventory (60-80 days range) than many
tech peers. Note that inventory levels were at their worst in 2000/2001 due to the telecom meltdown (> 100
days), but have since been managed much more prudently. OEMs have adjusted purchasing behavior and
have taken advantage of shorter lead times from suppliers. Even after a modest 2004 build, inventory still sat
at 70 days, way below the historical peak. OEM inventories are now at slightly elevated levels.
• Wireless OEMs: Wireless OEMs have historically ranged around 40-60 days and are declining over time. They
tend to be choppy given the pace of new standard introductions, and there is some seasonality, too—
inventories usually jump in Q1, stabilize and decline sharply in Q4. Inventories are now at slightly elevated
levels at 41 days.
• EMS Providers: EMS inventories have historically ranged around 40-50 days. Inventory was healthy through
most of 2004 and 2005, but has been building recently and are now at elevated levels at 49 days. Note that
some of the variability in EMS inventory days is due to OEMs shifting inventories back and forth.
• Distributors: Distributors build their businesses around efficient inventory management and have been able
to limit inventories historically to 35-40 days. Inventory last spiked in 2000/2001 (near 50 days) due to
double-ordering. Since then, distributor inventories have been quite healthy and currently sit below 35 days.
51
Fundamentals:
Fundamentals: Debt
Debt
Given the long-term nature of manufacturing assets,

the industry maintains some level of debt. The
willingness of investors to fund companies with equity
capital, however, has kept the debt/equity ratio for the
industry to less than 20% for the most part.
28%
Debt to Equity
24% Last five years average
20%
16%
12%
8%
4%
0%
Ju r-99
D -99
Ju r-01
Ju r-02
De - 0 2
Ju r-04
D -04
Ju r-06
M -98
Se -99
M -99
Ju r-00
D -00
M -00
Se -01
D -01
M -01
Se -02
M -02
Ju -03
Se -03
D -03
M -03
Se -04
M -04
Ju r-05
Se -05
D -05
M -05
Se -06
06
Se -00
p-
ec
ec
ec
ec
ec
ec
ec
p
ar
p
n
n
a
a
D
Given the long-term nature of semiconductor manufacturing assets, the industry maintains some level of debt,
primarily (though not exclusively) concentrated in the hands of IDMs and outsourcers. The willingness of investors to
fund semiconductor companies (given the correct perception that semiconductor companies are high-tech companies
but that they have “real” assets) with equity capital has limited the need for debt, however, and debt/equity for the
industry (excluding Japan and Taiwan, which have different funding pools) has held at or below 20%.
In 1999 and 2000, the debt/equity ratio penetrated 15% as fabless and IDM semiconductors alike took advantage of
inflated multiples in the equity market to raise capital. As valuations fell, however, the attractiveness of issuing
further equity diminished at the same time that interest rates for corporate, convertible and even high-yield debt have
plummeted. The debt/equity ratio thus rose to over 23% in 2003, its highest level in ten years. We note that the
ratio was somewhat affected by writedowns of the equity denominator during the 2001 downturn; this included not
only inventories and manufacturing assets but a huge amount of intangible assets (primarily acquisition-related), as
well as investments in public and private affiliates and even deferred tax assets.
More recently, the ratio has held steady below 20%. This is due largely to the higher profitability levels at
semiconductor vendors, which have driven up the equity line. Some limited consolidation has also created some book
equity as acquirers pay premiums vs. book for acquired assets.
Note that some private equity activity in 2006 is likely understating the debt position of the industry at present.
52
Section
Section III:
III: Market
Market Segments
Segments
This section summarizes the major product

and end market segments of the industry as
well as the competitors within each.
Topics include:
Semiconductor Device Types
- SIA Framework: “What A Device IS”
- CIBC Framework: “What A Device DOES”
Key Competitors
- By Product
- By End Market
53
Semiconductor
Device Types
Types
The SIA Framework

“What a device IS”
Discretes, Optoelectonics, and Sensors - Includes all non-integrated
circuit semiconductor devices. A discrete is a single transistor in a
package. Sensors are discrete devices that measure real-world input.
Optoelectronics are discrete devices that produce or measure light.
Analog - Devices used to process real-world signals using electronic
voltage patterns that represent the original. Includes SLICs (standard
linear components) and ASSPs (application-specific analog processors).
MOS Microcomponents - All digital processors, including
microprocessors (MPUs), microcontrollers (MCUs), and digital signal
processors (DSPs).
MOS Logic - Includes all non-microcomponent digital logic, including
ASICs (custom logic), ASSPs (standard specialty logic products), FPGAs
(programmable logic), and general purpose logic.
MOS Memory - Memory devices are used to store data either for short
periods of time or permanently. Includes volatile (DRAM, SRAM) and
non-volatile (flash, ROM) memory.
The Semiconductor Industry Association (SIA), the industry body that The SIA Monthly “Blue Book,” Which
reports monthly semiconductor industry sales, divides the industry into Tracks Monthly Billings Data
five broad categories and generally focuses on identifying the type of
device sold. When we discuss industry segmentation in terms of the type
of semiconductor product, we will generally use the SIA framework.
• Discretes, Optoelectronics and Sensors: Includes all non-
integrated circuit semiconductors. Discretes are devices that contain September, 2006
just a single transistor in a package. These include diodes, small SEMICONDUCTOR INDUSTRY
BLUE BOOK
signal and switching transistors, power transistors, rectifiers,
thyristors and other discretes. NET BILLINGS
BY PRODUCTS & REGION
Optoelectronics include displays, lamps, couplers, laser devices,
image sensors, infrared and other optoelectronics. Administered by WSTS, Inc.
Compiled by Mohler, Nixon & Williams in Campbell
Sensors include those devices that measure temperature, pressure,

PricewaterhouseCoopers LLP in Zurich
and ASG Audit Corporation in Tokyo
displacement, velocity, acceleration, stress, strain, or any other

physical, chemical, or biological property. They also include
actuators, which are responsible for movement.
54
• Analog: Analog circuits are those used to process real world analog signals, using electronic voltage patterns
within the device to represent the original signal (the word analog is related to “analogy”).
Analog circuits are divided into two broad categories: SLICs and ASSPs. Standard linear integrated circuits
(SLICs) are standard analog components used in multiple applications, usually purchased “off the shelf,” often
through distribution. Key types are amplifiers, interface circuits, voltage regulators, data converters and
comparators.
Application specific standard products (ASSPs) are more specialized—they are targeted at individual applications
(though not individual customers or platforms—that would be classified as a custom ASIC). Analog ASSPs are
segmented by application, specifically: automotive, consumer, computer, telecom, industrial and other.
• MOS Microcomponents: This includes digital processors, including microprocessors, microcontrollers and DSPs.
Digital devices do not deal in the specific voltages of electrons, and instead deal in “1s” and “0s”—“1” being the
presence of a voltage and “0” being the absence of a voltage. The “1s” and “0s” can be used to represent just
about anything, so long as they conform to some predefined pattern or code as dictated by software. Note that
since digital processors deal only in digital signals, any real world input must be converted to digital before it can
be processed by a digital device.
The microcomponent segment includes the more generic digital IC devices—those that can be used in a variety of
applications for computation or signal processing. Microprocessors (CPUs or MPUs) include large, complex
processors found in computing and other compute-intensive applications and typically form the brains of an entire
electrical system.
Microcontrollers (MCUs) are smaller stand-alone processors that perform dedicated or embedded computer
functions within a system and are usually designed with on-chip RAM, ROM and logic in order to minimize support
chip count.
Digital signal processors (DSPs) are specialized digital processors typically used to process real-time data.
We note that, until 2001, the microcomponents category also included microperipherals, which are dedicated logic
devices used to augment MPU or MCU system performance, such as graphics controllers, PC chipsets, Ethernet
and modem controllers and hard disk drive controllers; these devices are now classified in the special purpose
logic category.
• MOS Logic: This segment includes all non-microcomponent related digital logic circuits, including gate array and
standard cells (ASICs), field programmable logic devices (PLDs or FPLDs), display drivers, general purpose logic
and special purpose logic/microperipherals (which are somewhat synonymous with ASSPs).
• MOS Memory: Memory devices are used to store data in silicon, either for short periods of time or permanently.
Volatile memory includes those memory devices that lose stored information when the power is lost. These
include DRAM (Dynamic Random Access Memory) and SRAM (Static Random Access Memory).
Non-volatile memory retains the stored information when the system is powered off. It includes NOR and NAND
flash, mask programmable ROM, EPROM and EEPROM.
55
Semiconductor
Device Types
Types
The CIBC Framework

“What a device DOES”
Analog Processing - Devices used to process real-world signals.
Includes SLICs (standard analog components) and ASSPs (application-
specific ICs).
Digital Processing - All digital devices used to process signal
converted from the analog world. Includes digital signal processors
(DSPs), custom and standard digital logic and micro-peripherals, some
microcontrollers, and any other digital device not responsible for
system control or memory storage.
Processors - All processors that control the electronic device at the
system level, including all microprocessors (MPUs) and most
microcontrollers (MCUs).
Memory - All volatile (DRAM, SRAM) and non-volatile (EPROM, flash)
memory. Identical to SIA category.
System Enabling Devices - analog, digital, and discrete devices used
as enabling factors on the board, including power circuits, glue logic,
switches, clocks, and discretes.
While the SIA framework is an accurate segmentation of the industry by device type, we often look at the
semiconductor industry by end market, with an eye toward system-level design. For this purpose, we prefer to use a
simpler, more functional segmentation to help investors understand the various devices and how they fit together in
an electrical system.
In this framework, we segment the market into five types of devices; based on the function they perform within the
system. Note that we display an icon next to each type of device, which we will consistently use in all block diagrams:
• Analog Processing: This includes all analog devices used to process real
world signals. Analog ICs deal with complex input from the real world,
including sound, light, video, radio waves, electrical signals, temperature,
pressure, displacement, velocity, acceleration, stress, strain, or any other
physical, chemical, or biological property. They also convert them to
digital signals for processing by the digital processors or the system CPU.
This category would include most of what is found in the SIA product
category for analog devices, but would exclude some enabling analog
devices such as power management and timing circuits, whose function is
secondary to the function of the electrical system.
56
• Digital Processing: This includes all digital devices used to perform

specialized processing of signals converted from the analog world. This
includes DSPs used in wireless and broadband, specialized logic used in
datacom and telecom, audio/video processors in consumer electronics, or
any other digital processor that does not perform overall system control.
This category would generally include most of the SIA’s MOS logic
category (excluding general purpose logic), along with most DSPs and
some MCUs.
• Processors: This includes processors that perform system control. They
are usually highly programmable and run the system software, where
applicable. Examples are PC microprocessors, application processors in
cellular phones, control plane processors in networking equipment, or any
other microcontroller that controls the majority of system functions. This
category would include all microprocessors, most microcontrollers and
some DSPs and logic components, depending on how they are used in the
system.
• Memory: Identical to the MOS memory category described in the SIA
framework, this category includes all volatile (DRAM, SRAM) and non-
volatile (flash, EPROM, etc.) memory.
• System Enabling Devices: This includes all discrete, analog and digital
devices that are used on the board as enabling devices, rather than for
processing or storage. Typical functions including switching signals
between ICs on the board, stepping up or stepping down voltages,
performing system timing and sensing outside input. Examples of devices
include discretes, optoelectronics and sensors, as well as power circuits,
timing devices, glue logic and some programmable logic devices.
57
Example:
Example: A
A Basic
Basic Electrical
Electrical System
System
Provides temporary or Controls power flow into the

permanent storage of Processes the signal at the system as well as battery
data used by the highest level, implements management in portable
system processor system software, performs devices
overall system control functions
Performs timing Memory Microprocessor/ Power

functions to
Microcontoller/ Supply
enable system Memory
performance Application
Clock Processor Aids in system
functioning by
Senses real
controlling signal
world input
flow, power
delivery, etc.
Real Digital Digital Real

Analog Analog
World Sensor Processor Processor World
Processor Processor
Input Output
Source: CIBC World Markets
Receives real-world input, Performs digital Converts the digital signal to analog
performs analog processing, Performs digital and produces real-world output
processing on the
converts it to digital processing on the
outgoing signal
incoming signal
The diagram above depicts an electrical system and identifies the devices on the board using the CIBC framework. In
the diagram, some real world input is received, interpreted by a sensor (an enabling device) and processed in an
analog format by an analog processor. The analog processor converts the signal to digital and passes it to a digital
processor, which performs some more intensive digital processing on the signal. The digital processor then passes it
to the microprocessor/microcontroller/application processor, which, using software, decides what to do with the signal
and can make any changes to it if needed. At some point, the processor sends out the signal to another digital
processor, which performs some digital processing and passes the signal on to an analog processor, which converts
the signal to analog and produces some real world output.
Devices not directly in the signal chain include memory, which is used for short-term or long-term storage of signals,
and other enabling devices, such as power management, discretes, timing devices, switches, etc.
A simple example would be a digital camera. When the shutter button is activated, an image sensor (enabling device)
receives the visual input, which is processed by an analog front end (analog processor) and converted to a digital
format. A DSP or an ASIC (digital processor) then encodes and compresses the signal and tells a microcontroller
(microprocessor/control processor) that a picture has arrived. The picture file is then stored in flash memory
(memory), and the microcontroller tells an LCD controller (digital processor) to produce an image on the LCD screen.
The LCD controller then directs signals from row and column drivers to produce the image on the screen. The table
on the following page displays additional examples.
58
End Market Analog Processors Digital Processors MPU/Control Memory System Enabling
Application Processor Devices
Computing
Desktop PC Graphics interface, sound Chipset, graphics Microprocessor DRAM, ROM, Power ICs, clocks,
interface, Ethernet PHY, processor, sound processor flash switches, discretes
modem line driver
Notebook PC Graphic/sound interface, Chipset, graphics Microprocessor DRAM, ROM, Power ICs, clocks,
Ethernet PHY, modem, processor, sound processor, flash switches, discretes,
WLAN/Bluetooth radio, WLAN/Bluetooth LCD drivers
power management baseband/MAC
Hard disk drive Read channel, preamp, Servo ASIC, hard disk Microcontroller DRAM, Magnetic sensors,
motor driver controller (embedded in hard SRAM, flash power ICs, clocks,
disk controller) switches, discretes
Communications
Wireless handset Power amp, radio (RF/IF), Digital baseband (DSP), Applications Flash, SRAM, Sensors, power ICs,
audio codec, Bluetooth Bluetooth baseband/MAC processor (can be low-power clocks, switches,
radio, analog baseband embedded in DSP) DRAM discretes, LCD
drivers
Ethernet switch Ethernet PHY Ethernet MAC, switch MIPS/PowerPC DRAM, Power ICs, clocks,
chipset, CAM/NSE, processor SRAM, FIFO/ switches, discretes
programmable logic multi-port
SRAM
Wireless LAN Radio (RF/IF), power amp Baseband/MAC MIPS/ARM/PowerPC DRAM, SRAM Power ICs, clocks,
access point processor switches, discretes
SONET/SDH line PMD, CDR, SONET Framer, FEC, network MIPS/PowerPC FIFOs/Multi- Optoelectronics,
card transceiver/PHY, processor, traffic manager processor ports, DRAM, power ICs, clocks,
backplane SerDes SRAM switches, discretes
Cable/ADSL Tuner/line driver, analog DOCSIS MAC/processor Communications DRAM, Sensors, power ICs,
modem front end (cable modem), data pump processor SRAM, flash clocks, switches,
DSP (DSL) discretes
Fibre Channel Fibre Channel Fibre Channel controller Microprocessor (can SRAM, flash Power ICs, clocks,
Host Bus Adapter SerDes/PHY ASIC be integrated into FC switches, discretes
(HBA) controller)
Consumer
Digital set-top Tuner, analog front end MPEG decoder/encoder, Microcontroller DRAM, flash, Power ICs, clocks,
box/DVR (mux/demux) graphics processor ROM switches, discretes
Digital still camera A/D converter, Bluetooth/ Digital image processor, Microcontroller, Flash, DRAM CCD/CMOS image
WLAN radio ASICs, Bluetooth/WLAN application processor sensor, power ICs,
baseband/MAC clocks, switches,
discretes, LCD
drivers
PMP/MP3 player Audio driver, D/A DSP, audio/video Microcontroller Flash Power ICs, clocks,
converter processor/ASSP switches, discretes,
LCD drivers
DVD player Laser supply driver, Front end decoder, servo Microcontroller DRAM, Sensors, power ICs,
spindle driver, servo processor, CD/DVD read SRAM, flash clocks, switches,
driver, D/A converter channel DSP, MPEG discretes
decoder, audio decoder
Video game Audio driver, video driver, Graphics processor, ASICs, Microprocessor DRAM, Sensors, power ICs,
console Bluetooth/WLAN radio, Bluetooth/WLAN SRAM, flash clocks, switches,
Ethernet PHY baseband/MAC, Ethernet discretes, LCD
MAC drivers (handheld)
59
Key
Key Semiconductor
Semiconductor Competitors
Competitors
Semiconductor Market Top 10 Competitors

Intel (US)—The largest semiconductor manufacturer in the world at about 15% of
the market, Intel dominates the PC microprocessor segment (with about 75%-80%
unit share) and is also a top supplier of PC chipsets, NOR flash memory, embedded
microprocessors, and PC networking components.
Samsung (Korea)—The diversified electronics giant is No. 1 in DRAM, SRAM,

NAND flash, and display drivers; it also supplies microcontroller and logic devices.
Texas Instruments (US)—The top supplier of analog ICs, DSPs, and components
for handsets. TI is also a big player in broadband, PC peripherals, and digital
consumer, and has smaller efforts in microcontrollers, ASICs, and standard logic.
TI also has a MEMS division called “DLP” which supplies digital TVs and projectors.
Toshiba (Japan)—The semiconductor unit of the electronics conglomerate,

Toshiba is the top supplier of discretes and is No. 2 in NAND. It is also a major
supplier of ASICs, optoelectronics, microcontrollers, analog ICs, standard logic, and
embedded MPUs.
STMicroelectronics (Switzerland)—ST is the top supplier of analog ASSPs and

ASICs, strong in wireless, PC peripherals, automotive, and consumer. ST is also a
big supplier of discretes, flash, EPROM, EEPROM, standard logic, and
microcontrollers.
Renesas (Japan)—The merged, spun-out semiconductor businesses of Hitachi and

Mitsubishi, Renesas is the No. 1 supplier of microcontrollers and is also strong in
ASICs, discretes, display drivers, and embedded MPUs.
Infineon (Germany)—The spin-out from Siemens is a major player in analog

ASSPs (especially for communications and automotive), discretes, microcontrollers,
and EEPROM. Infineon carved out its memory unit, Qimonda, in May 2006—the
company is a leading provider of DRAM and is has been building a presence in
NAND as well.
NXP (Netherlands)—The former semiconductor division of Philips is a top supplier

of analog ASSPs and ASICs, strong in wireless and consumer. NXP/Philips is also a
major supplier of discretes, DSPs, microcontrollers, standard logic, and EEPROM.
Hynix (Korea)—Hynix is the No. 2 supplier of DRAM and is rapidly building a

position in NAND, now No. 3 worldwide. In 2005, Hynix spun out its LCD driver,
image sensor, MCU, and foundry businesses as a new company, Magnachip.
NEC Electronics (Japan)—Spunout from parent NEC, NEC Electronics is a major

supplier of microcontrollers, ASICs, display drivers, SRAM, discretes, and embedded
MPUs.
60
Key
Key Semiconductor
Competitors
Semiconductor Market Top Competitors By Product
Analog Memory
Analog SLICs Analog ASSPs DRAM SRAM Flash
Texas Instruments ON Semi STMicro Renesas Samsung Samsung NOR NAND
Analog Devices Intersil Infineon Toshiba Hynix Intel Intel Samsung
National Semi STMicro Texas Instruments Matsushita Micron NEC Spansion Toshiba
Maxim Fairchild NXP/Philips Sanyo Infineon Spansion STMicro Hynix
Linear Tech Intl. Rectifier Freescale Rohm Elpida Cypress Samsung Sandisk
Nanya STMicro Renesas Renesas
PowerChip Renesas Sharp STMicro
ProMOS Hynix Silicon Storage Micron
Digital Processors Macronix M-Systems
Microprocessors Microcontrollers DSPs Toshiba IM Flash Tech.
PC & Server Embedded Renesas Texas Instruments Mask ROM EPROM EEPROM
Intel Freescale Freescale Freescale
AMD Intel NEC Agere Macronix Oki Atmel NXP/Philips
Sun/TI IBM Micro Infineon Analog Devices Sun Plus STMicro STMicro Infineon
Via Renesas Microchip NXP/Philips NEC Asahi Kasei Microchip Tech. Renesas
Freescale Toshiba Toshiba Amic Cypress Rohm Catalyst Semi
IBM NEC Matsushita
AMD Fujitsu
PMC-Sierra STMicro Discretes and Optoelectronics
AMCC Texas Instruments
Discretes Sensors
Broadcom
Toshiba Intl. Rectifier Robert Bosch VTI
STMicro NXP/Philips Infineon Mitsubishi
Rohm Mitsubishi Freescale NXP/Philips
Digital Logic Renesas ON Semi Analog Devices Optek Technology
Special Purpose Logic Fairchild Semi NEC Allegro Micro Micronas
Infineon Fuji
PC-Related Communications Storage Consumer
Vishay
Intel Qualcomm Marvell Sony
NVIDIA Infineon Agere Matsushita Optoelectronics
ATI Texas Instruments MediaTek STMicroelectronics
SiS Freescale STMicroelectronics Sharp Image Sensors All Other Sensors
Via Broadcom LSI Logic Broadcom Sony Micron Sharp Mitsubishi
Broadcom Intel Texas Instruments Fujitsu Toshiba STMicro Nichia Chemical Rohm
Conexant Renesas Mediatek Sharp Avago Avago Matsushita
Agere NEC NXP/Philips Matsushita Sanyo OSRAM Toyota Gosei
Marvell PMC-Sierra Zoran Omnivision Stanley Electric Sanyo
Toshiba Q-Cells
ASICs PLD GP Logic Display Drivers
IBM Xilinx Texas Instruments Samsung
Fujitsu Altera Toshiba NEC
NEC Lattice NXP/Philips Renesas
Toshiba Actel Fairchild Semi Novatek
Sony Cypress Renesas Himax
LSI Logic QuickLogic ON Semi Solomon Systech
Samsung STMicro STMicro Sharp
Matsushita
Source: Dataquest, IDC, Forward Concepts, Databeans, CIBC World Markets Corp.
61
Key
Key Semiconductor
Competitors
Semiconductor Market Top Competitors By End Market

Computing
PCs
CPU PC DRAM Graphics PC Clocks Analog Modem PC Ethernet PC Wireless LAN Bluetooth Power Mgmt
Intel Samsung ATI IDT/ICS Conexant Broadcom Intel CSR Fairchild
AMD Hynix NVIDIA Cypress Silicon Laboratories Intel Atheros Broadcom Texas Instruments
Micron Realtek Agere Realtek Broadcom NXP/Philips STMicro
Chipsets Infineon BIOS Analog Devices Marvell Texas Instruments Texas Instruments Intl. Rectifier
Intel Nanya SST Audio Agere Marvell Infineon On Semi
Via Powerchip Macronix Creative I/O Controller Vitesse Realtek STMicro Toshiba
SiS ProMOS Spansion Realtek Standard Micro RF Micro Maxim
NVIDIA Elpida STMicro Analog Devices Winbond/National Mitsubishi
ATI Sharp IDT/Sigmatel ITE
PC Displays Hard Disk Drives Optical Drives Printers/MFPs

LCD Controllers LCD Drivers Marvell Controllers Optoelectronics STMicroelectronics
Genesis Samsung Agere MediaTek Sharp Texas Instruments
MorningStar Novatek STMicro Renesas Avago Avago/Marvell
Realtek NEC TI NEC Stanley Electric Freescale
Novatek Himax LSI Logic Matsushita Sony NEC Electronics
Pixelworks Magnachip QLogic/Marvell Rohm Nichia Chemical PMC-Sierra
Seiko Epson Renesas Ricoh Toshiba Toshiba
Matsushita Infineon Toshiba OSRAM Seiko-Epson
Sharp IBM Micro Seiko-Epson Mitsubishi Kawasaki Micro
Toshiba Sanyo NEC NXP/Philips
Networking
Ethernet Wireless LAN Bluetooth Enterprise Storage
PC Controllers PHY & Switch ASICs Intel CSR HBA/SAN ASICs RAID Processors/ Disk Array ICs
Broadcom ASSPs LSI Logic Broadcom Broadcom IBM Controllers PMC-Sierra
Intel Broadcom IBM Atheros NXP/Philips LSI Logic Intel IBM
Realtek Marvell Agere Marvell Texas Instruments Agere LSI Logic Vitesse
Marvell Avago Avago Texas Instruments Infineon Mindspeed IBM LSI Logic
Agere Realtek TI Conexant STMicro Broadcom AMCC
Vitesse Vitesse Fujitsu Airgo RF Micro Promise/Marvell
Intel NXP/Philips Vitesse/Adaptec
Broadcom
Telecom/Datacom
CO Line Cards Analog Modem DSL Cable Modem PON VoIP
Infineon Conexant Conexant Broadcom PMC/Passave Texas Instruments
Legerity Silicon Laboratories Texas Instruments Texas Instruments Teknovus Broadcom
STMicro Agere Broadcom Microtune BroadLight Freescale
IDT Austria Microsystems Infineon Conexant Freescale Mindspeed
Freescale Analog Devices Ikanos Centillium Centillium
NEC Centillium Conexant
Winbond STMicro Mindspeed
Maxim
Communications Infrastructure
T/E SONET/SDH ATM Ethernet WAN Comm Network Processing Switching
Infineon Agere PMC-Sierra AMCC/Quake Processor ASICs NPUs CAMs Other ASICs ASSPs
PMC-Sierra PMC-Sierra Agere Maxim Freescale IBM AMCC Netlogic Hifn IBM AMCC
Agere Vitesse Fujitsu Vitesse Intel Fujitsu Intel IDT Cavium Fujitsu Vitesse
Maxim/Dallas AMCC NEC Infineon AMCC LSI Logic Agere Cypress Broadcom LSI Logic Zarlink
Mindspeed Infineon Zarlink PMC-Sierra Broadcom Agere Wintegra Renesas Safenet Agere
Freescale Broadcom Mindspeed Vitesse PMC-Sierra TI Mindspeed Vitesse Interconnect PMC-Sierra
Exar Cortina/Intel TranSwitch TranSwitch Renesas Hifn Tarari PLX Dune
TDK TranSwitch AMCC Toshiba Vitesse Tundra TranSwitch
Agere IBM Bay Micro Intel
Source: IDC, Dataquest, Linley Group, CIBC World Markets Corp.
62
Key
Key Semiconductor
Competitors
Semiconductor Market Top Competitors By End Market

Wireless
Handset ICs Infrastructure
Digital Baseband Analog Baseband App. Processor RF & PA Memory Baseband ASIC DSPs Power Amp
Texas Instruments STMicro Texas Instruments Qualcomm Intel Qualcomm Texas Instruments Freescale
Qualcomm Texas Instruments STMicro Skyworks Samsung IBM Freescale NXP/Philips
Freescale Qualcomm MtekVision RF Micro Devices Spansion Agere Analog Devices Infineon
NXP/Philips Freescale Corelogic Infineon STMicro Fujitsu Agere Eudyna
Infineon Dialog ATI Renesas Renesas Texas Instruments STMicro
Mediatek Agere Intel NXP/Philips Sharp NEC
Agere Analog Devices NVIDIA STMicro Toshiba NXP/Philips
Analog Devices Rohm Renesas Freescale Elpida Analog Devices
Silicon Labs
Digital Consumer
Set-Top Box Digital TV DVD Digital Camera MP3 Player Videogame Memory Card
STMicro Matsushita Toshiba Mediatek ASIC/ASSP Image Sensor SigmaTel Sony Samsung
Broadcom NXP/Philips Renesas LSI Logic Fujitsu Sony PortalPlayer NEC Toshiba
Conexant Sharp ALPS Zoran Sony Matsushita Actions Sharp Hynix
NXP/Philips Genesis Micronas SunPlus Renesas Sharp NXP/Philips IBM SanDisk
ALPS ATI Silicon Image NEC SunPlus Sanyo TI Intel Renesas
LSI Logic Trident Zoran ESS TI Omnivision Telechips Nvidia STMicro
Intel/Zarlink Sony Samsung Toshiba Zoran Broadcom LSI Logic Micron
Fujitsu Pixelworks TI Matsushita Wolfson ATI M-System
Cheertek Fuji Micro Sony Marvell Infineon
Sony Samsung Samsung
NXP/Philips ALi
Automotive
Automotive
Auto MCUs ASICs/ASSPs Auto SLICs Auto Discretes
Freescale STMicro Micrel Infineon
Renesas NXP/Philips National Semi Robert Bosch
NEC Infineon Sanken Rohm
Fujitsu Robert Bosch NewJRC NXP/Philips
Texas Instruments Freescale Renesas STMicro
Infineon Texas Instruments Maxim Vishay
Intel NEC Intersil OSRAM
Toshiba Toshiba Analog Devices On Semi
Samsung SIPEX Intl. Rectifier
Linear Tech Denso
Source: IDC, Dataquest, Linley Group, CIBC World Markets Corp.
63
Section
Section IV:
IV: Product
Product Summary
Summary
This section discusses the major types of

semiconductor products.
For each product we discuss:

Product Definitions
Market Forecast
Competitive Environment
64
The
The Semiconductor
Semiconductor Market
Market
The CIBC Semiconductor $350,000

Memory
Revenue Forecast
Logic
$300,000 Microcomponents
Analog
Discretes, Sensors, & Optoelectronics
•We expect total semiconductor industry $250,000
revenue to grow 9% in 2006, as the
Revenue ($M)
$200,000
industry recovers from the mild supply-

driven downturn experienced in 2005. $150,000
•Demand has moderated in key end $100,000
markets, particularly in PC and handset,

dampening the outlook for the next
$50,000
expansion. $0
•Overall, we expect a 2005-2010 5-year

2002 2003 2004 2005 2006 2007 2008 2009 2010

CAGR of 8%, growing from $227 billion in
2005 to $332 billion in 2010.
Product Forecast Highlights

•Logic should slightly outgrow the market with a 10% CAGR. Special purpose logic for
communications and automotive, FPGAs, and display drivers should lead growth.
•Microcomponents should grow at a 6% CAGR. MPUs should grow just 5% as prices
decline for PC processors. DSPs should outperform driven by healthy wireless growth.
•Analog should outgrow the market at 10%, driven by strong demand from both
application-specific analog (11%) and standard linear ICs (8%).
•Memory should remain a growth segment, but will continue to show the most
volatility; up the most in boom years and down the most in downturns.
•Despite perpetual price pressure, discretes, sensors, and optoelectronics should grow
in line with the market given their multi-market application.
The semiconductor industry totaled $227 billion in sales in 2005, a 7% increase over 2004. The industry experienced
a mild cyclical downturn in 2005 even during a period of relatively strong and stable demand, characterized by
moderate oversupply but low inventories across the sector. We expect semiconductor revenue to grow 9% in 2006 as
the industry recovers from this modest oversupply and as inventories are replenished (though they are correcting in
2H06). We expect 2007 to 2008 to be expansion years, followed by the next downturn and recovery in 2009 and
2010. Overall, we estimate a 2005-2010 five-year CAGR of 8%. By segment, we expect the following:
• MOS Logic should grow at a 10% CAGR, with communications and automotive ASSPs, along with FPGAs and
display drivers, growing fastest.
• Microcomponents should grow at a 6% CAGR. MPUs should grow just 5% as PC growth is tempered by new,
more intense price pressure. DSPs should outperform with 14% growth, driven by healthy wireless demand.
• Analog should grow 10%, driven by strong demand for both ASSPs (11%) and standard linear ICs (8%).
• Memory should remain a growth segment with a 6% CAGR, but will continue to show the most volatility; up
the most in boom years and down the most in downturns.
• Despite an always-difficult pricing environment, discretes, sensors, and optoelectronics should grow roughly in
line with the market given their multi-market application.
65
Product
Product Summary
Summary
Analog
Analog
The semiconductor market can be divided

into five key product areas
Five Key Markets:

Analog
Digital Processors
Digital Logic
Memory
Discretes
Discretes and
and Optoelectronics
Optoelectronics
We first examine the semiconductor industry by product group. The industry can be divided into five segments:
• Analog: Analog circuits are used to process real world signals, using electronic voltage patterns within the device
to represent the original signal. Standard linear integrated circuits (SLICs) are standard analog components used
in multiple applications, usually purchased “off the shelf,” often through distribution. Application specific standard
products (ASSPs) are more specialized analog devices targeted for a specific application.
• Digital Processors: Also called “microcomponents,” these devices perform intensive compute processing and
system control. Microcomponents includes microprocessors, microcontrollers and DSPs.
• Digital Logic: Logic devices perform digital processing, and include gate arrays and standard cells (ASICs),
programmable logic devices (FPLDs, FPGAs), display drivers, general purpose logic and specialty purpose logic.
• Memory: Memory devices are used to store data either for short periods of time or permanently. Volatile
memory loses stored information when the power is lost; key types are DRAM and SRAM. Non-volatile memory
retains the information when the system is powered off; key types are flash, mask ROM, EPROM and EEPROM.
• Discretes, Optoelectronics and Sensors: This category includes all non-integrated circuit semiconductors.
Discretes are devices that contain just a single transistor in a package. Optoelectronics include devices designed
to emit and detect light. Sensors include those devices that measure physical, chemical or biological properties.
66
Analog
Analog
Analog ICs
Devices designed to receive, process, and
create analog real world signals
Two Key Markets:

Analog SLICs
Analog ASSPs
Analog ICs are devices used to process and convert real world signals. Whereas digital circuits perform processing
functions by determining the absence or presence of an electrical charge (the “1s” and “0s” of the digital world),
analog circuits are concerned with the actual voltages and currents in circuits. When electrical devices interact with
the real world, analog circuits measure real world input in the form of voltage/current strength (the electrical charges
in the device form an “analogy” of the real world input—hence the term “analog”). They can also convert the signal to
a digital form for processing. Conversely, when the device creates real world output, analog circuits convert the
digital instructions to analog voltages/currents to drive the creation of output.
Analog circuits are divided into two broad categories: SLICs and ASSPs.
• SLICs (standard linear integrated circuits) are standard analog components that used in multiple applications.
Although designed for a specific function within a system, a SLIC is not optimized for particular types of systems.
Key types are amplifiers, interface circuits, voltage regulators, data converters and comparators.
• ASSPs (application specific standard products) are more specialized analog devices targeted for a specific
application. These devices are often designed as multiple SLICs that are integrated and then modified to serve a
specific function in a particular end market; but they can also be designed from the ground up. Examples include
radio frequency (RF) ICs in cellular phones, interface ICs for networking, read channels in HDDs, tuners and
demodulators in set top boxes, battery management in notebooks and power train control devices in automobiles.
67
Analog
Analog SLICs
SLICs
Analog SLICs (Standard Linear Integrated Circuits) - Standard analog

components used in multiple applications. While designed to perform a
specific function, SLICs are not optimized for any particular type of system.
Key Types: Amplifiers, interface drivers, voltage regulators, data
converters (analog-to-digital, digital-to-analog, codec), comparators.
Market Forecast Key Competitors

•Analog SLICs are expected to grow at a Texas
Instruments
5-year CAGR of 8%, rising from $11.7 15 %
billion in 2005 to $17.2 billion in 2010. Others
•Growth to be led by data converters. 32 %
$20,000 Analog
Comparators
$18,000 Data Converters
Devices
Voltage Regulators 13 %
$16,000 Interface
Amplifiers
$14,000
$12,000 Intl. Rectifier

Revenue ($M)
2% National
$10,000
Fairchild Semi
$8,000 2% 11 %
$6,000
STMicro
2% Intersil
$4,000 3%
Maxim
ON Semi Linear Tech 9%
$2,000 3% 7%
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Analog SLICs (standard linear integrated circuits) are general purpose analog components that can be used in multiple
types of electronic devices. Although designed to perform a specific function within a system, SLICs are not optimized
for particular applications. For example, a line driver (a type of interface SLIC) is designed to produce or receive a
signal on a copper wire, but can be used in any application that requires this function (e.g. a telephone set, an analog
modem, etc.). Similarly, a video ADC (analog-to-digital converter) is designed to convert analog video signals to
digital, but can be used in any video application (e.g. digital camera, digital TV, set-top box, etc.).
SLICs can be sub-divided into five types of devices:
• Amplifiers: ICs designed to amplify a signal, also can be configured to perform certain related operations.
• Interface: ICs that produce output or receive input, usually in the transmission of signals to and from systems.
• Voltage Regulators: Devices that control power flow by providing a stable flow of current at a particular voltage.
• Data Converters: Includes “mixed signal” (analog/digital) devices designed to convert a signal from analog to
digital (an ADC) or from digital to analog (a DAC). A codec combines the two functions in a single device.
• Comparators: ICs used to compare two quantities, usually used in power management. These are often
grouped with amplifiers, as it is a small market and is similar in nature to amplifiers.
68
Market Forecast: The market for analog SLICs is expected to grow at an 8% CAGR over the next five years. While
most electronics OEMs and semiconductor companies are focused on driving the performance of the digital portion of
the system, most applications still require significant analog content to interface with the real world. In total, we
expect the market to grow from $11.7 billion in 2005 to $17.2 billion in 2010. Growth should be led by data
converters, with a CAGR of 10%, followed by voltage regulators at 8%. Interface circuits and amplifiers are expected
to grow 7% and 6%, respectively. Comparators should grow 11%, but should remain around 2% of the market.
Competitive Environment: Note that the SLIC market is one of the most consistent and profitable segments in the
semiconductor industry. Barriers to entry in the standard linear market remain extremely high, due in part to the
nature of analog SLIC device design. Analog engineering is more of a refined art rather than a school-taught
competency, with most analog engineers honing their craft over years of real world design. Although digital devices
are more dependent on scaling processing architectures and migrating to smaller geometries, SLICs are more
dependent on a deep knowledge of the intricacies of the particular medium for which the device is being designed
(e.g., sound waves, light waves, heat, etc.). The pool of analog design engineering talent is therefore more limited
than for digital devices, and a multitude of SLIC vendors have been able to develop defensible franchises. Further, as
SLICs are extremely diverse in application, the supplier chain is extremely fragmented.
Only three vendors held above 10% market share in 2005. Texas Instruments held 15%, with more than 10% of
each device category. Analog Devices held 13%, with a dominant 43% share of data converters and a strong
amplifier position. National Semiconductor was third with 11%, No. 1 in voltage regulators, and No. 3 in interface ICs
and in amplifiers. Maxim, the high-performance standard linear pure-play, held 9% and was No. 2 in interface ICs
and No. 3 in converters. Rounding out the top 5 was Linear Technology, Maxim’s chief high-performance competitor,
with 7% overall and the No. 3 spot in voltage regulators. Other major vendors include On Semi, Intersil,
STMicroelectronics, Fairchild, and International Rectifier. We provide additional competitive detail in the charts below.
Amplifiers and Comparators Voltage Regulators
Others National Semi

Others Texas 16 %
21 % 21 %
Instruments
18 %
Analog
NewJRC Devices
4% 3% Texas
Analog
Instruments
Maxim Devices STMicro
16 %
4% 17 % 3%
Micrel
NEC 3%
5%
Fairchild
Avago 5% Linear Tech
5% ON Semi 10 %
STMicro National Semi
5%
5 % Linear Tech 15 % Intersil Maxim
6% 5% 10 %
Converters Interface Circuits

Others
12 % Others
18 %
National Semi Texas
3% Instruments
Cirrus Logic 25 %
4%
Asahi Kasei Linear Tech
4% 5%
Analog
Linear Tech Devices
43 % Toshiba
5%
6%
Wolfson
Micro
6% Philips Maxim
8% 17 %
Maxim
10 %
Texas Intl. Rectifier
Instruments National Semi
9%
14 % 12 %
69
Analog
Analog ASSPs
ASSPs
Analog ASSPs (Application Specific Standard Products) - Specialized

analog ICs targeted for a specific application. Often integrate multiple
SLICs or even some digital circuitry. Often called “mixed signal” analog.
Key Types: Computer (PC and storage), communications (wireline,
wireless, networking), consumer, automotive, and industrial ASSPs.

•Analog ASSPs are expected to grow at Others
an 11% CAGR, rising from $20.2 billion in 19 %
STMicro
2005 to $33.3 billion in 2010. 20 %
•Growth to be led by communications Broadcom

(particularly wireless) ASSPs with a 12% RF Micro 3 %
CAGR; consumer, automotive, and Devices
3%
industrial should all grow 10%. Skyworks Infineon
$40,000 3% 14 %
Industrial
Automotive
Renesas
$35,000
Communications 4%
Computer & Storage
$30,000 Consumer Qualcomm
4%
$25,000 Texas
Revenue ($M)
Freescale Instruments
$20,000 6% 12 %
NXP/Philips
$15,000
12 %
$10,000
Source: Dataquest, Databeans, CIBC World Markets Corp.
$5,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Analog ASSPs (application specific standard products) are analog components designed to service a particular
application. These are sometimes designed as multiple SLICs that are integrated to serve a specific function in a
particular end market, but can also be designed from the ground up. They often include some digital circuitry, and
hence are sometimes referred to as “mixed signal analog.”
Key examples of analog ASSPs include radio frequency (RF) ICs in cellular phones, physical layer interface devices for
networking applications, read channels in hard disk drives, demodulators in consumer electronics, battery
management ICs in notebook computers and engine and power train control devices in automobiles.
Unlike analog SLICs, analog ASSPs are not usually sold through the distribution channel, and instead go through
design process at OEMs that is similar to that used for digital ASSPs. In fact, many of the highest volume electronics
applications are served by a chipset that includes one or more analog ASSPs paired with one or more digital ASSPs
offered by the same vendor, or by two vendors on a single reference design. The analog and digital ASSPs are thus
designed in, and subsequently purchased by the OEM, at the same time.
As mentioned above, some analog ASSPs actually incorporate more mixed signal and digital functionality, often
blurring the line between analog ASSP and special purpose logic. Further, the same vendors who design digital ASSPs
are now increasingly the vendors who design analog ASSPs. While the SIA has for now decided to keep the line
70
between analog and digital ASSPs, some third-party research firms like Gartner Dataquest have done away with this
distinction and group all application specific analog and digital devices as simply ASSPs.
ASSPs are divided into five categories by application:
• Automotive: Devices specifically designed for use in automobile engine, safety, comfort, entertainment and
power controls.
• Consumer: ASSPs used in audio/video equipment and home appliances, usually for processing, production or
reception of audio and video input.
• Computer: ASSPs used in computing applications, including storage devices like hard disk and optical drives.
• Communications: ASSPs used in wireless, telecom, and datacom client and service provider devices and
equipment. These are usually used in the production and reception of transmission signals, including optical,
electrical and radio.
• Industrial and Other: ASSPs used in industrial equipment and other applications.
Market Forecast: The market for analog ASSPs is expected to grow at an 11% CAGR over the next five years, rising
from $20.2 billion in 2005 to $33.3 billion in 2010. The largest and fastest growing market segment in analog ASSPs
is communications; it is expected to post a 12% CAGR through 2010 to represent just over 50% of the market.
Growth in communications is primarily being driven by RF, analog baseband and power management ICs for wireless
handsets. Certain wireline networking technologies should also drive communication ASSP growth, such as Gigabit
Ethernet, SONET, Fibre Channel, wireless LAN and Bluetooth. DSL and cable modems should see unit growth, though
much of the analog content in these applications has moved into a digital system-on-a-chip (SoC).
Consumer, automotive, and industrial should all grow at around a 10% CAGR through 2010. Consumer benefits from
nice unit growth, but is subject to more price pressure as well as the trend to pull analog functions into the digital
SoC, moderating the TAM a bit. Automotive and industrial, on the other hand, see little price pressure and even less
integration risk, as analog processing remains the focus of many of these systems.
Competitive Environment: The ASSP market is highly fragmented, not surprising given the diversity of applications
served. STMicroelectronics has historically been the leading analog ASSP provider and held 20% share in 2005, with
strong positions in hard disk drive, PC peripheral, wireless, wireline and automotive ASSPs. Infineon was second with
14%, strong in automotive, wireless and wireline ASSPs. Texas Instruments, which is also the largest provider of
analog SLICs, was third, with 12%; TI has a strong portfolio of products for hard disk drives, PC peripherals, displays,
wireless and wireline. NXP/Philips was fourth with 12%, a top provider of consumer ASSPs and also strong in wireless
and automotive. Other suppliers include Freescale, Qualcomm, Renesas, Skyworks, RFMD, Broadcom, Matsushita,
Sanyo, Toshiba, Rohm, MediaTek and Analog Devices. The table below displays some additional detail.
Communications Computing Consumer Auto/Industrial

Key device types Analog basebands Printer front ends Demodulators Engine control
and cartridge heads
Handset power Tuners Automotive audio
management HDD read channels,
Audio/video interface Climate control
preamps, and motor
RF transceivers
controllers Digital camera front Motor control
Power amplifiers end
ODD front ends
DSL front ends DVD front end
PC interface ICs
Key Competitors STMicroelectronics Texas Instruments Sony STMicroelectronics
Qualcomm STMicroelectronics Matsushita NXP/Philips
Skyworks MediaTek NXP/Philips Infineon
RF Micro Devices Renesas STMicrolectronics Renesas
Texas Instruments NEC Renesas Robert Bosch
Infineon Rohm Micronas Freescale
Renesas Marvell/Avago Broadcom Texas Instruments
Freescale NEC Electronics Conexant NEC
Broadcom Freescale Texas Instruments Toshiba
Conexant Ricoh
Silicon Labs Sanyo
71
Digital
Digital Processors
Processors
Digital Processors:
Devices designed to perform intensive
compute processing and system control
Three Key Markets:

Microprocessors
Microcontrollers
Digital Signal Processors
Microcomponents include all digital processors, including microprocessors, microcontrollers and DSPs. These devices
are built around the famous 1s and 0s of the digital world and are designed to be programmable; i.e., they run
software which is very customizable and can change the function of the device.
Microprocessors (CPUs or MPUs) are the largest, most complex processors, and are generally found in computing and
other compute-intensive applications and typically form the brains of an entire electrical system. Raw performance is
generally the most important metric for microprocessors, though increasingly performance per watt is becoming
important as well. Little integration is done in the microprocessor market, as they almost always sit within a larger
system with other ICs to handle supporting functions.
Microcontrollers (MCUs) are smaller stand-alone processors that perform dedicated or embedded computer function
within a system and usually contain on-chip RAM, ROM, I/O logic and timers in order to minimize cost and to speed
design and implementation cycles. Integration is most important, followed by power consumption and performance;
though performance will usually vary by application given the diverse use of MCUs.
Digital signal processors (DSPs) are specialized high-speed digital processors typically used to process real-time data.
Performance and power consumption are of equal importance. Integration has also been critical in driving DSPs into
select applications (like handsets), though many systems use DSPs as a standalone high-speed processor.
72
Microprocessors
Microprocessors
Microprocessors (MPUs) - Digital processors that execute instructions

and perform system control functions as programmed with an assembly
language. MPUs are optimized for general purpose data processing.
Key Types: x86, PowerPC, ARM, MIPS. 16-, 32-, and 64-bit external bus.

•Microprocessors are expected to grow IBM Others
Freescale 1 % 4%
from $35.0 billion in 2005 to $43.6 billion 3%
in 2010, a 5% CAGR. AMD
•The market is almost entirely PC-based 11 %
and is tied to PC unit growth and the mix
between desktop, notebooks, and servers.
$50,000
Microprocessors
$45,000
$40,000
$35,000
$30,000
Revenue ($M)
$25,000
$20,000 Intel
81 %
$15,000
$10,000
$5,000 PC Server Embedded

$0 Intel Intel Freescale Toshiba
2002 2003 2004 2005 2006 2007 2008 2009 2010
AMD Sun/TI Intel NEC
Source: WSTS, IDC, CIBC World Markets Corp.
Freescale (Apple) IBM IBM AMD
Via AMD Renesas PMC-Sierra
A microprocessor (MPU) is a digital processor that executes external instructions and performs system control
functions as programmed via software with an assembly language. The architecture is optimized for general purpose
data processing and includes an instruction decoder, arithmetic logic unit, registers and additional logic to support
operation as per the assembly language. An MPU can receive input commands, manipulate data, direct storage of
data and initiate application commands to the outside world.
The PC and server market represents approximately 90% of microprocessor revenues. Most PC microprocessors use
the x86 CISC (Complex Instruction Set Computer) architecture, which uses microcode to execute very comprehensive
instructions. Instructions may be variable in length and use all addressing modes, requiring complex circuitry to
decode them. Both Intel and AMD, the major PC microprocessor suppliers, have added their own enhancements to
the x86 architecture, both in the actual processor core and the surrounding logic. These enhancements optimize
certain common features used in the PC, such as operating system tasks, multimedia functions, Internet usage, etc.
Microprocessors used for PC peripheral, communications and digital consumer applications—usually referred to as
“embedded” processors—generally use either a generic x86 processor or one of many RISC (Reduced Instruction Set
Computer) architectures. RISC cores reduce chip complexity by using simpler instructions and keeping the instruction
size constant without microcode layer or associated overhead. There are several mainstream RISC architectures,
most notably MIPS, PowerPC and ARM. These architectures usually require a license.
73
Microprocessors are also classified according to bit width, which defines the size of the instructions sent over the
external bus (some processors use a higher bit-width on the interior of the processor, only the external bus is used for
classification). Most PC microprocessors today use a 32-bit external bus, but can support 64 bit extensions. AMD first
introduced 64-bit extension in 2003 and Intel followed suit in 2004; virtually the entire market has transitioned at this
point.
In the server space, most low-end and mainstream servers use standard 32-bit processors with 64-bit extensions
prevalent in the PC market, while high-end servers will use proprietary or licensable 64-bit processors (e.g. Sun
Microsystems’ SPARC or IBM’s PowerPC). Intel has also introduced a standard 64-bit processor for this market
(branded Itanium), but has had trouble gaining share from proprietary systems.
In the embedded market, processors use a mix of 8-, 16-, 32-, or 64-bit processors, depending on the application.
The highest end processors would be used in communications infrastructure equipment like softswitches or firewalls,
while the lowest end would be used in consumer electronics or industrial applications.
Note that microprocessors can also contain more than one processor core on a single die. Many proprietary RISC
server processors utilize a dual-core or multi-core design, which efficiently ramps performance for high-end compute-
intensive applications. Faced with thermal limitations in PC processor design, both Intel and AMD launched dual-core
products in 2005, with Intel first to market in the desktop and AMD first to market in the server. Dual core processors
are now starting ramp significantly for the desktop, notebook, and server markets in 2006.
Market Forecast: Microprocessors are heavily tied to the PC market and thus are more dependent on demand for
this one application than on broader semiconductor or electronics demand. Overall, we expect microprocessors to
grow from $35.0 billion in 2005 to $43.6 billion in 2010, a 5% CAGR. This assumes a high single-digit growth rate for
PCs annually, offset by pricing pressure that is now the new norm in the PC market following AMD’s rise as a stronger
No. 2 to Intel in recent years.
Competitive Environment: The microprocessor market is one of the most concentrated markets in semiconductors.
Intel has effectively maintained a near-monopoly on the PC and server microprocessor market, with just over 86%
revenue share overall. Note that Intel has a somewhat lower unit share (79%), since its microprocessor ASPs are
higher than its competitors. AMD held 12% revenue share in 2005 (and about 18% unit share) and competes with
Intel in all market segments. IBM and Freescale also participated in the PC processor market with their PowerPC-
based processor for Apple, though Apple began a migration to Intel in 2006. Other x86 microprocessor vendors
include Via, which competes at the low end.
The diagrams below depict revenue and unit share in the PC and server microprocessor markets for 2005.
2005 PC and Server Microprocessor Revenue Share 2005 PC and Server Microprocessor Unit Share
Others 100%
2%
AMD 90%
12 %
80%
70%
60%
50%
40%
Intel 30%
86 % Others
20%
AMD
10% Intel
0%
Total Units Desktop Mobile Server
Source: IDC, CIBC World Markets Corp.
The embedded microprocessor market is somewhat more fragmented, not surprising given the diversity of
applications served and architectures required. Freescale is the largest player overall with 28% market share and the
top position in the communications and other categories, and the No. 2 and 3 positions in the consumer and
computing markets, respectively. Freescale’s PowerQUICC is the dominant processor choice for wireline equipment
and its DragonBall and i.MX family have historically been well positioned in the PDAs and smartphone markets.
74
Intel was the No. 2 supplier in 2005 with 25% share; 2005 Embedded Processor Market Share
Intel holds the top position in computing and the No. 2
positions in communications and other applications. Broadcom
2%
Others
7%
Intel’s PC processors, find lots of use in non-PC AMCC
applications; typically these will be the lower end or PMC-Sierra 3 %
3%
lower-voltage versions of its product portfolio. Intel also AMD Freescale
supplies a low-power ARM-based family for portables 3% 28 %
under the Xscale brand, though it sold the handset and NEC
PDA portion of XScale to Marvell 2006. 4%
Toshiba
IBM was the No. 3 supplier in 2005 with 11% share and 5%
holds the No. 2 position in computing. Renesas followed
as No. 4 with 8% share and the top position in consumer. Renesas
Toshiba followed with 5%, NEC with 4%, and AMD with 8%
3%. Rounding out the top 10 are comm IC players PMC-
Sierra, AMCC, and Broadcom, all of whom entered the
IBM Micro Intel
market through acquisition. 11 % 25 %
2005 Computing Embedded MPU Market Share 2005 Comm Embedded MPU Market Share
Others Others
Transmeta 9% 13 %
2%
PMC-Sierra PMC-Sierra
3% 3%
AMD NEC
3% 4%
Toshiba Intel Renesas
5% 42 % 4%
NEC Freescale
4% Toshiba 48 %
4%
Broadcom
Freescale 6%
10 %
AMCC
7%
IBM Intel
20 % 10 %
2005 Consumer Embedded MPU Market Share 2005 Other Embedded MPU Market Share
Others Others
Toshiba 6% 12 %
5%
NEC Fujitsu
5% Renesas 3% Freescale
AMD 32 % IBM 34 %
5% 5%
IBM Toshiba
6% 7%
Renesas
Intel 13 %
17 %
Freescale
24 % Intel
25 %
75
Microcontrollers
Microcontrollers
Microcontrollers (MCUs) – Stand-alone devices that perform dedicated or

embedded computer functions within an overall system. MCUs contain
single or multiple processing mini-architectures, as well as on-chip RAM,
ROM, and I/O logic.
Key Types: 4-, 8-, 16-, 32-bit (or greater). Automotive, consumer,
computer, IC card, wireless communication, wired communication.

•Microcontrollers are expected to grow at
a 6% CAGR, from $12.1 billion in 2005 to Others
19 % Renesas
$16.3 billion in 2010. 23 %
•Growth to be led by 32-bit MCUs. Texas

$18,000 Instruments
32-Bit MCUs 4%
$16,000 16-Bit MCUs
8-Bit MCUs
STMicro
$14,000 4-Bit MCUs 4%
$12,000 Fujitsu
4% Freescale
Revenue ($M)
$10,000
Matsushita 14 %
$8,000 5%
Toshiba
$6,000
5%
$4,000 Microchip NEC
Infineon 11 %
6% 7%
$2,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Dataquest, CIBC World Markets Corp.
Microcontrollers are stand-alone computation devices that perform dedicated or embedded computer functions within
a system. Microcontrollers incorporate simpler processing architectures than microprocessors and are often used to
perform only a specific function within a system. They contain some form of RAM and ROM memory as well as
additional I/O logic on-chip and thus can perform relatively simple processing tasks without the need for traditional
support ICs found in more complex systems. This lowers the system cost and speeds design and implementation.
Like microprocessors, microcontrollers are classified by external bit width. Four-bit devices are still in use, primarily
to control the simplest electronic devices (e.g., a toaster oven) or for very simple embedded functions within a larger
system (e.g., controlling the LCD screen inside a digital camera). Eight-bit devices are the largest single segment in
revenue terms at 39% of total microcontroller revenue in 2005 and represented roughly 45% of all microcontroller
units shipped. Sixteen-bit microcontrollers totaled 29% of revenue, and 32-bit MCUs have grown rapidly to 28% of
total revenue.
By end market, the largest single consumer of microcontrollers is the automotive market, which accounted for 33% of
total microcontroller sales in 2005, as automotive electronics have typically been implemented with a combination of
microcontrollers and analog ASSPs and SLICs. Consumer devices accounted for 13%; this includes the simple
consumer appliances controlled by MCUs as mentioned above, as well as the embedded functions. Smart cards
followed at 11% of total sales and data processing accounted for 10%. Wireline and wireless applications accounted
for less than 5%, as these devices tend to use dedicated ASSPs and DSPs for their implementation.
76
The exhibits below display microcontroller revenue share by bit width and application.
2005 Microcontroller Revenue Share By Bit Width 2005 Microcontroller Revenue Share By Application
4-bit
3%
Other
32-bit 29 % Automotive
28 % 33 %
8-bit
39 %
Wireless
1%
Wireline
3%
Data Consumer
Processing 13 %
16-bit 10 % IC Card
29 % 11 %
Market Forecast: Microcontrollers are expected to see healthy growth given their broad exposure to the electronics
landscape. Overall, we expect microcontrollers to grow from $12.1 billion in 2005 to $16.3 billion in 2010, a 6%
CAGR. The increasing complexity of automotive and consumer systems should favor the higher bit width segments.
32-bit (or greater) devices are expected to lead growth, with a 9% CAGR through 2010. 8-bit and 16-bit devices are
expected to grow 6% and 5% through 2010, respectively, while 4-bit is expected to trail the overall market with
negative 10% CAGR.
Competitive Environment: The microcontroller market is highly fragmented due to the diversity of applications
served. The largest supplier in 2005 was Renesas, with 23% market share. Renesas is the No. 1 supplier of 16-bit
MCUs, the No. 2 supplier of 4-bit and 8-bit MCUs, and the No. 3 supplier of 32-bit MCUs. Renesas is also the leading
supplier to both communications and consumer applications and the No. 2 supplier to computing and automotive
applications.
Freescale was the No. 2 supplier in 2005 with 14% share; the No. 1 supplier of 8-bit and the No. 2 supplier 32-bit
microcontrollers and strong in automotive applications. NEC was third with 11%, strong in all applications. Infineon,
Microchip, and Toshiba each followed with 7%, 6%, and 5%, respectively. Other major suppliers include Matsushita,
Fujitsu, STMicroelectronics, Texas Instruments, Samsung, Atmel, and NXP/Philips.
The exhibits below display microcontroller market share, first by bit-width and then by application.
4-bit Microcontrollers 8-bit Microcontrollers
Freescale
Others
NEC 15 %
15 %
21 %
Others
25 %
Oki Electric
6%
Renesas
14 %
Seiko Epson
NXP/Philips
8%
4%
Toshiba
Renesas 5%
Toshiba Microchip
22 %
11 % 13 %
Atmel
6%
Samsung STMicro NEC
17 % 8% 10 %
77
16-bit Microcontrollers 32-bit Microcontrollers
Others Samsung Others

Sunplus 9% 3% 4%
Toshiba
NEC 2 % 4% NEC
3% Infineon
21 %
Fujitsu 4%
4% Texas
Toshiba Renesas Instruments
4% 40 % 7%
Texas
Instruments
Fujitsu
5%
7%
Intel
5% Freescale
20 %
Freescale Matsushita
9% 13 %
Infineon Renesas
19 % 17 %
Computing Microcontrollers Communications Microcontrollers
Others
14 % Infineon Others
21 % 23 %
Microchip
Tech.
4%
Renesas
Philips 38 %
6%
Toshiba
4%
Freescale
6% Samsung
4%
Renesas
21 % Matsushita
NEC
6%
9%
Freescale
Microchip
Matsushita 6%
STMicro NEC Tech.
9% 10 % 8% 10 %
Consumer Microcontrollers Automotive and Other Microcontrollers
Others
14 %
Others STMicro Freescale

28 % Renesas 3% 22 %
30 % Samsung
3%
Intel
4%
Toshiba
5%
Sony
4% Renesas
Fujitsu 18 %
Atmel 6%
Microchip
4% Tech. Infineon
Toshiba 11 % 6%
5% Texas
Matsushita NEC Instruments NEC
9% 10 % 6% 12 %
78
Digital
Digital Signal
Signal Processors
Processors
Digital Signal Processors (DSPs) - Specialized processors designed for

stand-alone use, most often used for real-time processing of digital signals,
e.g. handsets, digital cameras, MP3 players, IP set-top boxes, etc.
Key Types: Consumer, computer and peripheral, wireless communication,
wired communication, automotive, multipurpose.

•DSPs are expected to grow at a 14% Others
CAGR through 2010, rising from $7.6 NXP/Philips
7%
billion in 2005 to $14.8 billion in 2010. 6%
•Handset unit growth, the move to 3G Analog

Devices
and beyond, and increased usage in 6%
consumer electronics and automotive
should drive revenue growth.
Agere
$16,000
9%
DSPs
$14,000
$12,000 Texas
Instruments
$10,000 Freescale
58 %
Revenue ($M)
14 %
$8,000
$6,000
Note: Includes DSPs that are customized for specific applications,

$4,000
but excludes digital logic circuits with embedded DSPs. As an
example, because of the nature of their design the majority of TI’s
$2,000
handset basebands are included as DSPs but Qualcomm’s are not.
Source: Forward Concepts, Dataquest, CIBC World Markets Corp.
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Digital signal processors (DSPs) are specialized stand- 2005 DSP Segmentation by Application
alone digital processors that are optimized for performing
intensive computations typically required in Other
Automotive
communications and multimedia applications. DSPs are 3%
7%
almost always used in applications that require real-time Data

Processing
processing of digital signals. Examples include handset 4%
basebands, digital camera image processors, IPTV
Wireline
decoders, and MP3 player audio de-compressors. 5%
By end market, 75% of all DSP revenue is derived from Consumer

6%
the wireless market, both from handsets and
basestations. Six percent is derived from the consumer
market, primarily for portables like digital cameras and
MP3 players as well as high-end consumer devices like
DVD recorders; 5% sell into wireline, mostly broadband Wireless
modems; 4% into computing applications; and 3% is 75 %
derived from the automotive market. The exhibit at right
displays revenue share in DSPs by application in 2005.
79
Market Forecast: DSPs are at the core of next generation personal communications, audio and video devices. They
are fast, easy to program, extensively libraried and inexpensive. As such, we expect them to continue to drive high-
performance applications like cellular handsets and to benefit from new applications such as digital portable audio and
video players, cameras and smart handheld devices. In some cases, unit growth will be bolstered by ASP growth—
notably in the handset market when 3G penetration begins to rise. Overall, we expect DSPs to grow from $7.6 billion
in 2005 to $14.8 billion in 2010, a 14% CAGR.
Competitive Environment: The DSP market is highly concentrated, with five players controlling over 90% of the
market in 2005. TI held the No. 1 position in 2005 with 58% market share, with its leadership position in GSM, GPRS,
and UMTS baseband chips and its strong ties to handset leader Nokia. Freescale was No. 2 with 14% share in 2005,
much of it derived from its relationship with its former parent company, Motorola. Agere fell one spot to No. 3 as NEC
discontinued Agere based 3G platforms in 2004; Agere still remains well positioned at Samsung for 2G and
2.5G/EDGE products. Agere is also an incumbent in the 2.5G wireless infrastructure DSP market. Rounding out the
top five were Analog Devices and NXP/Philips, both with 6% share. Other vendors include Toshiba, NEC, Cirrus Logic,
Sunplus, and Fujitsu.
Note that most special purpose logic devices (discussed later) incorporate some DSP circuits. Most mainstream
definitions of DSPs exclude these devices, though the lines of distinction are somewhat subjective. For instance, both
Texas Instruments and Qualcomm make digital baseband chips for cellular handsets, but TI’s devices are considered
DSPs and Qualcomm’s are considered special purpose logic. The defining line usually rests on how the device is
designed: in the case of digital basebands, TI tends to wrap logic around its standard programmable DSP core: thus,
it is classified as a DSP. Qualcomm designs a baseband ASSP from the ground up and incorporates a DSP-engine;
thus, its devices are usually classified as special purpose logic.
80
Digital
Digital Logic
Logic
Digital Logic:
Devices designed to process signals in a
the digital realm
Five Key Markets:

Special Purpose Logic
Display Drivers
General Purpose Logic
ASICs
FPGAs/PLDs
Digital logic includes all non-microcomponent logic circuits. These devices are more “hard-coded” than
microcomponents and thus typically are designed from the ground up for a particular function. Some software
programmability is always incorporated, but it is usually to adjust certain details about the device’s core functioning
(e.g., which features to turn on, how fast to run the device, etc.).
Key types include special purpose logic (digital ASSPs designed for a specific application), display drivers, general
purpose commodity logic, custom logic (gate array and standard cells, also called ASICs), and field programmable
logic devices (PLDs and FPGAs).
81
Special
Special Purpose
Purpose Logic
Logic
Special Purpose Logic - Application specific digital ICs sold as standard

products, designed to service a particular application. Includes ASSPs for
PC, display, communication, consumer, and automotive applications.
Key Types: PC core logic, GPUs, communication ICs, consumer ASSPs.

•We expect special purpose logic to grow Storage and
at a 9% CAGR through 2010, from $37.5 PC and Server Peripheral
billion in 2005 to $58.6 billion in 2010. Intel Marvell
•Growth to be led by communications and NVIDIA Agere
automotive ASSPs.
ATI/AMD MediaTek
$70,000
Other
Automotive
Via STMicroelectronics
$60,000
Communications
Computer & Peripheral SiS LSI Logic
Broadcom Texas Instruments
Consumer
$50,000
Communications Consumer
Revenue ($M)
$40,000
Qualcomm STMicroelectronics
$30,000
Freescale NXP/Philips
$20,000 Broadcom Sharp
$10,000
NXP/Philips Broadcom
Infineon Fujitsu
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 Conexant Mediatek
Source: WSTS, CIBC World Markets Corp. Texas Instruments Zoran
Marvell SigmaTel
Agere PortalPlayer
PMC-Sierra Genesis
Specialty purpose logic devices are digital logic circuits sold as standard products, usually designed specifically for a
particular application (though not for a specific socket—those are classified as custom ASICs). Designers typically
incorporate some degree of system-level knowledge in the architecture, as these devices typically form the core of the
equipment into which they are designed.
As discussed in the section on analog ASSPs, many of the highest volume electronics applications are served by a
chipset that includes one or more analog ASSPs paired with one or more digital logic devices or ASSPs offered by the
same vendor, or by two vendors on a single reference design. The analog and digital ASSPs are thus designed in, and
subsequently purchased by the OEM, at the same time. A great example of this would be a wireless LAN chipset,
where most vendors offer a chipset that includes an analog RF chip along with a digital baseband/MAC device. In
almost all cases, a design win is awarded for the entire chipset as opposed to individual components.
The category is segmented by application; i.e., consumer, communications, computing and peripheral, automotive
and multipurpose. In 2005, computing and peripheral logic represented roughly 42% of total market revenue.
Communications and consumer logic represented 29% and 20%, respectively, and automotive and other logic totaled
9%. The automotive and other segments are understandably small, as these equipment types are often implemented
with microcontrollers as opposed to hard wired special purpose logic devices.
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Market Forecast: The market for special purpose logic is expected to outpace the overall market as electronic
devices use an increasing amount of specialized processing power. There is also some effect of integration, as it is
common for digital ASSP vendors to integrate increasing amounts of general purpose logic, embedded memory, and
mixed signal circuits into their devices over time. Overall, we expect the market to grow at a 9% rate through 2010,
rising from $37.5 billion in 2005 to $58.6 billion in 2010. Communications and automotive should see the strongest
CAGRs at (12% and 11% through 2010, respectively), followed by consumer and computing (at 9% and 7%).
Competitive Environment: Given the broad application and customer base that use special purpose logic, the
market is rather fragmented. The top suppliers for PC applications include chipset and graphics vendors Intel,
NVIDIA, ATI/AMD, Via, SiS, and Broadcom. For storage and peripheral, top vendors include Marvell, Agere, MediaTek,
STMicroelectronics, LSI Logic, and Texas Instruments.
Top consumer electronics IC vendors include STMicroelectronics, NXP/Philips, Sharp, Broadcom, Fujitsu, Mediatek,
Zoran, Sigmatel, PortalPlayer, and Genesis. Note that the many of the big, vertically integrated Japanese IC makers
that supply the consumer electronics market are excluded since their products would be classified as custom ASICs;
the same goes for most suppliers into the video game console and handheld markets.
Top vendors for communications include wireless IC leaders Qualcomm, Freescale, NXP/Philips, Infineon, Mediatek,
and Agere—note that the majority of TI’s wireless business is not included here, as its basebands are generally
classified as DSPs. On the wireline side, key ASSP vendors include Broadcom, Conexant, Texas Instruments, Marvell,
CSR, PMC-Sierra, Agere, and Atheros.
The table below provides some additional detail, listing some of the higher volume special purpose logic devices and
their key vendors.
Market Segment Device Key Vendors

Computing & PC core logic Intel, Via, SiS, NVIDIA, ATI/AMD, Broadcom
Peripheral Graphics controllers NVIDIA, ATI/AMD, Matrox
PC display controllers Genesis, MorningStar, Realtek, Novatek, Pixelworks
HDD SoCs & hard disk Marvell, Agere, STMicroelectronics, LSI Logic, Infineon, Renesas
controllers
ODD controller MediaTek, Renesas, NEC, Matsushita, Rohm, Ricoh, Toshiba, Seiko-
Epson
Printer SoC STMicroelectronics, Texas Instruments, Avago/Marvell, Freescale, NEC
Electronics, PMC-Sierra
Communications Cellular baseband Qualcomm, Freescale, NXP/Philips, Infineon, Mediatek, Agere, Analog
Devices, NEC (TI excluded as its basebands are classified as DSPs)
Ethernet controllers Broadcom, Marvell, Intel, Realtek, Avago, Standard Micro, Vitesse, Agere
and switch ICs
Wireless LAN Intel, Broadcom, Atheros, Marvell, Texas Instruments, Conexant, Airgo
baseband/MAC
Bluetooth CSR, Broadcom, NXP/Philips, Texas Instruments, Infineon,
baseband/MAC/SoC STMicroelectronics
Modem CPE SoC Conexant, Broadcom, Texas Instruments, Infineon, Agere, Ikanos,
Centillium
Telecom/Datacom PMC-Sierra, Agere, Infineon, AMCC, Vitesse, Cortina/Intel, Mindspeed,
TranSwitch
Consumer Set-top box back-end STMicroelectronics, Broadcom, Conexant, NXP/Philips
Digital TV back end NXP/Philips, Sharp, Genesis, ATI/AMD, Trident, Pixelworks, Renesas,
Silicon Image, Zoran
DVD decoder/encoder Mediatek, LSI Logic, Zoran, SunPlus, NEC, ESS, Toshiba, TI, Cheertek
Digital camera image Renesas, SunPlus, TI, Zoran
processor
MP3/PMP decoder SigmaTel, PortalPlayer, Actions, NXP/Philips, TI, Telechips, Broadcom
Source: IDC, Dataquest, CIBC World Markets
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Display
Display Drivers
Drivers
Display Drivers - Standard logic devices designed to control and drive flat
panel displays such as LCD or plasma.
Key Types: LCD driver, plasma display driver, source driver, gate driver.

•We expect display drivers to grow at a
10% CAGR through 2010, from $6.3 Samsung
Others 18 %
billion in 2005 to $10.1 billion in 2010. 26 %
•Flat panel TV, desktop and notebook
monitors, wireless handsets, and portable
gaming are the primary growth drivers.
$12,000 NEC
Display Drivers 13 %
Matsushita
$10,000
5%
$8,000 Sharp
5%
Revenue ($M)
Renesas
$6,000 Solomon 12 %
Systech
5% Himax Novatek
$4,000
7% 10 %
$2,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Display drivers are specialized logic devices designed to control and drive flat panel displays such as LCD or plasma.
Traditional CRT display technology uses a phosphorous coated screen to trap light flashed from a light source; flat
panel displays, on the other hand, use semiconductor driver ICs to manipulate pixels on an LCD or plasma screen.
There are basically two kinds of drivers: source and gate. Source drivers usually sit across the top of the panel and
generate signals that penetrate individual columns of pixels. Three source drivers are needed for each row of pixels:
red, green and blue. Gate drivers usually run along the side of the panel and manipulate individual rows of pixels.
The gate drivers intersect the signals driven by the source drivers, turning individual pixels on or off.
Market Forecast: We expect display drivers to be one of the strongest segments in the semiconductor market, with
a CAGR of 10%. Revenue should grow from $6.3 billion in 2005 to $10.1 billion in 2010. In some cases, growth is
being driven by a migration from CRT—such as desktop monitors and LCD/plasma TV. In other cases, LCD screens
are an integral part of a category that itself is growing nicely, such as notebooks, wireless handsets, and portable
gaming. In all cases, price pressure is being partially offset by larger screens which require more drivers.
Competitive Environment: Display drivers are quasi-commodity parts, though obviously driver performance is
critical to winning designs. The top suppliers in 2005 include Samsung, with 18% market share, NEC, with 13%,
Renesas, with 12%, and Novatek, with 10%. Other significant suppliers include Himax, Solomon Systech, Sharp,
Matsushita, Magnachip, Seiko Epson, and Oki Electric (which also acquired TI’s LCD driver business in 2005).
84
General
General Purpose
Purpose Logic
Logic
General Purpose Logic - Standard commodity catalog logic parts

designed for use in multiple applications in various end markets.
Key Types: Simple gates, flip-flop circuits, switches, clocks, registers.

•We expect general purpose logic to Others
grow at a 5% CAGR over the next few STMicro 7%
years, rising from $1.4 billion in 2005 to 5%
$1.8 billion in 2010. Texas
ON Semi
•Growth should trail overall semi market 7%
Instruments
30 %
growth as integrated ASSPs eliminate the
need for separate logic circuits in many
Renesas
applications. 9%
$2,000
$1,800 General Purpose Logic
$1,600
Fairchild
$1,400
Semi
$1,200 12 %
Revenue ($M)
Toshiba
$1,000 NXP/Philips 17 %
$800
13 %
$600
$400
$200
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
General purpose logic includes standard logic parts designed for use in multiple applications in equipment in various
end markets. Though designed to perform a specific function, theses ICs are not tailored for use in any one
application. Parts in this category are usually very low ASP, very high volume devices; examples include simple
gates, flip-flop circuits and registers. Many of these parts are commodities, though some are more proprietary.
Market Forecast: The market for general purpose logic is heavily tied to the overall semiconductor cycle, as these
devices sell into every end market and application in the electronics landscape. They are also heavily commoditized
and pricing can compress severely in down-cycles and rise in up-cycles. We expect growth in this segment to trail
that of the overall semiconductor sector, as ASSP vendors continue to integrate additional functionality into their
devices that eliminate the need for external general purpose circuits in many applications. Overall, we expect a 5%
CAGR through 2010, as the market grows from approximately $1.4 billion in 2005 to $1.8 billion in 2010.
Competitive Environment: The general purpose logic category includes a wide variety of device types, but most
are commodities, and thus a few dedicated players dominate the market. Most of these are fully fabbed, though a
few niche players are fabless. The top standard logic producer in 2005 was Texas Instruments, with 30% market
share. Toshiba was second with 17%, NXP/Philips was third with 13%, and Fairchild was fourth with 12%. Renesas
and On Semiconductor followed with 9% and 7%, respectively. Other competitors include STMicroelectronics,
National Semi, IDT, Rohm, and Pericom.
85
ASICs
ASICs
ASICs (Application Specific Integrated Circuits) - Customized ICs

designed for specific customers to be used in specific platforms.
Key Types: Standard cell (cell-based IC), gate array.

•We expect the ASIC market to grow at an Others
10% CAGR, from $9.0 billion in 2005 to Rohm 8%
$14.7 billion in 2010. 6%
•New game console cycles should drive IBM
26 %
growth; in most other applications the Samsung
6%
trend away from ASICs should continue.
•The shift from gate arrays to standard
LSI Logic
cells should continue as OEMs demand 8%
higher performance devices.
$15,000
Sony
Standard Cells
8%
Gate Arrays Fujitsu
$12,000
14 %
Toshiba
$9,000 NEC
Revenue ($M)
11 %
13 %
$6,000
$3,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Moving away from standard logic devices and into the custom-designed realm, the ASIC (application specific
integrated circuit) market includes all customized integrated circuits designed for specific customers to be used in a
specific platform. The most prominent examples of ASICs come from the game console market, where most silicon is
designed for a single platform, which, given the high volume it is likely to generate, justifies the cost of designing a
custom chip. Note that despite being classified under the logic category, ASICs can include analog, digital, or memory
circuits, as long as they are custom designed. Most ASICs, however, are pure logic devices.
ASIC devices are either designed by the equipment manufacturer in-house or contracted out to an ASIC house and
the device is then fabbed by the ASIC house or a foundry. The level of cooperation between OEM and ASIC house can
vary from program to program.
ASICs are divided into two broad categories:
• Gate Arrays: Circuits consisting of fixed and regular arrangement of transistor cells forming a matrix of logic
gates of various standard densities. An OEM using a gate array uses a series of software tools and macro
libraries in order to design the mask for the top layers of the device, which determines its eventual function in
the customer system.
• Standard Cells: Also known as “cell-based ICs,” these circuits consist of a user-specified arrangement of
predefined and fixed sub-circuits of any function (analog, logic, memory). These ICs are designed from the
86
ground up and use standard dimensions of components or gates to pack them together more uniformly.
These are more costly than gate arrays but are more efficient.
ASICs tend to be the first solutions to be used in emerging technologies, as most electronic devices require silicon
processing, but few standard, off-the-shelf components exist during the introduction phase. These ASICs tend to be
costly to design, but usually deliver the performance necessary to power the device given the custom design; and the
costs can be spread over the life of the product if it takes off. Also, given the early stage of the technology life cycle,
the OEM is likely earning high gross margins, justifying the cost of the ASIC.
As the technology matures and the market grows, other OEMs will enter the market with competitive offerings that
either improve upon existing platforms or offer the same functionality at lower cost, or both (usually both). These
competitive offerings will sometimes use newer ASIC solutions. Other times, they will leverage standard products
(ASSPs) that may have come to market a few years into the life cycle of the emerging technology by IC vendors who
were attracted by the growth prospects of the market as it took off. Over time, more and more OEMs will migrate to
ASSP solutions, and the ASICs will disappear (and the ASIC vendors will be on to the next new market).
Although there will always be a need for ASICs, most OEMs will choose a standard product if it is available. This is the
primary reason why the transition from ASICs to ASSPs is a constant theme in semiconductors (though it varies by
the stage of maturity in the end market). There are two notable exceptions: the first is where a single platform is
likely to do so much volume that it justifies having a custom part designed for it. A prime example of this is the game
console ICs mentioned above. The second case is where silicon performance is such a differentiating factor for the
OEM that, to retain its competitive advantage, OEMs will develop ASICs instead of leveraging outside IC designers. A
good example is Cisco, which views the performance of its switches and routers to be so integral to its strategy that it
employs 250 ASIC engineers.
Market Forecast: Overall, we expect the market for ASICs to grow at an 10% rate through 2010, rising from $9.0
billion in 2005 to $14.7 billion in 2010. We would normally expect the ASIC CAGR to trail that of the specialty
purpose logic segment, largely due to slow but steady cannibalization of the ASIC market by ASSPs (specialty purpose
logic revenue has outperformed ASICs for the past five years). However, the timing of new game console and
handheld introductions (Sony PSP in 2004, Xbox 360 in 2005, Nintendo Wii and Sony PS3 in 2006), and the ramps
that follow them, are reinvigorating this market for the next few years.
Within ASICs, we expect the trend toward standard cell-based ICs to continue as the market continues to favor
higher-performance devices (with lower performance devices most susceptible to ASSPs or FPGAs). Gate arrays
should decline to less than 5% of total ASIC revenue over time.
Competitive Environment: Many OEMs use ASIC houses to help design and manufacture custom ICs for high
performance equipment, while others maintain internal semiconductor design teams that develop custom silicon
designs that are then sent to an ASIC manufacturer for gate construction and fabrication. This yields a vendor list
that includes both OEMs (e.g., NEC, Matsushita, Sony) and IDMs (IBM, STMicroelectronics, LSI Logic, Agere).
The largest ASIC house in 2005 was IBM, with 26% total share and a major presence in the game console market as
well as in ASICs for wireline and storage applications. Fujitsu was second with 14%, and NEC was third with 13%.
Toshiba followed with 11% and Sony and LSI Logic each held 8%. Samsung and Rohm followed with 6% share.
Other significant ASIC suppliers include Renesas, Matsushita, Agere, and Texas Instruments.
87
FPGAs/PLDs
FPGAs/PLDs
Programmable Logic Devices (PLDs) - Standard logic circuits that can

be configured into higher level logic patterns by the customer during system
integration.
Key Types: Programmable Array Logic (PAL), Field Programmable Gate
Array (FPGA), Complex Programmable Logic Device (CPLD).

•We expect FPGAs to grow at a 12% CAGR, Actel
Others
3%
rising from $3.2 billion in 2005 to $5.7 6%
billion in 2010. Lattice

7%
•While communications will remain the
focus, the emergence of low-cost high-
density FPGAs should broaden the
application base for FPGAs.
$7,000
Xilinx
FPGAs
$6,000 51 %
Altera
$5,000 33 %
Revenue ($M)
$4,000
$3,000
$2,000
$1,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Programmable logic devices (PLDs) are standard logic circuits consisting of one or more switch matrices that can be
configured into higher level logic patterns by the customer during system integration. With a PLD, the OEM purchases
a catalog part and uses the PLD vendor’s software to design and configure the top layers of the device to perform the
desired function. The OEM then inputs the architecture into the device, which stores it and adopts it for permanent
use (some PLDs can be programmed multiple times). PLDs therefore provide the customizability of an ASIC without
the need to design and fab new devices for each platform. There are several key types of PLD devices:
• Programmable Array Logic (PAL): Simple PLD devices with a small number of gates and a set number of
inputs and outputs. Often used for glue logic.
• Complex Programmable Logic Device (CPLD): High-density PLD containing macrocells that are
interconnected through a central Global Routing Pool. This type of architecture provides high speed and
predictable performance. Generally the preferred architecture for implementing high speed logic.
• Field Programmable Gate Array (FPGA): High density PLD containing small logic cells interconnected
through a distributed array of programmable switches. This type of architecture produces statistically varying
results in performance and functional capacity, but offers high register counts. Programmability is typically
achieved using SRAM or one-time-programmable antifuses.
88
In terms of end market use, PLDs are closely tied to the communications market. Approximately 47% (on a revenue
basis) wind up in communications systems. Industrial consumes 21%, and data processing, primarily storage and
server applications, consume an additional 12%. Consumer applications are generally not large users of PLDs, though
newer flat panel TVs are adopting them; and in 2005 consumer represented 10% of the PLD market.
Military/aerospace and automotive represent the remaining share of the market at 8% and 2%, respectively. The
exhibits below display the end market usage for PLDs as well as top PLD applications by end market.
2005 PLD Revenue Share By Application Top PLD Applications, By End Market
Military/ Automotive Data
Aerospace 2% Processing Wireline Consumer Industrial
8%
Servers Routers LCD TV Manufacturing
systems
Consumer Enterprise Broadband Plasma TV
10 % storage infrastructure Instruments
Digital CRT
Printers SONET TV Medical
Data add/drop equipment
Processing multiplexers DVD
12 % Comm recorders Security/
47 % Wireless
MSPPs energy
DVRs management
Infrastructure LAN switches
(baseband Set-top boxes
subsystem) SAN switches
Industrial Digital
21 % CO switches cameras/
camcorders
Source: Dataquest, CIBC World Markets Corp. PBXs
VoIP
gateways
Market Forecast: Programmable logic has become an important solution in advanced wireline and wireless
communications, with this end market representing nearly 50% of PLD revenues. As such, the market was hit
especially hard in 2001 and 2002 as demand for components in the wired telecom infrastructure market declined
significantly. The market rebounded in 2003 and grew at a healthy rate in 2004, with sequential annual growth of
42% and 12%, respectively. The rebound is mostly attributed to a recovery in wireline applications and wireless
basestation sales. The market cooled in 2005, growing 5%, as the industry worked through some modest inventory
in the first half of the year.
Looking ahead, PLD vendors remain focused on the communications market, but are also broadening their product
offerings to include smaller, lower-cost PLDs to compete in consumer, industrial, data processing applications that
have traditionally favored ASICs or ASSPs. While communications should continue to outweigh this opportunity, these
new markets should add to the long-term SAM for PLDs. In total, we expect programmable logic revenues to grow at
a 12% rate, rising from $3.2 billion in 2005 to $5.7 billion in 2010.
Competitive Environment: The PLD market is highly concentrated and has undergone a fair amount of
consolidation in the past few years as the complexity and size (in terms of number of transistors) has steadily
increased. In 2005, the top three vendors held over 90% share. Xilinx was the No. 1 vendor in 2005 with 51%
share. Altera followed at No. 2 with 33% share and Lattice held 7%. Other PLD vendors include Actel, Cypress,
Quicklogic and Atmel. Note that the PLD businesses of Agere and AMD have each been consolidated into Lattice.
89
Memory
Memory
Memory:
Devices designed to store electrical data in a
system, either temporarily or permanently
Four Key Markets:

Volatile Memory Non-Volatile Memory
DRAM Flash
SRAM Mask ROM, EPROM,

Other Non-Volatile
Memory
Memory devices are digital logic circuits designed to store data on either a temporary or permanent basis. Though
they are digital in nature, the manufacturing processes used to build memories are often quite different from a bulk
CMOS process, especially in the case of DRAM and NAND flash. In nearly all cases, they are optimized for cost and
high volume production.
Volatile memory includes those memory devices that lose their stored information when they lose power. The most
important types are DRAM (dynamic random access memory) and SRAM (static random access memory).
Non-volatile memory retains the stored information when the system is powered off. The most important types are
flash memory, mask ROM, EPROM and EEPROM.
90
DRAM
DRAM
DRAM (Dynamic Random Access Memory) - The most common type of

volatile memory, used primarily as system memory in PCs and servers.
Currently the highest volume, highest density, lowest cost memory type.
Key Types: SDRAM (Synchronous DRAM), DDR (Double Data Rate), DDR
II, DDR III, QDR (Quad Data Rate), RDRAM (Rambus DRAM).

•We expect DRAM revenue to grow at a
5% CAGR, from $25.6 billion in 2005 to ProMOS
Others
4%
$33.0 billion in 2010. 3%
PowerChip
•The market should remain volatile, up the Nanya
4%
most in boom years and down the most in 6%

downturns; pricing has historically swung Samsung
32 %
wildly based on supply-demand trends. Elpida
7%
•DRAM should remain heavily PC-based.
$45,000
DRAM
$40,000
Qimonda/
$35,000
Infineon
$30,000
13 %
Revenue ($M)
$25,000
Hynix
$20,000
Micron 16 %
$15,000
15 %
$10,000 Source: Dataquest, CIBC World Markets Corp.

$5,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
DRAM (dynamic random access memory) is the most common type of volatile memory, which is digital memory that
loses its stored information once the power is removed. The “dynamic” heading means that DRAM, unlike SRAM,
must be continually refreshed by the system, slowing down memory access, but allowing for a low-cost design and
easy scalability to large densities. Like most memory, bit words in DRAM can be written, stored and read in any
sequence.
DRAM is used in all electronics markets, but has an especially high concentration in computing applications, which also
tend to use the fastest and highest density DRAM devices. In 2005, approximately 75% of DRAM revenue was
derived from PCs and servers. Approximately 35% of these were shipped with new desktop PCs, 13% into mobile
PCs, 16% into servers and workstations (including memory modules), and the remainder into graphics cards and PC
peripherals. Industrial, consumer and communications applications each represented less than 10% of DRAM bit
shipments, as these applications are generally better suited to low-density DRAM as well as SRAM.
In terms of memory type, the most common type of DRAM is DDR (double data rate), which can send twice as many
bits across the bus than standard SDRAM (synchronous DRAM), effectively doubling throughput. This DRAM first
appeared in 2001 and—along with the follow-on DDR2—represented approximately 85% of bits in 2005. Standard
SDRAM still accounts for 14% of bits, mostly in value PCs and in PC peripheral, consumer and other non-PC
applications. Other types such as EDO and Rambus DRAM have basically withered away as they have lost support
from Intel on its chipset designs.
91
The exhibits below display 2005 DRAM unit shipments by application and by interface.
2005 DRAM Revenue By Application 2005 DRAM Bit Shipments By Interface
4,000
Other
Industrial 2%
10% 3,500
Desktop PCs 3,000

Consumer 29%
8%
2,500
Unit Shipments (M)

Comm 2,000
6%
1,500
Other 1,000
Computing
Notebook
15% 500
PCs
Servers & 13%
-
Memory
Modules Graphics Cards FPM/EDO SDRAM DDR DDR2 RDRAM
13% 4% DRAM SDRAM SDRAM
Source: Dataquest, IDC, CIBC World Markets Corp.
In addition to being classified by interface type, DRAM is quoted by density, with the most common size in use today
being 256 Mb. The 128 Mb and 64 Mb devices are being phased out of mainstream PCs and are moving to non-PC
applications. In 2004, 512 Mb started to ramp meaningfully and is expected to have crossed over 256 Mb in 2006.
Still widely used, 16 Mb is typically found in non-PC applications.
The exhibits below display 2005 DRAM unit shipments by density, as well as historical and forecast unit shipment data
showing the constant migration to larger densities over time.
2005 DRAM Unit Shipments By Density DRAM Unit Shipments By Density, 1997-2010
4,000 100%
2+Gb
90%
3,500 1Gb
80%
3,000 512Mb
70%
2,500 256Mb
60%
Unit Shipments (M)
50% 128Mb
2,000
40% 64Mb
1,500
30% 16Mb
1,000 20%
500 10%
4Mb & below
0%
-
97
98
99
00
01
02
03
04
05
06
07
08
09
10
4Mb 16Mb 64Mb 128Mb 256Mb 512Mb 1Gb 2Gb
19
19
19
20
20
20
20
20
20
20
20
20
20
20
Note that most DRAM sold into PCs and servers is not sold in chip form, and instead is sold onto standard memory
modules. A standard SIMM or DIMM module is a small PCB containing eight or sixteen DRAM chips (there are eight
bits to a byte, so, for example, a 256 MB DRAM module would usually have eight 256 Mb DRAM chips or sixteen 128
Mb DRAM chips). A DRAM module is pictured on the next page.
In the server market, memory must be more reliable and robust, and therefore generally includes an extra DRAM IC
along with a timing device to perform register functions; these are known as registered DIMM (R-DIMM) modules. In
2006, Intel-based servers began migrating to fully buffered DIMMs (FB-DIMMs), which replace the register with a
high-speed serial I/O interface IC known as an “AMB” (Advanced Memory Buffer) directly on the module for interface
to the server chipset.
92
PC DRAM Module
Source: LSI Logic, Denali Software, CIBC World Markets Corp.
Market Forecast: DRAM is a commodity product; as such, its market is subject to periods of steep price inflation
during expansions as capacity tightens and precipitous price declines during downturns as vendors drop prices to
levels that approach variable cost. In 2001, the DRAM market saw its worst year ever, and prices cratered as vendors
continued to fill their fabs despite slower demand. The market recovered in 2003-04 as PC demand rebounded and as
OEMs took advantage of the low cost of DRAM by aggressively ramping the number of megabytes per PC. The market
worsened slightly in 2005 despite relatively healthy PC demand, as pricing softened due to moderate oversupply.
Looking ahead, the DRAM market should remain volatile, up the most in boom years and down the most in
downturns; pricing should be volatile, varying with supply trends. Overall, we expect the market to grow modestly
from 2005 levels, rising from $25.6 billion in 2005 to $33.0 billion in 2010, a CAGR of 5%. Note that our forecast
assumes a cyclical peak in 2008 at $39.9 billion.
Competitive Environment: With the exception of Micron in the United States and Qimonda/Infineon in Europe, all
major DRAM vendors are located in Asia. The top vendor in 2005 was Samsung, which held an impressive 32%
share. Hynix and Micron followed with 16% and 15%, respectively. Qimonda, the memory subsidiary of Infineon,
was next with 13%. Elpida, the combined DRAM units of NEC and Hitachi, was No. 5 with 7%. Rounding out the top
vendors are three Taiwanese DRAM players: Nanya (6% share), PowerChip (4%), and ProMos (3%).
93
SRAM
SRAM
SRAM (Static Random Access Memory) - A type of volatile memory that

is configured in a flip-flop circuit, allowing cells to remain without being
refreshed. A higher performance memory than DRAM, used mostly in
communications applications and for high-speed data caching.
Key Types: Synchronous, asynchronous, PSRAM, FIFO, multi-port, CAM.

•We expect the SRAM market to grow at a
5% CAGR through 2010, from $2.8 billion Others
in 2005 to $3.5 billion in 2010. 21 %
Samsung
•Rising bit demand in wireless is likely to 24 %
be offset by declining ASPs.
•Unlike DRAM, SRAM is unlikely to
approach 2000 peak levels. Hynix
3%
$4,000
Renesas
SRAM
$3,500 5%
$3,000 STMicro Intel

5% 12 %
$2,500
Revenue ($M)
Cypress
$2,000 NEC
8%
Spansion 10 %
$1,500
10 %
$1,000

$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
SRAM (static random access memory) is a type of volatile 2005 SRAM Revenue By Application
memory, which, like DRAM, loses stored information Other
when powered down. Unlike DRAM, however, SRAM 4%
Industrial
stores data bits in a flip-flop circuit using a minimum of 10 %
four transistors, as opposed to the single transistor/single
Automotive
capacitor design used in DRAM. This allows current to 2%
flow through one side or the other based on which of the Consumer
two transistors is activated, allowing for faster access 5%
time. The structure of SRAM means that it does not need Wireless
to be refreshed, making it suitable for high-performance Handsets
50 %
communications applications. Older asynchronous SRAMs Computing
perform read and write operations sequentially; newer 15 %
synchronous SRAM overlaps reads and writes.

In terms of application, 64% of SRAM (by revenue) is
used in communications, mainly wireless. Fifteen percent Other Comm
is used in computing; and 10% is used in industrial. The 14 %
exhibit to the right displays SRAM revenue by application.

94
SRAM is classified by both density and speed. The most common density is 8 Mbs, used primarily in mainstream
handsets. Sixteeen Mb, 32 Mb, and 64 MB SRAMs are used in high-end handsets and in high-performance
communications applications. Lower-density SRAMs tend to be used in computing, industrial and consumer
applications.
SRAMS are available in a wide variety of speeds. High performance communications applications typically require the
fastest access times, typically 10-19 ns (nanoseconds) and below. However, the majority of SRAM unit shipments are
45-70 ns and above, used in most other applications that do not require quick access times.
A major trend that has emerged in the past three years in the rise of PSRAM (Pseudo SRAM); which is actually DRAM
modified to behave like SRAM. PSRAM has built-in refresh and address control circuits to mimic SRAM, but leverages
the low-cost and high-density benefits of DRAM. Since PSRAM is sold into the same sockets as SRAM (primarily
wireless), we include revenue and market share data here rather than in the discussion of DRAM.
The exhibit below displays SRAM unit shipments by density and speed.
2005 SRAM Unit Shipments By Density 2005 SRAM Unit Shipments By Access Time
200 700
180
600
160
140 500
Unit Shipments (M)
120
Unit Shipments (M)

400
100
80 300
60
40 200
20
100
-
-
Kb
Kb
Kb
b
1M
2M
4M
8M
M
64
16
32
64
0-9 ns 10-19 ns 20-44 ns 45-70 ns 71+ ns Pseudo

25
51
12
Market Forecast: The SRAM market is less commoditized than the DRAM market given the more differentiated
product offerings required for communication applications. Demand for SRAM, however, was negatively impacted in
2001 and 2002 by a weak environment for communications equipment. This, combined with pricing pressure as bit
supply continued to grow, drove a 42% drop in revenues in 2001 and a 33% drop in 2002. SRAM recovered in 2003-
2004 during the industry’s cyclical expansion, but saw a 9% decline in 2005 as the communications market dealt with
excess inventory.
Looking ahead, we see growth in SRAM bit demand from both wireline and wireless, but expect declining ASPs to
partially offset this growth. Also, longer-term, we expect SRAM demand to moderate as DRAM competes more
effectively in certain applications. Overall we expect the market to grow 5%, from $2.8 billion in 2005 to $3.5 billion
in 2010, though as with DRAM we expect a cyclical peak in 2008, at $3.6 billion.
Competitive Environment: SRAM sells in a variety of densities and speeds and thus is a more fragmented market
than DRAM. It also includes several vendors of NOR flash who include SRAM in their multi-chip packages for wireless
handsets. The top supplier in 2005 was Samsung, with 24% market share. Intel was second, with 12% share;
followed by NEC and Spansion, each with 10%; Cypress followed, with 8% share. Other important suppliers include
STMicroelectronics, Renesas, Hynix, Sharp, and Toshiba.
Although by definition still SRAM, certain types of proprietary memory warrant special mention, as they generally
incorporate richer design content and are thus less commoditized than the general market. These include FIFO and
multiport SRAMs, non-volatile SRAMs, CAMs (sometimes called network search engines) and FRAMs. The leaders in
this group include IDT, Cypress, NetLogic, Oki, Hitachi, and Renesas.
95
Flash
Flash
Flash Memory - The most common type of non-volatile memory, which

retains its stored information even when the power supply is removed.
Key Types: NOR, NAND.

•We expect the flash memory market Others
to grow at a 7% CAGR, from $18.6 Sharp 8%
2%
billion in 2005 to $25.9 billion in 2010. Renesas
4%
•NOR flash should decline at a 3%
CAGR; while NAND grows 13%. SanDisk
Samsung
5%
•NAND is benefiting from the growth of 34 %
digital consumer devices and is also STMicro
encroaching on NOR in handsets. 6%
$30,000
NAND Flash
Hynix
NOR Flash
8%
$25,000
$20,000 Spansion
9% Toshiba
Revenue ($M)
Intel 13 %
$15,000
10 %
$10,000 Source: Dataquest, CIBC World Markets Corp.
$5,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Flash memory is the most common type of non-volatile memory, which can store data continuously in its cells even
when a power supply is removed. Like DRAM and SRAM, flash can be written and rewritten, but when the system is
powered down, the memory cells retain all the information stored. Flash memory is used primarily in devices that are
frequently turned on and off, but must keep its stored information intact because the device lacks an external storage
device (like a hard disk drive). Fitting this profile are a number of very high volume markets: notably wireless
handsets and consumer portables, which use flash memory to store the system operating software as well as user
data. Flash is also used to store boot-instructions in a variety of electronic devices, including PCs.
A large portion of flash memory is also sold as external flash cards, to be used for external storage of user data,
primarily for digital consumer devices and PDAs. These use a variety of standard interfaces in order to make them
compatible with a wide set of electronics from multiple vendors. Another application is USB flash drives, which
combine flash memory and a USB controller, to form a small external storage device for PCs.
Two main types of flash memory exist. NOR memory (43% of total flash revenue in 2005) is the most reliable flash
memory, supporting random access and memory card program execution, known as “execute in place.” Erasing and
writing can take several seconds, but reading is fast. For all these reasons, NOR is primarily used for program and
code storage. The largest application for NOR is the handset market, which accounted for approximately 61% of
revenue in 2005. Consumer was another 12%, followed by communications at 7% and data processing and industrial,
each with 5%. Automotive and flash cards represented the remaining 6%.
96
NAND flash (about 57% of total flash revenue in 2005) is cheaper and higher density than NOR, but is somewhat less
reliable. It can be read, written and erased at rates considerably faster than NOR. NAND is primarily used for file
storage and is most often the type used in removable memory modules for consumer electronics. In fact, in 2005,
roughly 48% of NAND flash (by revenue) was sold into flash memory cards, with another 17% sold into flash drives.
About 22% of NAND revenue was derived from memory sold directly into consumer device. Six percent of flash
revenue was derived from handsets, as NAND has begun shipping alongside NOR in multimedia handsets. The
remaining 7% was sold into industrial, data processing, and other applications.
The exhibits below display 2005 NOR and NAND revenue by application.
2005 NOR Flash Revenue By Application 2005 NAND Flash Revenue By Application
Flash Cards Data

Automotive and Other Industrial Processing Other
Industrial 4% 2% 3% 3% 1%
5% Handsets
Data 6%
Processing
5%
Comm Flash Cards

11% Other 48%
consumer
22%
Handsets
61%
Consumer
12%
Flash Drives
17%
Flash is also classified by size. NOR flash comes in all sizes ranging from 256Kb to 1Gb, with no single size range
dominating the category. The highest volume density in terms of units, 64 Mb is the dominant solution in mainstream
handsets. One hundred and twenty-eight Mb is used primarily in high-end handsets and 256 Mb is used in 3G
phones. The lower density units are used primarily in non-handset applications.
On the NAND side, most NAND flash is sold in densities of 256Mb and above, with a constant push upward as data
storage demand in consumer portables is far above what can be economically supplied with today’s NAND chips and is
continually rising as these devices become more complex.
The exhibits below display 2005 flash unit shipments for NOR and NAND by density.
2005 NOR Flash Unit Shipments By Density 2005 NAND Flash Unit Shipments By Density
600 440
550 400
500 360
450 320
400
280
Unit Shipments (M)
Unit Shipments (M)
350
240
300
200
250
160
200
150 120
100 80
50 40
0 0
Kb
Kb
b
b
b
G
1M
2M
4M
8M
4M
8M
M
1G
2G
1G
2G
4G
8G
6
16
16
32
64
16
32
64
2
25
51
12
25
51
12
25
51
97
Market Forecast: The flash memory market is largely driven by demand for memory in wireless handsets, which
represents the largest single use of NOR flash, as well demand for digital consumer devices, which drives sales of
NAND flash. In 2001, the industry downturn had an impact on flash pricing and unit demand, though the effect was
far more muted in flash than it was in DRAM or even SRAM. Overall, the market declined 29% in 2001 and saw a
slight bounce in 2002 as pricing remained weak. In 2003, the flash market rebounded, up 51% to $11.7 billion, as
demand for 2.5G handsets and consumer device-related flash memory drove strong growth of units and average
density. This trend continued into 2004 and 2005, with the market growing 33% and 19%, respectively.
Looking ahead, we expect growth for the overall market, but with a divergence between NAND and NOR. NAND
should benefit from continued strong demand in consumer electronics, both for external storage cards and embedded
applications (like MP3 players). NAND should also begin to take share from NOR in handsets, especially multimedia-
enabled handsets with megapixel camera, video, and MP3 capability. This should erode the NOR opportunity, itself
plagued by lingering overcapacity.
In total, we expect NAND to grow at a 13% CAGR, rising from $10.6 billion in 2005 to $19.2 billion in 2010. NOR, on
the other hand, should decline at a 3% CAGR, from $8.0 billion in 2005 to $6.7 billion in 2010. Overall, we expect
flash to grow from $18.6 billion in 2005 to $25.9 billion in 2010, a CAGR of 7%. Note that embedded in our forecast
is some incremental growth from the cannibalization of mask ROM, EPROM, EEPROM and other non-volatile memories,
though the bulk of this transition has already taken place.
Competitive Environment: The top vendors of flash memory in 2005 included Samsung, Toshiba, Intel, Spansion,
Hynix, STMicroelectronics, SanDisk, Renesas, and Sharp. Samsung has seen surging demand for NAND flash in
consumer applications; in total the company held 34% share in 2005. Toshiba was No. 2 with 13% share, also mostly
from NAND. Intel and Spansion followed with 10% and 9%, respectively—both entirely NOR-based, mostly from
handsets. Hynix followed at 8%, entirely from NAND flash. Other major flash vendors include STMicroelectronics in
NOR and NAND, SanDisk in NAND, Renesas in NOR and NAND, and Sharp in NOR.
By flash memory type, the top vendors of NOR flash memory, which represented 43% of the market in 2005, were
Intel at 26% and Spansion at 23%. STMicroelectronics followed with 14%, and Samsung and Renesas each had 7%.
Other NOR vendors include Sharp, SSTI, Macronix, and Toshiba.
NAND flash memory leaders were Samsung at 51% revenue share and Toshiba at 19%. Hynix followed with 12%.
Sandisk had 8%, and Renesas had 3%. Other major NAND flash suppliers include, STMicroelectronics, Micron, and M-
Systems. The most recent newcomers to the NAND market include Qimonda/Infineon, STMicroelectronics (in
cooperation with Hynix), Micron, and Intel (the latter two recently formed a JV called IM Flash Memory Technologies
to produce NAND).
The exhibits below display 2005 market share data for the NOR and NAND markets separately.
2005 NOR Flash Market Share 2005 NAND Flash Market Share
Others Micron M-Systems Others

STMicro 2 % 2%
Toshiba 7% 1%
2%
3% Renesas
Macronix
3%
3% Sandisk
Silicon Storage
Intel
26 % 8%
5%
Sharp
6%
Hynix Samsung
12 % 51 %
Renesas
7%
Spansion
Samsung 23 %
7%
Toshiba
STMicro 19 %
14 %
98
Other
Other Non-Volatile Memory
Non-Volatile Memory
Mask ROM (Read-Only Memory) - Read-only memory that is locked in a

permanent position during the fabrication process.
EPROM (Electronically Programmable Read-Only Memory) - ROM that
is programmed by electrical means during system integration.
EEPROM (Electronically Erasable Programmable Read-Only Memory)
- EPROM that can be erased and reprogrammed electronically.

•We expect the other non-volatile memory
Others
market to decline at an 8% CAGR, from Catalyst
Semi 8%
$1.6 billion in 2005 to $1.1 billion in 2010. Renesas 3%
STMicro
18 %
$1,800 3%
EEPROM and Other Memory
Infineon
$1,600
EPROM 3%
Mask ROM
$1,400 NXP/Philips
4%
$1,200
Rohm
Revenue ($M)
$1,000 5% Macronix
$800
17 %
Microchip
$600 8%
$400
$200
Oki Atmel
$0
15 % 15 %
2002 2003 2004 2005 2006 2007 2008 2009 2010

Although flash has grown to dominate the non-volatile memory market, older technologies such as mask ROM, EPROM
and EEPROM have remained for applications that require permanent memory storage, but don’t necessarily need the
easy re-writability of flash. Although similar in basic design, these devices differ slightly in composition and function:
• Mask ROM (mask read only memory): Mask ROM is read-only memory that is locked in a permanent position
during the fabrication process through the use of a custom mask. Mask ROM is typically used for boot
instructions, and is most commonly found in consumer appliances and printers.
• EPROM (electronically programmable read only memory): EPROMs are similar to mask ROMs except that they
are programmed by electrical means rather than a mask. This includes OTP (one time programmable) and re-
writeable devices that can be reprogrammed using ultra-violet light. EPROM is most commonly found in consumer
electronics, game consoles, industrial applications, and some PC peripherals.
• EEPROM (electronically erasable programmable read only memory): EEPROMs are similar to re-programmable
EPROMs, but can be erased and reprogrammed using electrical means. EEPROM is found in a wide variety of
consumer, computing, automotive, and industrial devices.
In 2005, 19% of the other non-volatile memory category was mask ROM and another 24% was EPROM. The
remaining 57% was “other memory”—primarily EEPROM.
99
Market Forecast: The market for legacy non-volatile memory has been in a steady decline as flash memory has
penetrated the market. Looking to 2010, we expect the market to decline at an 8% rate, falling from $1.6 billion in
2005 to $1.1 billion in 2010. We expect EPROM to decline the fastest through 2010 at an 11% rate; Mask ROM and
EEPROM should decline at 8% and 7% rates, respectively.
Competitive Environment: The market for mask ROM is dominated by Macronix with a 90% share in 2005.
SunPlus held a 7% share, followed by NEC with 2% and Amic with 1%.
In EPROM, Oki increased its lead in the market in 2005, growing its share to 66%. STMicroelectronics remains a
strong No. 2 with 19%, followed by Asahi Kasei with 9%. Other vendors include Cypress, Atmel, and Macronix.
In EEPROM, the market leaders as of 2005 were Atmel and STMicroelectronics, at 26% and 24% share, respectively.
Microchip was third with 13%, followed by Rohm with 8%. NXP/Philips, Infineon, Renesas, and Catalyst Semi each
held about 6% share.
The exhibits below display market share data for mask ROM, EPROM and EEPROM.
2005 Other Non-Volatile Memory Revenue Share 2005 Mask ROM Market Share
NEC Amic
Sun Plus 2% 1%
Mask ROM 7%
19%
EEPROM
and Other
Memory EPROM
57% 24%
Macronix
90 %
2005 EPROM Market Share 2005 EEPROM Market Share
Others Catalyst Others

Cypress
3% 4% Semi 4%
6%
Asahi Kasei
9% Renesas
6% Atmel
26 %
Infineon
6%
NXP/Philips
STMicro 6%
19 %
Rohm
8%
Oki STMicro
66 % 24 %
Microchip
Tech.
13 %
100
Discretes
Discretes and
and Optoelectronics
Optoelectronics
Discretes
Semiconductor devices that consist of a
single transistor in a package
Three Key Markets:

Discretes
Sensors and Actuators
Optoelectronics
This section deals with all types of discretes, which are semiconductor devices consisting of a single transistor in a
package (i.e., not an integrated circuit). These devices sell in extremely high volume (hundreds of billions per year)
at extremely low ASPs (sometimes as low as a penny each). They are used in all types of electrical systems primarily
as enabling devices—helping to move signals around the board or alternatively providing the bridge between the
electronic system and the outside world. These devices are generally application agnostic, and are almost always sold
through distribution. We discuss the three key types below:
• Discretes: Discretes are semiconductor devices consisting of a single transistor in a package. They are often
used to direct signals around a board and to control power flow in a system.
• Sensors and Actuators: Sensors are specialized discrete semiconductor devices whose electrical properties can
be translated into measurements of external stimuli. These include things like temperature, pressure,
displacement, velocity, acceleration, stress, strain, or any other physical, chemical or biological property.
Actuators are the opposite of sensors; actuators create mechanical motion by converting various electrical signals
to rotating or linear mechanical energy.
• Optoelectronics: Optoelectronics are semiconductor devices designed to produce and receive light waves. This
includes displays, lamps, couplers and other opto-sensing and emitting semiconductor devices.
101
Discretes
Discretes
Discretes - Discretes are semiconductor devices consisting of a single

transistor in a package. They are used on the electrical board as key
enabling devices, and are generally application agnostic.
Key Types: Diodes, small signal transistors, switching transistors, power
transistors, rectifiers (power diodes), thyristors.

•We expect the market for discretes to
grow at a 6% CAGR, from $15.2 billion in Toshiba
9%
2005 to $20.3 billion in 2010.
STMicro
•Growth for these multi-market devices Others 8%
should slightly trail the broader industry 25 %
as ASSPs seek to integrate discretes in Rohm

some high volume applications. 7%
$25,000
Other Discretes
Fuji
Thyristors 3% Renesas
Rectifiers
Power Transistors
7%
$20,000
Small Signal Transistors
NEC
Diodes 3% Fairchild
ON Semi Semi
$15,000 4% 6%
Revenue ($M)
Mitsubishi Infineon
5% 6%
$10,000 NXP/Philips Vishay
Intl. Rectifier 6%
5% 5%
$5,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Discretes are semiconductor devices consisting of a single transistor in a package. These devices sell in extremely
high volume (hundreds of billions per year) at extremely low ASPs. They are used in all types of electrical systems
primarily as enabling devices—helping to move signals around the board as well as to control power flow—and are
generally application agnostic. There are several major categories of discrete devices, including:
• Diodes: Devices that act as a one-way valve. Key types include small signal diodes, zener diodes, transient
protection diodes and RF/microwave diodes.
• Small Signal and Switching Transistors: Transistors with power dissipation of less than 1W.
• Power Transistors: Transistors with power dissipation of more than 1W. Key types include RF and microwave
power transistors, bipolar general purpose transistors and insulated gate bipolar transistors (IGBTs) and modules.
• Rectifiers (Power Diodes): Devices used to convert AC (alternating current) to DC (direct current). These
devices are classified by the amount of current supported.
• Thyristors: Devices that can turn on when activated by a gate signal.
• Other Discretes: These include varactor tuning diodes, selenium rectifiers and other polycrystalline devices.
102
On a revenue basis, more than half of discrete sales are power transistors, at 51% of total in 2005. Rectifiers, diodes
and small signal transistors are 15%, 14%, and 13%, respectively. Note that on a unit basis, diodes and small signal
transistors total 74% of discrete shipments, as these devices generally have very low ASPs.
In terms of application, discretes go into every electronic device produced. In 2005, the revenue split was 25%
consumer, 19% industrial, 18% data processing, 16% communications, 15% automotive, and 7% aerospace.
The exhibits below display discrete semiconductor revenue share by product type and application.
2005 Discrete Revenue By Product Type 2005 Discrete Revenue By Application

Aerospace
Other
Thyristors 7%
Discretes
Small Signal 5 % 2%
Transistors Automotive Consumer
13 % 15 % 25 %
Power
Diodes Transistors
14 % 51 %
Comm
16 %
Industrial
19 %
Data
Rectifiers
Processing
15 %
18 %
Source: WSTS, Dataquest, CIBC World Markets Corp.
Market Forecast: Discretes sell into every electronic application and are therefore closely tied to the semiconductor
cycle and to demand for electronics. Many of these products are commodities and thus are subject to rapid changes
in pricing as fab capacity rises and falls with the semiconductor cycle. Countering this effect, however, is the fact that
discretes and sensors are heavily used in industrial and automotive applications, which tend to have more stable unit
demand than consumer and IT-focused products. Still, historically, discretes have shown more unit demand and ASP
volatility than ICs, and the projected growth rates are lower than for other classes of devices.
Overall, we expect the market to grow from $15.2 billion in 2005 to $20.3 billion in 2010, a CAGR of 6%. Note this
CAGR is slightly below our semiconductor industry CAGR, as we have seen analog and digital ASSPs seek to integrate
out discretes in a number of higher volume applications across end markets.
Competitive Environment: The market for discretes is large and fragmented. The largest vendors in 2005 were
Toshiba and STMicroelectronics, with 9% and 8% share, respectively. Rohm and Renesas were next with 7% each.
Other important vendors include Fairchild, Infineon, Vishay, International Rectifier, NXP/Philips, Mitsubishi, ON Semi,
NEC and Fuji. Most of the other large Japanese semiconductor manufacturers compete here as well.
103
Sensors
Sensors and
and Actuators
Actuators
Sensors and Actuators- Sensors are discrete semiconductor devices that

translate real world input into electrical signals. Actuators perform the
opposite function, taking electrical signals and translating them into some
form of real world output.
Key Types: Temperature sensors, pressure sensors, acceleration and yaw
rate sensors, magnetic field sensors, LEDs, motors, solenoids, speakers.

•We expect the market for sensors and
actuators to grow at a 12% CAGR, rising
from $4.5 billion in 2005 to $7.9 billion in Others Robert Bosch
17 %
2010. 20 %
$9,000
Actuators
$8,000
Sensors
Micronas
$7,000 4% Infineon
$6,000
Optek 12 %
Technology
Revenue ($M)
$5,000 4%
NXP/Philips
$4,000
4%
$3,000 Freescale
Mitsubishi
11 %
$2,000
5%
VTI
5% Allegro Analog
$1,000
MicroSystem Devices
$0 9% 9%
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: Forecast includes actuators beginning in 2003.

Note: Market share data is for sensors, and excludes actuators.
Sensors are specialized discrete semiconductor devices whose electrical properties can be translated into
measurements of external stimuli. These include things like temperature, pressure, displacement, velocity, stress,
strain, acceleration, or virtually any other physical, chemical or biological property. The category also includes
actuators, which translate signals into movement, acting as the opposite of a sensor (the mechanisms that move the
head assembly on a disk drive or an arm of a robot are two types of actuator).
In 2005, actuators represented 59% of total sensor and actuator revenue. Magnetic field sensors represented 17% of
total, accelerate & yaw sensors were 12%, pressure sensors were 10% and temperature sensors were 1%. Note that
image sensors are not included in this category and are instead grouped with optoelectronics.
Market Forecast: The market for sensors and actuators is expected to grow at a 12% CAGR over the next five
years, from $4.5 billion in 2005 to $7.9 billion in 2010. The growing digitization of devices, especially in automobiles,
as well as the move to silicon-based sensors from other materials, is expected to drive this growth.
Competitive Environment: The market for sensors is smaller and thus less fragmented than for general discretes,
but many niche players have been able to build defensible positions. The largest vendor in 2005 was Robert Bosch
with 17%, followed by Infineon with 12%. Freescale held 11% and Analog Devices and Allegro each held 9%. Other
suppliers include VTI Technologies, Mitsubishi, NXP/Philips, Optek Technology, and Micronas. Note that this market
share data does not include a breakout for actuators (data for this segment was not available).
104
Optoelectronics
Optoelectronics
Optoelectronics - Semiconductor devices designed to produce and receive

light waves, including displays, lamps, couplers, image sensors, and other
opto-sensing and emitting devices.
Key Types: Displays, lamps, couplers, laser devices, image sensors (CCDs,
CPDs, SSPs, CMOS), infrared devices.

•We expect the market for
optoelectronics to grow at a 10% CAGR Sharp
12 %
through 2010, rising from $14.9 billion in
2005 to $24.0 billion in 2010.
Sony
•After several years of rapid growth, we 11 %
expect image sensors to see a more Others
stable CAGR of 7% through 2010. 43 %
Nichia
$30,000
Chemical
All Other Optoelectronics 7%
Image Sensors
$25,000
Toshiba
6%
$20,000
Avago
Revenue ($M)
6%
Stanley Electric
$15,000
SANYO Matsushita
3% OSRAM
3% 5%
4%
$10,000

$5,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Optoelectronics are semiconductor devices designed to produce and receive light Light Emitting Diode
waves. This includes displays, lamps, couplers and other opto-sensing and
emitting semiconductor devices (though it excludes liquid crystal devices and
displays, incandescent lamps and displays and other non-semiconductor
optoelectronics components). The best-known type of optoelectronic device is the
LED (light emitting diode), a diode that emits light when charged and is usually
housed in a small “bulb” and used for readouts (see diagram).
About 43% of optoelectronics revenue is actually derived from image sensors,
including CCDs and CMOS image sensors. Seventeen percent is derived from
lamps, 7% from laser pickup devices, and 7% from couplers. The remaining 26%
includes infrared devices, displays, laser transmitters and other optoelectronics.
Like discretes, optoelectronic semiconductors are generally application agnostic,
selling into every type of electrical device. They are more heavily weighted toward
the industrial and communications markets, which represented 33% and 27% of
sales in 2005, respectively. Other markets include 20% sold into consumer, 15%
into data processing and the remaining 5% into automotive and other. Source: I.Weiss, CIBC World Markets Corp.
105
The exhibits below display optoelectronics revenue by device type and application.
2005 Optoelectronics Revenue By Product Type 2005 Optoelectronics Revenue By Application

Other Opto
Automotive Military/
16 %
Data 4% Aerospace
Processing 1%
Laser 15 %
Transmitter
1%
Displays Industrial
3% 33 %
CCD &
Infrared Image
6% Sensors
Couplers 43 %
7% Consumer
20 %
Laser Pickup
7%
Comm
27 %
Lamps
17 %
Source: WSTS, Dataquest, CIBC World Markets Corp.
Market Forecast: The market for optoelectronics is expected to outperform the overall semiconductor industry
through 2010, growing at a 10% rate. After several years of rapid growth driven by digital cameras and camera
phones, we expect image sensors to see a more stable CAGR of 7% through 2010, as pricing pressure partially offsets
continued unit growth. Overall, revenue is expected to grow from $14.9 billion in 2005 to $24.0 billion in 2010.
Competitive Environment: The market for optoelectronics is large and highly fragmented. The top producer in
2005 was Sharp with a 12% market share, followed by Sony with 11%. Nichia Chemical, Toshiba, Avago, and
Matsushita each held 5% or more. Other significant vendors include OSRAM, SANYO, Stanley Electric, Rohm,
Omnivision, Toyota Gosei, and STMicroelectronics.
106
Section
Section V:
V: End
End Market
Market Summary
Summary
This section discusses the major

semiconductor end markets.
For each end market we discuss:

Key technologies & end market
fundamentals
End market unit forecast
Semiconductor revenue forecast
Semiconductor block diagram
Competitive environment
Semiconductor trends
107
End
End Market
Market Summary
Summary
The semiconductor sector serves six

key end markets
Six Key End Markets:
Computing Wireless
Networking Consumer
Consumer
Telecom/ Automotive
Datacom
We now move from a discussion of semiconductor devices to the electronic systems that use them. We discuss
several key equipment types grouped into six end market categories, and for each type of equipment, we discuss the
end market unit forecast, our semiconductor revenue forecast, the competitive environment for both equipment and
ICs, and market and technology trends. Note that in general, we limit the equipment types we discuss to those that
are implemented primarily using application specific custom and/or standard ICs. There are a multitude of electronic
devices that are implemented using mostly generic components—e.g., analog SLICs, microcontrollers, general
purpose logic, discretes, etc.—which, while they may ship in significant volume, do not present themselves as
opportunities for specialization. We break down the key semiconductor end markets into the following categories:
• Computing: Equipment used in personal computing and data processing, including PCs and servers, PC displays,
hard disk drives, optical storage, and printers/multi-function peripherals.
• Networking: Client and infrastructure equipment for local area, wireless, personal area and storage networks.
• Telecom/Datacom: Service provider and enterprise equipment used to implement voice and data networks.
• Wireless: Cellular handsets and wireless infrastructure equipment. WiMAX is also discussed.
• Consumer: Digital consumer devices, such as set-top boxes, DVD players, MP3 players, game consoles, etc.
• Automotive: Electronic systems and subsystems used in automobiles.
108
Block
Block Diagram
Diagram Example:
Example: A
A Basic
Basic System
System
In the sections that follow, we will use block diagrams to

identify key semiconductor opportunities.
A typical electrical system block diagram looks like this:
Provides temporary or Controls power flow into the
permanent storage of Processes the signal at the system as well as battery
data used by the highest level, implements management in portable
system processor system software, performs devices
overall system control functions
Performs timing Memory Microprocessor/ Power

functions to
Microcontoller/ Supply
enable system Memory
performance Application
Clock Processor Aids in system
functioning by
Senses real
controlling signal
world input
flow, power
delivery, etc.
Real Digital Digital Real

Analog Analog
World Sensor Processor Processor World
Processor Processor
Input Output
Source: CIBC World Markets
Receives real-world input, Performs digital Converts the digital signal to analog
performs analog processing, Performs digital and produces real-world output
processing on the
converts it to digital processing on the
outgoing signal
incoming signal
The diagram above, which we showed earlier in Section III when we introduced the different types of semiconductor
devices, displays a generic electronic system. In the sections that follow, we show application specific electronic
systems using the same format. We will use black to denote analog devices and white to denote digital devices.
Double borders denote microcomponents, while a checkered pattern denotes memory. Note that in most cases, we
will not show the multitude of enabling devices (grey) that populate the board.
109
Computing
Computing
Five Key Markets:

Desktop and Notebook PCs and Servers
PC Displays - Flat Panel and CRT
Hard Disk Drives
Optical Storage
Printers and Multi-Function Peripherals
Computing remains the largest single application for semiconductors and includes equipment such as desktop PCs,
notebooks, servers, displays, hard disk drives, optical storage drives, printers and other peripherals. Although these
devices are pervasive in the United States, Western Europe and Japan, emerging markets are major growth
opportunities. In discussing the end markets for computing semiconductors, we focus on five key product areas:
• PCs and Servers: Includes all semiconductor devices—including memory—that are used on desktop and
notebook motherboards and in industry-standard servers. Excludes semiconductors sold into hard disk and other
mass storage devices, displays, printers and other peripherals, as well as proprietary servers.
• PC Displays: Includes all ICs sold into PC displays. While we include CRT monitors in our unit forecast, most
traditional CRT displays are implemented using standard components such as microcontrollers, analog SLICs,
discretes and general purpose logic. Flat panel displays, on the other hand, generally use ASSP solutions.
Consequently, our discussion of this segment is heavily focused on flat-panel displays and their ICs.
• Hard Disk Drives: All hard disk drives used in PCs and servers, enterprise storage, and consumer applications.
• Optical Storage: Includes PC-based CD, CD-R/W, DVD, DVD-R/W and combo drives; excludes consumer DVD.
• Printers and Multi-Function Peripherals: All laser and inkjet based printers. Includes multi-function
peripherals, which include printer, scanner, and fax functions.
110
PCs
PCs and
and Servers
Servers
PCs remain the largest single consumer of semiconductors

and a huge portion of technology spending. After stalling
during the post-Y2K tech downturn, growth has resumed,
mostly in notebooks, servers, and emerging markets.
PC Unit Shipments and YoY Growth
250 40%
PC Unit Shipments
35%
Year-over-year Growth
200 30%
25%
Year-over-year-Growth
20%
Unit Shipments (M)
150
15%
10%
100
5%
0%
50 -5%
-10%
00 -15%
4
85
86
87
88
89
91
92
93
94
95
96
97
98
00
01
02
03
04
05
90
99
8
19
19
19
19
20
19
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
Source: IDC, CIBC World Markets
PCs remain at the center of the technology universe and are a huge portion of IT and home technology spending. The
market has matured a great deal over the past decade, with the commoditization of PCs forcing consolidation in the
industry and average selling prices declining rapidly as system differentiation diminishes. Growth has slowed in the
developed markets as corporate PC penetration has peaked, and consumer PC adoption has decelerated.
Still, emerging markets present growth opportunities for PC makers and there is still a healthy replacement market in
the developed regions. After the post-Y2K tech downturn drove anemic PC sales in 2001 and 2002, unit growth
recovered nicely from 2003 to 2005 (averaging 14% per year), led by strong notebook growth. For 2006, PC and
server shipments are expected to approximate 223 million units, up about 11%. While 11% is still a healthy number,
it has taken the supply chain (and investors) some time to deal with the decline in growth from the former mid-teens
rate.
111
PCs
PCs and
and Servers
Servers
Desktop Shipments
Desktops are the most mature 160 35%
market, seeing only incremental

140 30%
25%
120
growth. Notebooks have gained 20%
100
Unit Shipments (M)

15%
significant ground against desktops

80
10%
60
as mobility trends have accelerated

5%
40
Desktops 0%
Year-over-year Growth
and LCD prices have come down;

20 -5%
00 -10%
1998 1999 2000 2001 2002 2003 2004 2005
servers have also been strong. 70

Notebook Shipments 40%
PC & Server Unit Share

Notebooks
Year-over-year Growth 35%
60
30%
100% Server 50
25%
Unit Shipments (M)

40
Notebook 20%
30
15%
80%
20
10%
10
5%
60% 00 0%
1998 1999 2000 2001 2002 2003 2004 2005
7.0
Server Shipments 35%
Servers
40% Year-over-year Growth
6.0 30%
5.0 25%
Unit Shipments (M)
20% Desktop 4.0 20%
3.0 15%
2.0 10%
0%
1.0 5%
1998 1999 2000 2001 2002 2003 2004 2005
Source (all graphs): IDC, CIBC World Markets 0.0
1998 1999 2000 2001 2002 2003 2004 2005
0%
By platform, desktops remain the largest market, still 65% of total units shipped in 2005. Desktops are also the most
mature market, having grown just at a 4% CAGR over the past five years vs. the total market at 8%. In general,
growth in desktops is being driven by emerging markets, as PC penetration in the developed world is pretty stagnant
at present.
Notebooks have grown at a much faster rate—20% over the past five years—and now represent 31% of shipments.
This has resulted primarily from desktop replacement in both corporate and consumer PC channels. Notebooks have
also increased the total market for PCs by offering the advantages of mobility, opening up new applications for PCs,
primarily with thin-and-light notebook offerings.
x86 servers have also outperformed, growing 12% over the past five years—though still small at 3% of unit
shipments. Server OEMs have done an excellent job of packing more performance and functionality and improving
ease-of-use into low-end and mid-range servers over the past few years, opening the market to more small and
medium businesses, which have historically depended on either custom-built systems or simple small-business
software running on a normal desktop PC. PC servers are also cannibalizing the mid- and high-end proprietary server
market, offering cost and configurability advantages over proprietary systems from OEMs like IBM, Sun, and HP.
112
PCs
PCs and
and Servers
Servers
PC shipments are shifting from the mature markets of

North America, Western Europe, and Japan to developing
economies in Asia, Eastern Europe, and Latin America. The
distribution channel is growing in importance, serving local
consumers in these fast-growing emerging markets.
By customer type, PCs are split roughly 36% consumer
and about 64% corporate and small business.
PC Unit Shipment 2005 PC Unit Shipments
Share By Region By Customer Type
100%
ROW
80% Asia Consumer

36%
Japan
60%
Europe
40%
Commercial
20% North America
64%
0%
1998 1999 2000 2001 2002 2003 2004 2005
Source: IDC, CIBC World Markets Source: Dataquest, CIBC World Markets
Looking at the market by geography, PCs have shown a sustained shift away from mature markets and toward
developing economies, especially in Asia. North America remains the largest market for PCs, at 31% of total
shipments in 2005. This market has grown at a modest CAGR of 4% over the past five years (note that the CAGR for
North America was impacted heavily by the post-Y2K tech bubble; it has actually recovered nicely in the past couple
of years, growing roughly 10% from 2003-2005, driven by healthy demand for notebook PCs). Growth in Western
Europe—23% of PC shipments—has been slightly better at 8% over the past five years. Japan was the weakest
region, with a flat CAGR over the past five years and declining to just 7% of total shipments.
Asia and the other emerging markets, on the other hand, have seen runaway PC growth. Unit shipments have grown
at a 15% CAGR over the past five years in Asia and in the rest of world segment. As a percentage of total shipments,
Asia now accounts for 20% of total, up from 15% five years ago. Rest of world accounts for 19%, up from 14% five
years ago.
In terms of customer base, 36% of PC unit shipments in 2005 were sold into the consumer channel, with 64% sold
into the commercial channel. These percentages have been relatively stable for the past few years, only slightly
favoring the consumer PC market, due to two offsetting factors: 1) the consumer PC market in the U.S. and Europe
has grown faster than the mature corporate sector, favoring consumer PCs and 2) Asia/Pacific has been the strongest
area of growth, primarily for large and small enterprises, favoring commercial PCs.
113
PCs
PCs and
and Servers
Servers
Desktop and Notebook Desktop and Notebook

PC Unit Forecast PC Suppliers
•Total PCs growing 11%, from 201 million Dell
units in 2005 to 336 million units in 2010. 18 %
•Desktops growing 5%, from 136 million Others
units in 2005 to 177 million units in 2010. 39 %
•Desktop shipments in developed markets
should remain relatively flat through 2010,
with growth mainly in Asia and ROW. HP
•Notebooks growing 19%, from 65 million 16 %
units in 2005 to 159 million units in 2010.

•Notebooks should grow in all regions,
though less in Japan given high Sony
Lenovo
penetration rates today. 2% Acer
6%
Gateway Apple 5%
400,000 2% 2% NEC Toshiba Fujitsu/F-S
3% 3% 4%
Notebooks
350,000
Desktops
Desktops Notebooks
300,000
Dell Dell
250,000 HP HP
200,000
Lenovo Toshiba
Fujitsu/F-S Acer
NEC Lenovo
150,000
100,000 Gateway Fujitsu/F-S

50,000
Acer Sony
Apple NEC
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: The PC business of IBM was acquired by Lenovo in 2005.
Source: IDC, CIBC World Markets Corp. Source: IDC, CIBC World Markets Corp.
PC Unit Forecast: The past few years have seen a solid recovery in PC unit shipments following a challenging 2001-
02. 2001 was a difficult year, as the industry posted its first decline in unit shipments since the introduction of the
IBM PC in the early 1980s. The downturn in the U.S. and European economies prompted many corporations to pull in
IT budgets, and falling consumer confidence and rising unemployment hurt sales of consumer PCs. Worse still, the
falling unit number prompted a PC price war, exacerbated by a shift in strategy at the major PC OEMs to focus on
services (which effectively lowered the margins they would need to charge on sales of PCs). This caused PC OEM
revenue to fall far more dramatically than unit sales.
2002 was a stabilization year in unit terms, with worldwide shipments growing 3%. Substantially all of the growth
came from the Asia/Pacific market with its strong “white box” channel. The market started to reaccelerate in 2003
with shipments growing 12% for the year, highlighted by a massive 28% surge in notebooks. In 2004, desktops and
notebooks each grew double digits and the market as a whole grew 15% on strong economic activity globally. In
2005, desktop growth moderated to high single digits, though notebook experienced robust growth, up 33%; in total,
the market grew 16% and reached 201 million units.
Going forward, we expect PC unit growth to settle in at an 11% CAGR, growing from 201 million units in 2005 to 336
million units in 2010. We expect the trend away from desktops to continue, with a lagging 5% CAGR through 2010;
overall we expect desktop PCs to grow from 136 million units in 2005 to 177 million units in 2010. We expect mobile,
which is becoming more of a focus at every major PC and PC component supplier worldwide, to outperform with a
114
19% CAGR, rising from 65 million units in 2005 to 159 million units in 2010. Much of this growth will be driven by
emerging markets, which should finally begin to see meaningful desktop replacement toward the back half of the
forecast period.
Within each platform, we expect the shift to lower price points to continue, though not as sharply as in the past few
years. We believe most PC vendors have come to terms with the lack of elasticity in the market; i.e., their price cuts
can be successful in winning market share but have been less than effective in growing unit demand for the industry
as a whole. We also believe the market is sufficiently consolidated, with top OEMs in control of pricing.
The exhibits below display our unit shipment forecast for desktops and notebooks.
Desktop PC Unit Shipments, 2002-2010E Notebook PC Unit Shipments, 2002-2010E

200,000 180,000
Desktops Notebooks
180,000 160,000
160,000
140,000
140,000
120,000
120,000
100,000
100,000
80,000
80,000
60,000
60,000
40,000
40,000
20,000 20,000
- -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
PC Suppliers: The PC market is served by a two large double-digit share holders, Dell and HP, along with a number
of tier-2 OEMs as well as a few notebook specialists, who together compose 61% of the PC market. A huge base of
small “white box” or “clone” PC makers and system integrators, most of which operate in emerging markets, supply
the remaining 39%.
In 2005, Dell was No. 1 with 18% unit share and the top position in both desktops and notebooks; HP followed with
16% and was also No. 2 in both desktop and notebook. Lenovo was No. 3 with 6% share; note that Lenovo
purchased IBM’s PC business in 2005. Prior to the acquisition, Lenovo was the largest PC supplier in China and held a
2% share of the worldwide market. Acer, particularly strong in the European notebook market, was next with 5%,
followed by Fujitsu/Fujitsu-Siemens with 4%. Notebook specialists Toshiba and NEC followed with 3% overall unit
share each. Apple, Gateway, and Sony rounded out the top 10 with 2% unit share each.
115
PCs
PCs and
and Servers
Servers
Server Unit Forecast Server Suppliers

•Total servers growing at a 12% CAGR,
from 6.5 million units in 2005 to 11.5 Industry Standard Servers (x86)
million units in 2010. Others
•x86 servers already represent 92% of the 19 %
market in 2005 and are forecast to HP

approach 94% of shipments by 2010, Acer 31 %
growing at a 12% CAGR. Sun 1 %
1%
•Itanium is expected to grow to 1.6% of NEC
total shipments by 2010.

2%
•RISC should peak in 2007 at 613 million Fujitsu/F-S

4%
units, as it is challenged by x86 and
Itanium; overall, RISC growth should be
flat through 2010. IBM
16 %
14,000
Itanium Dell
x86
12,000 RISC 26 %
Low- and Mid- High-End

CISC
10,000
Range Proprietary Proprietary
Sun IBM
8,000
6,000 IBM HP
HP Sun
Apple Fujitsu/F-S
4,000
2,000 Fujitsu/F-S NCR

-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: The semiconductors used in proprietary servers are not
discussed in this document given their custom nature; however,
Source: IDC, CIBC World Markets Corp. we provide unit forecast and vendor data for context.
Source: IDC, Gartner, CIBC World Markets Corp.
Server Unit Forecast: The server market has undergone a lot of change over the past decade, as the market has
shifted away from proprietary systems designed from the silicon up by server OEMs. The market is now composed of
a mix of proprietary RISC/CISC systems for high performance applications and industry standard (x86-based) servers
used for mainstream IT infrastructure. As of 2005, industry standard servers had grown to 92% of unit shipments,
though they were still less than half of server industry revenue due to the dominance of RISC/CISC at the high end.
Like the PC market, server shipments were sluggish in 2001 and 2002 but grew double digit from 2003 to 2005,
reaching 6.5 million units. We expect the market to reach 11.5 million units by 2010, a 12% CAGR. x86 servers
represented 92% of the market in 2005 and are forecast to approach 94% of shipments by 2010, growing at a 12%
CAGR. RISC should peak in 2007 at 613 thousand units, as it is challenged by x86 and Itanium; overall, RISC growth
should be flat through 2010. Itanium, the high-end 64-bit processor architecture pioneered by Intel and HP, is
expected to grow to 1.7% of total shipments by 2010 from a small base today.
Server Suppliers: The x86 server market is served by three key players: HP with 31% unit share, Dell with 26%,
and IBM with 16%. The rest of the market remains fragmented, with Fujitsu/Fujitsu-Siemens, NEC, Sun and Acer
each holding less than 5% and representing less than 10% of the market in aggregate.
The proprietary server market is served by Sun, IBM, and HP for low-end and mid-range and IBM, HP, Sun, and a
number of small high-performance specialists at the high end.
116
PCs
PCs and
and Servers
Servers
Generates timing The other half of the core logic, the
Manages PC
Memory used to frequencies to south bridge provides the PCI/PCI-E
power systems
run programs synchronize IC interface for internal peripherals, USB Controls keyboard,
interface for external peripherals, and Stores boot
One half of the PC core operations mouse, serial port, printer
ATA/SATA interface for disk drives; it instructions
logic (also called the “chip
also integrates audio processing
set’), the north bridge
interfaces between CPU DRAM Power Hard
and memory and graphics
DRAM Management Disk
Drive
Clock BIOS
ATA/SATA Optical
Microprocessor North South Bridge ATA Disk
Bridge Drive
Cache I/O
PCI, PCI AC ’97, Controller
Express HD Audio USB Floppy
High-performance 32-bit or 64-
bit CPU, runs the operating Disk
system and software
Drive
PCI-Express x16/AGP Bus
Super I/O
PCI/PCI-Express Bus
DRAM
Modem BT/WLAN
Graphics Codec BB/MAC
Processor
Ethernet Line BT/WLAN Audio
DAC TMDS Driver RF/IF/PA Codec
Controller
Analog Digital LAN Phone Antenna Speakers, USB Keyboard, Mouse,

Graphics processor, Monitor Monitor Line Microphone Devices Serial Port
memory, and
interface ICs
Ethernet interface
controller, including the Modem line Bluetooth or wireless LAN radio Audio DAC interfaces
physical layer interface driver and codec generation (RF/IF/PA) and with speakers and
(PHY) and protocol protocol processing (BB/MAC) microphone
Source: CIBC World Markets Corp. processor (MAC)
Note: The diagram above shows a typical full-featured desktop PC. Notebook PCs contain some
additional semiconductor content, including battery management and PC card controllers. Servers look
slightly different in that they can have multiple processors, more memory, larger and less integrated
chipsets and less multimedia content.
The nature of computing requires a variety of powerful devices with diverse functionality to handle a wide set of data
types. The easiest way to think of a PC is to draw an analogy to the human body. The CPU (central processing unit),
a microprocessor, performs all high-level processing, essentially the high-level brain functions of critical thinking and
problem solving. RAM (random access memory) acts as short-term memory, used by the CPU as a workspace to
process its instructions. BIOS, another form of memory, stores boot instructions (similar to autonomic nerves), while
a clock provides synchronization functions, keeping all systems in check. The chipset (includes north bridge and south
bridge) acts as the base of the spinal cord, relaying instructions to and from the CPU and connecting it to the rest of
the PC over the system bus (usually PCI or PCI-Express), which functions as the spinal column. The hard disk, floppy
disk and CD/DVD drives provide long-term storage, which is retrieved by the CPU and moved into RAM when needed,
similar to a human being’s long-term memory. Together, these systems function as a cohesive central nervous
system, powerful enough to perform complex computations and versatile enough to handle a wide variety of inputs.
Outside these core systems, various peripheral devices perform the specific input and output processing to connect
the PC to the outside world. The I/O controller interfaces with simple input devices such as the keyboard, mouse,
117
parallel and serial ports (used by older, pre-USB printers and other peripherals). Graphics processor and interface
chips produce the visual image displayed on the monitor (allowing the computer to draw pictures for display), while
audio controllers and codecs produce sound (allowing the computer to literally speak and be spoken to). Ethernet,
modem and wireless LAN/Bluetooth ICs connect the PC with other data sources (analogous to a person placing a
phone call) and USB/Firewire ports interface with additional peripherals (e.g., scanners, MP3 players, digital cameras).
PC and Server Semiconductor Device Summary

Processing
• Microprocessor: The central processing unit (CPU) in a PC is a high-performance 32- or 64-bit microprocessor.
It performs all major processing of software code and communicates with all other devices in the system. It uses
a modified CISC (Complex Instruction Set Code) architecture to process the lengthy sets of instruction used in
typical computer software. Aside from this compute “core,” the CPU usually includes on-chip memory called a
“cache” as well as additional logic “extensions,” which are embedded instructions designed to optimize the
execution of certain types of critical functions (i.e., multimedia, security). Microprocessor performance is
measured in clock speed, usually in Gigahertz (GHz), which measures the number of instructions per second (in
billions) the processor can handle. Examples of PC processors are Intel’s Core 2 Duo and AMD’s Athlon 64 X2.
Note that desktop and notebook PCs usually have a single CPU, while servers can have 2 or more.
Chipset, BIOS, Clock and I/O

• Chipset (North Bridge and South Bridge): The chipset supports the CPU by performing some related
processing functions and by connecting the CPU out to the rest of the system. The north bridge connects the CPU
out to main memory and also to the graphics processor (many include a graphics processor on-chip). The south
bridge is the gateway to other PC interfaces (besides graphics) and provides access to the hard disk drives and
optical drives via the ATA/SATA, as well as I/O, networking, multimedia, and other peripherals via the PCI or PCI-
Express bus. Examples of chipsets include Intel’s 965, Via’s K8 series, and NVIDIA’s nForce family.
• USB Controller and USB Host (integrated into south bridge): The USB host sits in front of the USB port and
receives input from and sends output to a peripheral device using USB (Universal Serial Bus). USB has been
widely adopted for its ease and speed: devices connect seamlessly and sometimes require no drivers. USB 2.0
can run at speeds up to 480 Mbps.
• IEEE 1394/Firewire Controller and Host (not shown): An alternative standard to USB is IEEE 1394/Firewire.
Chipset leader Intel has not pushed this standard; thus most PCs that support Firewire use discrete controllers.
• BIOS: BIOS stores boot instructions read by the microprocessor whenever the computer starts up. BIOS is
usually implemented with low density NOR flash memory.
• Clock: Motherboard clocks provide timing and synchronization functions, keeping all systems in the PC working
together. Examples include clock families from IDT, Cypress, and Realtek.
• I/O Controller: The I/O controller interfaces the south bridge with the PC’s primary simple input and output
devices, including the keyboard, mouse, floppy drive, printer and serial devices.
• PC Card Controller (not shown, only used in notebooks): This controller is a specialty I/O device that provides
the interface with PCMCIA cards. Controllers are only found in notebook PCs. Note that notebooks that support
PCI-Express cards do not need a discrete controller, since this is integrated into the south bridge.
Memory
• DRAM (Dynamic Random Access Memory): PCs use DRAM to store program data in use by the CPU at any
given time. DRAM is blank when the computer boots up and goes blank again when the computer is shut down.
DRAM is implemented on modules that can be inserted and removed from the PC motherboard. DRAM is a
commodity and is measured in MBs, segmented by interface (SDRAM, DDR, DDR-II, etc.).
• Memory Register or AMB I/O (not shown, only used in servers): Servers typically use higher performance
memory modules than PCs. These are known as registered DIMM modules, and they include register ICs (similar
to a timing IC) directly on the module. Newer fully-buffered DIMMs include a specialty I/O IC known as an AMB
I/O IC directly on the module, which manages the interface to the server chipset, which would include AMB I/O
logic on chipset.
• NAND Cache (not shown, only beginning to appear in 2007): PC OEMs are beginning to add a memory cache
comprised of NAND flash to store frequently used operating system commands and other files.
118
Graphics and Audio

• Graphic Processor (GPU): The graphics processor is a digital processor optimized to produce 2D and 3D
graphics images. In desktops, GPUs are found on separate add-in cards (these cards usually contain DRAM
specifically used for graphics); in notebooks they are down on the motherboard. GPUs connect up to the north
bridge using PCI-Express x16, though older cards still use the specialized AGP graphics bus. Note that many
systems eliminate the GPU by integrating graphics functionality into the chipset. Examples of GPUs include
NVIDIA’s GeForce 7 and ATI/AMD’s Radeon family.
• Sound Processor (integrated into south bridge, can also be a discrete add-in board [not shown]): The sound
processor is a digital processor that produces stereo and surround sound audio processing. Sound processors
were originally implemented with add-in boards, and a minority of high-performance PCs implement separate PCI
or PCI-Express sound cards with discrete audio processors. Most PCs, however, utilize the sound processor
integrated into the south bridge, with discrete controllers reserved for the highest-end multimedia desktops.
• Audio Codec: The audio codec is a specialized digital-to-analog/analog-to-digital converter and amplifier that
performs the conversion of audio signals from the digital sound processor to an analog format for use with
speakers/headphones (output) and microphones (input).
Networking
Note: Networking ICs, including devices found in PCs and servers, are discussed in further detail later on
in the networking section.
• Analog Modem Codec and Line Driver: The modem codec encodes digital signals from the PC into analog
signals for transmission over the phone line and vice versa. The line driver is the analog chip that interfaces with
the RJ-11 phone line. In many PCs, a “soft modem” is used, eliminating the need for the discrete codec; a
discrete line driver, however, remains.
• Ethernet Controller: The Ethernet controller is a single-chip integrated device that interfaces between the PC
and the Ethernet local area network. It integrates both the MAC and PHY. The Ethernet MAC encodes data from
the PC into Ethernet frames and affixes overhead and vice versa. The PHY (physical layer) interfaces with the RJ-
45 Ethernet cable and converts the serial Ethernet stream into parallel digital form for processing and vice versa.
• Bluetooth/Wireless LAN Baseband/MAC and RF/IF/Power Amp: Many PCs include wireless networking
functionality, especially notebooks. Wireless LAN is the most common for PCs, but some will also include
Bluetooth. In most implementations, a baseband/MAC chip encodes data from the PC into 802.11 or Bluetooth
format and interfaces with the radio. The RF/IF and power amp performs the radio transmission and reception
and interfaces with the antenna. Note that we have displayed the chipset as a 2-chip solution; in reality chipsets
can be less integrated and will split up some of the functions (separate power amps, multiple radios, specialized
MACs, etc.); others will include the solution on a single chip. Also note that the diagram shows a system with
either a Bluetooth or wireless LAN solution; in reality a system can have one or the other or both.
• UWB/Wireless USB chipset (not shown, only beginning to appear in 2007): In 2007, PCs will begin to include
UWB solutions to implement wireless USB. Solutions will likely look very similar to wireless LAN or Bluetooth
implementations, with a two chip solution comprising a baseband/MAC and RF/IF. Unlike wireless LAN or
Bluetooth, however, UWB is targeted for short-range cable replacement as opposed to a full networking solution.
Power Management
Note: Our block diagram does not show specific power management components; these are used
throughout the board and on add-in boards as well as within and around the PC power supply.
• Power Management – Power management content in a PC includes both analog ICs and discretes. Key
types include power transistors, power diodes, AC/DC regulator ICs, PFC pre-regulator ICs, linear regulator
ICs, battery charging and management ICs, hot-swap controllers and MOSFET driver ICs.
119
PCs
PCs and
and Servers
Servers
PC and Server Semiconductor Forecast

•PC and server ICs growing 7%, from $59.5 2005 2010E 05-10
Market Size Market Size CAGR
billion in 2005 to $84.3 billion in 2010.
•Microprocessors to grow 7% as unit growth Microprocessor $ 30,748 $ 42,865 7%
is tempered by pricing pressure. Main Memory $ 14,491 $ 18,623 5%

NAND Cache $ - $ 1,613 N/A
•DRAM to grow 5% with a peak in 2009.
Chipset and I/O $ 6,702 $ 9,652 8%
•NAND cache should enter PCs in 2007 and Core Logic $ 5,501 $ 8,492 9%
grow quickly to $1.6 billion in 2010. All Other I/O $ 1,201 $ 1,160 -1%
•Chipset, I/O, graphics and audio to face Graphics and Audio $ 3,542 $ 4,916 7%
integration and price pressure. Discrete GPU $ 3,246 $ 4,496 7%
Audio $ 296 $ 420 7%
•Communications growing at 12%, driven
Communications $ 1,402 $ 2,474 12%
by wireless networking ICs. Ethernet Controller $ 622 $ 737 3%
•Power management growing 10%, boosted Analog Modem $ 286 $ 226 -5%
Wireless LAN $ 422 $ 930 17%
by notebook penetration. Bluetooth $ 72 $ 171 19%
$90,000 UWB $ - $ 411 N/A
Power Management
$80,000
Communications
Graphics and Audio
Power Management $ 2,643 $ 4,180 10%
Chipset and I/O
$70,000 NAND Cache
Main Memory
Microprocessor
Desktops $ 32,487 $ 32,150 0%
$60,000
Notebooks $ 20,202 $ 40,752 15%

$50,000
Servers $ 6,840 $ 11,421 11%
$40,000
$30,000
Total PC & Server
$20,000 Semiconductors $ 59,529 $ 84,324 7%
$10,000
Data is revenue in millions
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, Dataquest, CIBC World Markets Corp.
Note: Our entire discussion of PC and server ICs includes chips used in desktop PCs, notebooks, and x86
servers. It excludes chips used in proprietary RISC/CISC servers, as these are typically custom solutions
that are difficult to cost within the server BOM. It also excludes LCD drivers used in notebook PCs, as
these are included in our PC display forecast. Also note that our forecast includes all PC and server-
related ICs used in full systems, add-in boards, and the retail after market.
PC and Server Semiconductor Forecast: We estimate the computing semiconductor market—which includes
desktop, notebook and x86 server semiconductors—totaled $59.5 billion in 2005, up 5% year over year. The market
benefited from healthy PC units and a rational pricing environment for microprocessors, chipsets and graphics,
partially offset by a difficult DRAM market, which declined 10% year over year. Excluding DRAM, the computing
semiconductor market would have been up 11%.
Looking to 2010, we expect the combination of PC unit growth, a recovery in DRAM pricing, and the addition of new
features to drive a 7% CAGR and 2010 TAM of $84.3 billion. Tempering the growth rate somewhat is a more intense
pricing environment in the PC microprocessor segment - significant since it represents about half the market revenue.
Drilling down further, we segment the market by subsystem, consistent with the IC segments we used in the block
diagram on page 117. The largest device segment in 2005 was microprocessors, at $30.7 billion, roughly 52% of
industry revenues by our estimate. Though the core processing device of the computing industry, microprocessor
120
revenue growth should trail units as competition from Intel and AMD combined with moderating PC demand pressures
pricing. We expect microprocessor revenue to grow at a 5-year CAGR of 7% to $42.9 billion in 2010, or 51% of total
IC computing revenue.
Chipsets and I/O totaled $6.7 billion in 2005; we expect this segment to grow 8% to $9.7 billion in 2010. The PC core
logic (north bridge and south bridge) is the largest piece at 82% of total in 2005. I/O controllers represent another
5%, and the BIOS, PC clocks, PC card controllers, Firewire controllers, and security devices represent the balance.
Main memory totaled $14.5 billion in 2005, down 10% YoY on weak DRAM prices. Main memory is expected to
remain a volatile market, peaking at $19.1 billion in 2009 and then declining to $18.6 billion in 2010, a 5% CAGR over
the forecast period. Note that in our forecast we include memory registers and AMB I/O products, which are expected
to grow from just over $60 million in 2005 to $175 million in 2010 as fully buffered DIMMs gain traction.
NAND flash is beginning to make its way into PCs in the form of a cache, and we project 10% of PCs will ship with
NAND in 2007. Though penetration in the out years is hard to project, we forecast $1.6 billion in revenue in 2010.
The graphics and audio subsystem, at $3.5 billion in 2005, is expected to grow 7% to $4.9 billion in 2010. Revenue
growth should trail PC units as discrete GPUs continue to be eroded by integrated graphics, though the trend has been
noticeably decelerating. On the audio side, discrete audio controllers should grow 5%, again affected by integrated
chipsets; audio codecs should grow 9% through 2010 as price erosion partially offsets unit growth.
Communications is the fastest growing segment in the PC semiconductor market with a CAGR of 12%, growing from
$1.4 billion in 2005 to $2.5 billion in 2010. Ethernet controllers should grow only modestly (3% CAGR) as penetration
remains high and ASPs continue to decline. Analog modems should decline (-5% CAGR), as OEMs design analog
modems out of PCs and as pricing gradually declines. Wireless LAN should experience solid growth (17% CAGR),
benefiting from increased PC penetration and robust notebook growth. Bluetooth should also outgrow the market
(19% CAGR) on rising PC penetration, but should still represent only a small portion of total. Ultra wide band (UWB),
still in its infancy today, should exceed $400 million in 2010 by our estimate.
Finally, power management is expected to grow at a 10% CAGR, from $2.6 billion in 2005 to $4.2 billion in 2010. The
faster growth in notebooks and servers, each of which include more power management content than desktops,
should offset price erosion in this market.
The exhibits below depict our forecasts for the various PC and server semiconductor sub-systems. On the following
page, we display individual device forecasts by platform (desktop, notebook and server).
PC & Server Semiconductor Subsystem Forecasts
Microprocessor Memory Chipset, BIOS, Clock and I/O

50,000 25,000 12,000
Other Device I/O
Microprocessor NAND Cache PCMCIA Controller
45,000
Main Memory (DRAM) Firewire/IEEE 1394
10,000 PC Clock
40,000 20,000 BIOS Memory
I/O Controllers
Core Logic
35,000
8,000
30,000 15,000
25,000 6,000
20,000 10,000
4,000
15,000
10,000 5,000
2,000
5,000
- - -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Graphics and Audio Communications Power Management

6,000 3,000 4,500
Audio Codec UWB
Power management
Audio Controller Bluetooth 4,000
5,000 2,500 Wireless LAN
Discrete Graphics Processor
Analog Modem
3,500
Ethernet Controller
4,000 2,000 3,000
2,500
3,000 1,500
2,000
2,000 1,000 1,500
1,000
1,000 500
500
- - -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
121
2005 PC Semiconductor Revenue By Platform Desktop PC Semiconductor Forecast

40,000
Microprocessor Main Memory
Servers NAND Cache Chipset and I/O
16% Graphics and Audio Communications
35,000 Power Management
30,000

25,000
20,000
Desktops
15,000
53%
Notebooks 10,000
31%
5,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Notebook PC Semiconductor Forecast x86 Server Semiconductor Forecast

45,000 12,000
Power Management Power Management

40,000 Communications Communications
10,000 Graphics and Audio
Graphics and Audio
Chipset and I/O
35,000 Chipset and I/O
NAND Cache
NAND Cache
Main Memory

30,000 Main Memory 8,000 Microprocessor
Microprocessor
25,000
6,000
20,000
15,000 4,000
10,000
2,000
5,000
- -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
122
PCs
PCs and
and Servers
Servers
PC Semiconductor Market Key Competitors
Microprocessor Revenue CPU Unit Share
Others
100%
2%
AMD
12 % 90%
80%
70%
60%
50%
40%
30%
Intel Others
86 % 20%
AMD
10% Intel
0%
Total Units Desktop Mobile Server
Chipset Revenue Chipset Unit Share

Broadcom 100%
Others
ATI/AMD 1 %
1% 90%
6%
NVIDIA
6% 80%
70%
SiS
6% 60%
50%
Via
40% Others
9%
ATI/AMD
30%
NVIDIA
20% SiS
Via
10% Intel
Intel
71 % 0%
Total Units Desktop Notebook Server
The PC semiconductor competitive environment is divided firmly along the lines of devices and subsystems. Although
many vendors play in several devices within the PC, the standards, design competencies and competitive dynamics in
each subsystem are sufficiently different to warrant separate discussion of each subsystem. In the exhibit above, we
display 2005 revenue market share data for microprocessors and chipsets, as well as unit data for desktop, mobile,
and server. On the next page, we display discrete graphics controllers, DRAM, BIOS, and power management. The
page following displays PC communications market share, plus PC clocks, audio controllers, and I/O controllers.
Microprocessors: The PC CPU market is among the most concentrated in the semiconductor industry. In 2005,
Intel held roughly 86% revenue share and 79% unit share, down roughly a few percentage points from 2004. AMD
gained a few percentage points and held 12% revenue share and 18% unit share. AMD is well positioned in consumer
desktop, with a strong presence at both the low end and also for the very high end for gamer systems. AMD’s
presence in mobile and server also improved in 2005 as it ramped the Opteron for servers and the Turion 64 for thin
& light notebooks; OEMs serving the corporate desktop market are also beginning to offer AMD based systems. Other
microprocessor vendors share 2% revenue share and 3% unit share. These include Via and Transmeta, as well as
IBM and Freescale, which supplied CPUs for Apple in 2005, before the transition to Intel began in 2006.
Chipsets: Intel dominates the PC chipset market, with 71% revenue share in 2005. The balance is split between
Taiwanese chipset makers Via and SiS and graphics leaders NVIDIA and ATI (acquired by AMD in 2006). For servers,
Intel and AMD each supply chipsets for their processors, and Broadcom and NVIDIA also support AMD.
123
PCs
PCs and
and Servers
Servers
Graphics DRAM
Others Elpida Others
Matrox
2% 1%
3% ProMOS 4 %
4%
Powerchip Samsung
5% 28 %
Nanya
7%
NVIDIA
50 %
ATI/AMD Qimonda/
45 % Infineon
15 %
Hynix
19 %
Micron
17 %
PC BIOS (NOR Flash) Power Management

Others Fairchild
13 % 13 %
Others
25 %
SST
Texas
Toshiba 28 %
Instruments
4%
9%
Samsung
6%
STMicro
Linear Tech
Winbond 2% 7%
6% Lite-On
3% Intl. Rectifier
Vishay 7%
3%
Sharp
8% Macronix NXP/Philips
13 % 4%
On Semi
Fuji Electric
STMicro 4% 7%
10 % Mitsubishi Maxim Toshiba
Spansion
5% 5% 7%
12 %
Source: Dataquest, Mercury, CIBC World Markets Corp.
Graphics: The graphics market has consolidated in the past few years into the hands of two key players: NVIDIA
and ATI (acquired by AMD). Excluding integrated graphics chipsets, Nvidia jumped to the No. 1 position with 50%
total share in 2005, gaining share at the high end of the desktop market as ATI experienced product delays and
manufacturing issues. ATI fell to No. 2 at 45% of the market.
Memory: The top vendor of DRAM for PCs in 2005 was Samsung, which held 28% share in 2005. Hynix followed
with 19%, Micron with 17% and Infineon (now Qimonda) with 15% share. Other vendors include Nanya, Powerchip,
ProMOS, and Elipida. Note that this data differs slightly from the numbers for DRAM as a whole, which includes non-
PC DRAM (generally lower density and lower speed). Note that in the server market, memory registers for R-DIMMs
are supplied by IDT/ICS, TI, and Hitachi. AMB devices for FB-DIMMs are supplied by IDT, Intel, NEC, and Inphi.
BIOS: BIOS is generally implemented with low density NOR flash. The top vendors for PCs in 2005 include SST,
Macronix, Spansion, STMicro, Sharp, Winbond, and Samsung. Again, share differs from the broader NOR market.
Power Management: The PC power management market, which includes vendors of discretes and analog
components, is highly fragmented. The top vendors of PC power components in 2005 were Fairchild and Texas
Instruments, with 13% and 9% share, respectively. STMicroelectronics, International Rectifier, On Semi, and Toshiba
followed, each with 7% share. Other significant vendors include Maxim, Mitsubishi, Fuji Electric, NXP/Philips, Vishay,
LiteOn Semiconductor and Linear Tech.
124
PCs
PCs and
and Servers
Servers
PC Ethernet PC Analog Modem PC Wireless LAN
Others Analog Others Others
3% Devices 4% 5%
Marvell 3% Broadcom
13 % 11 %
Agere
22 %
Broadcom Conexant
Realtek 41 % 41 % Atheros
14 % 13 %
Intel
Intel Silicon 72 %
29 % Laboratories
30 %
Audio Controller & Codec I/O

PC Clocks
Others Others
Controllers
IDT/Sigmatel
9% Realtek
7%
3%
Standard Micro
7% Winbond/National Semi
Cypress
15 %
ITE
Analog
Creative
45 %
Bluetooth
CSR
Devices
12 %
Broadcom
NXP/Philips
IDT/ICS Texas Instruments
Infineon
Realtek 75 %
27 %
Ethernet: PC Ethernet controllers are supplied by Broadcom, Intel, Realtek, and Marvell. Broadcom and Intel held
41% and 29% of the market, respectively, with Realtek and Marvell sharing the balance. Note that Marvell supplies
its own controller to the market and also derives revenue from a partnership with Intel (Intel’s MAC, Marvell’s PHY).
Modems: The top supplier of PC analog modems in 2005 was Conexant, with 41% market share. Silicon Labs, with
its silicon DAA (Digital Access Arrangement), held the No. 2 spot with 30% share, followed by Agere at 22%.
Wireless LAN: The largest supplier of 802.11 chipsets for PCs in 2005 was Intel, which bundles WLAN with the
Centrino platform. Atheros and Broadcom were also significant players; others include Conexant, TI, and Marvell.
Audio: Creative dominates the PC audio add-in board market, and therefore has a 45% share of PC audio IC
revenue. The remaining 55% is comprised of codec vendors, Realtek being No. 1 with more than 50% share of audio
codecs and therefore 27% of the total PC audio market. ADI followed with 12% and IDT/Sigmatel held 7%.
PC Clocks: The PC clock market is dominated by IDT/ICS (IDT purchased ICS in 2005), which held roughly 75%
market share in 2005. Cypress was No. 2 with 15% share, followed by Realtek at 7%.
I/O Controllers: Standard Microsystems, Winbond/National Semi (Winbond acquired National Semi’s I/O controller
business in 2005), and ITE supply I/O controllers.
Bluetooth: The top Bluetooth suppliers in 2005 were CSR, Broadcom, NXP/Philips, TI, and Infineon.
125
The exhibit below displays the competitive landscape for PC semiconductors.
PC Semiconductor Competitive Landscape
Graphics Controller
Power Management
PC Wireless LAN
Microprocessor
BIOS (PC NOR)
Analog Modem
NAND (Cache)
I/O Controller
USB/Firewire
PC Ethernet
Bluetooth
PC DRAM
Chipset
Audio
Clock
AMB
Intel
AMD/ATI
Samsung
Hynix Semiconductor = >15% market share
Micron Technology
Infineon = 5%-15% market share
NVIDIA
Via Technologies < 5% market share
Silicon Integrated Solutions
Realtek
IDT/ICS
Cypress Semiconductor
Standard Micro
SST
STMicroelectronics
Creative Technology
Texas Instruments
Broadcom
Conexant
Agere Systems
Marvell Technology
CSR
Fairchild Semiconductor
Source: IDC, Dataquest, Mercury Research, CIBC World Markets Corp.
126
PCs
PCs and
and Servers
Servers
PC Semiconductor Market Trends

•Microprocessors are moving to dual and multi-core.
•Intel and AMD now compete head-to-head in all major segments
of the microprocessor market; Intel-only shops are disappearing.
•Integrated graphics chipsets have gained momentum as graphics
quality improved; share gains are decelerating, however, and in
fact may reverse temporarily with the launch of Windows Vista.
•PCI-Express has arrived; so has SATA.
•The memory bus is continuing the move to DDR2; DDR3 is on the
horizon and FB-DIMM is penetrating servers.
•Gigabit Ethernet pervades the corporate desktop and is ramping in
the consumer PC.
•Wireless LAN is now standard in mainstream notebooks; Bluetooth
penetration has been sluggish but UWB should be pervasive.
•USB 2.0 is pervasive; IEEE 1394/Firewire is still around but giving
way without the support of Intel.
•Power consumption is becoming a major issue for all component
suppliers into PCs and servers.
•NAND will begin to penetrate PCs in 2007.
• Microprocessors are beginning to move to dual and multi-core. Historically, Intel and AMD have achieved
greater performance with their microprocessors by focusing on driving Moore’s Law in order to ramp up clock
speeds for their devices, as well as by boosting the cache size and increasing the pipeline. In the past few years,
however, they have been challenged by spiraling heat dissipation figures as they ramp clock speed, and have had
to look for new ways to drive performance. Both have opted to increase the number of compute cores on their
CPUs, allowing parallel processing to take the place of raw speed.
As mentioned above, both Intel and AMD have been aggressively moving to dual-core. Intel first introduced dual
core for the desktop in 1H05, and followed with a server model in 2H05. AMD did the reverse; dual core server
chips launched before desktops. Intel has disclosed aggressive targets for dual-core penetration: more than 75%
for desktop, 90% for mobile, and 85% for server exiting 2006; these figures move to 90% for desktop and mobile
and 100% for server exiting 2007. Intel also launched quad-core chips in 2H06.
• Intel and AMD now compete head-to-head in all major segments of the microprocessor market.
Historically, Intel and AMD competed aggressively in the desktop segment of the market as well as in the desktop
replacement notebook market. Intel, however, dominated server and thin & light notebooks. In the past few
years, AMD addressed both of these segments effectively, and has taken significant share in each. AMD now has
design wins at all major players, including Dell for server and desktop, which previously sole-sourced all
127
processors from Intel. This game-changing event has produced intense price pressure for the segment as a
whole, and likely will weigh on the CAGR for PC microprocessor revenue for the next several years.
• Integrated graphics chipsets have gained momentum as graphics quality improved. One of the most
talked about trends in PC semiconductors is the shift to integrated graphics chipsets, which eliminate the need for
a discrete GPU. Graphics quality using these solutions was historically seen as poor and they were originally
reserved for low-end and corporate PCs. This changed as Intel and other chipset vendors ramped the
performance of their graphics cores, and more than half of all PCs use these solutions today. Notebooks were
particularly aggressive in adopting integrated, as eliminating the GPU also increased battery life.
Looking ahead, we expect integrated graphics penetration to increase as the graphics quality of integrated
solutions improves further still, though the rate of change is slowing. There is also some debate about what effect
Windows Vista will have on the graphics market, as in the early going the new OS will tax integrated solutions,
perhaps reversing the trend towards integrated, at least temporarily.
• The memory bus is continuing the move to DDR2. After a big transition from SDRAM to DDR memory, the
market began yet another memory transition with DDR2. As in previous transitions, DDR2 first penetrated the
performance desktop segment and over time has moved into mainstream desktops, servers, and notebooks. Note
that DDR3 is coming to market now, and should follow a similar trajectory.
An additional transition is taking place on the server front. Most x86 servers today use registered DIMM (R-
DIMM) which include register ICs (similar to timing ICs) directly on the module. Newer fully-buffered DIMMs
include a specialty I/O IC known as an AMB I/O IC directly on the module, which manages the interface to the
server chipset, which would include AMB I/O logic on chipset.
• PCI-Express has arrived; so has SATA. In 2004, PCs began a major architectural transition. The PCI bus,
nearly ten years old, was replaced by the faster and more flexible PCI-Express. Both buses are supported by
chipsets currently shipping to the market, but eventually PCI will be phased out completely in favor of PCI-
Express. This transition will require completely new peripherals. Note that the graphics interface has also begun
moving from the specialty AGP bus to PCI-Express graphics.
Another interface to change in recent years was the disk drive interface. PCs have historically used the Parallel
ATA (IDE) standard to communicate with disk drives. ATA/IDE uses a hierarchical system and wide parallel ribbon
cables, which are often cumbersome inside the PC case. In 2003 an update to this bus was introduced, known as
serial ATA (SATA), which uses a serial peer-to-peer hierarchy and thinner cables and also increases throughput.
To enable an orderly transition, most chipsets support both legacy ATA and SATA. The market should accelerate
when SATA II is introduced, as this standard ups throughput by a much greater amount than SATA I did.
• Gigabit Ethernet pervades the corporate desktop and is moving into the consumer PC. Now in the
market for about five years, Gigabit Ethernet has successfully overtaken 10/100 Fast Ethernet in the corporate
environment. Consumer PCs are also adopting Gigabit Ethernet, as are notebooks.
• Wireless LAN is now standard in mainstream notebooks; Bluetooth penetration has been sluggish but
UWB should be pervasive. Nearly all notebooks now integrate wireless LAN networking. This trend began with
the standardization of 802.11b and accelerated with Intel’s Centrino platform, which included wireless LAN with a
chipset and processor. Bluetooth is gaining traction in both desktops and notebooks, though without the support
of Intel this will be a slower, demand-driven trend. Ultra wide band (UWB) is the next major wireless technology
targeted for PCs; a number of IC vendors are bringing chipsets to market using the WiMedia standard for wireless
USB, with high volume projected for 2007.
• USB 2.0 is pervasive; IEEE 1394/Firewire is still around but giving way without the support of Intel.
For peripheral interface, USB has proven to be a huge success, with nearly all PC peripherals standardizing around
USB in the late 1990’s. USB 2.0 provided much higher throughput (480 Mbps vs. 12 Mbps for USB 1.0) and has
been included in Intel’s chipsets for some time; most peripherals have moved this way as well. IEEE
1394/FireWire has also gained some popularity, but lacks the support of Intel and thus is implemented with a
separate host today. Still, it remains a popular feature, especially in consumer PCs.
• Power consumption is becoming a major issue for all component suppliers. This is true not only for
notebooks (with the focus on battery life), but also for desktops and servers. Note that the trend to dual-core
was in part driven by power consumption issues.
• NAND will begin to penetrate PCs in 2007. A major architectural enhancement for PCs is coming in 2007: the
addition of a NAND flash memory cache. This cache will reduce I/O latency by allowing the system to write to
flash memory instead of the hard disk drive, particularly for operating system or frequently used files. A major
advantage would be quicker boot-up, as the system could store critical boot instructions and a portion of the OS
on the NAND cache as opposed to the HDD. It also provides power savings for notebooks, as the system could
access the hard drive less frequently.
128
PC
PC Displays
Displays
The PC display market, long an afterthought, has

become important again as flat-panel displays (FPD)
monitors have reached mainstream price points. FPD
adoption has surged in recent years, with desktop
penetration reaching 72% in 2005.
Notebook penetration has also surged as mobility
trends have accelerated and lower FPD prices allowed
the notebook premium vs. desktops to compress.
FPD Desktop Penetration Notebook Penetration
100% 100%
80% 80%
CRT Desktops
60% 60%
40% 40%
20% 20%
FPD Notebook
0% 0%
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Source: DisplaySearch, IDC, CIBC World Markets Source: IDC, CIBC World Markets Corp.
Up until a few years ago, the PC monitor was an afterthought for PC OEMs. Although differentiated high-end monitors
have represented a consistent percentage of the market (for workstations, etc.), PC OEMs have historically focused on
supplying the lowest cost monitor possible in an effort to drive down the total system cost of a PC.
This paradigm changed dramatically as LCD technology has matured and become more cost effective. Flat-panel LCD
monitors have been available for years, but have been primarily reserved for the notebook market, as low yields and
constrained LCD glass capacity had kept prices high—enough to warrant a significant cost differential between
otherwise comparably-equipped desktop and notebook PCs. With the increase in LCD capacity and an influx of
competition, the price of large-area LCD displays has dropped dramatically, spurring demand for both notebooks and
desktop LCD monitors. This has caused a new twist in the PC paradigm; the display is once again becoming an
important part of the PC buying decision, and dozens of OEMs, primarily in Asia, are moving to meet the demand.
In terms of units shipped, FPDs have been adopted more rapidly than most analysts had originally anticipated as LCD
prices continue to decline, spurring demand. Flat panel display penetration in desktops, which exceeded 70% in
2005, is still increasing. Supply seems to be growing nicely and should be able to support continued strong notebook
demand, further penetration of FPDs in the desktop market and the eventual volume deployment of LCD TVs.
129
PC
PC Displays
Displays
PC Display Unit Forecast LCD Monitor Suppliers

•Total PC displays growing at a 9% CAGR,
from 230 million units in 2005 to 361 Others
Dell
21 %
million units in 2010. 32 %
•Desktop CRT monitors declining 28%,

from 47 million units in 2005 to 9 million
units in 2010.
Samsung
•Desktop LCD monitors growing 10% 11 %
from 118 million units in 2005 to 193 Sony

2%
million units in 2010. NEC

2%
HP
•Mobile LCD monitors growing 19%, from ViewSonic
4% Lenovo
10 %
65 million units in 2005 to 159 million 4% Acer LG

Philips 6%
4%
4%
units in 2010 (1:1 with notebook sales).
400,000
Notebook LCD
Desktop LCD
CRT Monitor Suppliers
350,000 Others
Desktop CRT
20 %
Samsung
300,000 21 %
250,000
Unit Shipments (000s)
Gateway+
eMachines
200,000 2%
Acer
150,000 2%
ViewSonic
3%
100,000 AOC/Envision
LG
4% 15 %
50,000
Lenovo
7%
- Dell
2002 2003 2004 2005 2006 2007 2008 2009 2010 9%
Philips HP
Source: IDC, DisplaySearch, Dataquest, CIBC World Markets 8% 9%
PC Display Unit Forecast: The market for PC displays includes desktop CRT and flat panel displays and the LCD
screens attached to notebooks. For desktops, total monitor shipments actually exceed desktop PC unit shipments by
about 20%, due to 1) an upgrade cycle for LCD monitors, as some users upgrade their monitor while keeping the
same PC, and 2) the rising use of dual-display systems. Notebook displays, on the other hand, ship 1:1 with
notebooks. In 2005, we estimate total PC monitor shipments were 230 million units. Looking ahead, we expect
displays to grow 9% through 2010, rising to 361 million units.
The big story in displays is the migration to flat panel, which has accelerated as falling LCD prices have spurred
demand. In 2005, desktop flat panel penetration increased to 72% of desktop monitor shipments. As penetration
rises, we expect desktop LCD monitors to grow from 118 million units in 2005 to 193 million units in 2010, a 10%
CAGR. Notebooks are also growing quickly, and approximated 28% of total PC monitor shipments in 2005. Notebook
displays should mirror notebook shipment growth, from 65 million units in 2005 to 159 million units in 2010, a 19%
CAGR. CRTs are expected to decline 28% through 2010 to just 4% of desktop monitor shipments.
PC Display Suppliers: The top supplier of desktop LCD displays in 2005 was Dell, with 21% share, followed by
Samsung at 11% and HP at 10%. Other LCD display suppliers included LG, NEC-Mitsubishi, Philips, Acer, Lenovo,
ViewSonic, NEC, and Sony. In CRT, Samsung and LG led with 21% and 15% share, respectively. Dell and HP
followed, each with 9%. Other CRT suppliers include Philips, Lenovo, AOC/Envision, ViewSonic, Acer, and Gateway.
The top notebook suppliers in 2005 were Dell, HP, Toshiba, Acer, Lenovo, Fujitsu, Sony, NEC, ASUS, and Apple.
130
PC
PC Displays
Displays
Processes the video feed and Transmit and receive the

scales it up to an image that can digital image signal between
LCD drivers
be displayed on the screen the monitor printed circuit
Digital monitor generate the image
board and the glass pane
interface receiver on the LCD panel
Monitor PCB LCD Glass Panel
Source Source Source Source

Drivers Drivers Drivers Drivers
TMDS/DVI Scaling
Digital Receiver Engine LVDS LVDS
Input Transmitter Receiver Gate
Microcontroller Drivers
Analog Video
Input Gate
ADC Timing LCD Screen
DRAM Drivers
Controller
Retimes the signal Gate
received from the
Drivers
monitor PCB before
sending it to the screen
Analog monitor interface
receiver (analog-to-digital
Notebook Display
Graphics memory
converter) used in scaling Desktop Display
Note: The diagram above and the discussion below focus on flat panel (LCD) displays, which represent a
much larger opportunity for semiconductor vendors than the CRT market. Note that desktop and notebook
LCD displays differ somewhat; in desktop monitors, the image is received from an external source and
then scaled; in a notebook the digital image is sent directly to the glass panel via LVDS.
Semiconductor devices in flat panel displays are found in two places: on the monitor board and in the monitor panel.
The monitor board receives the signal from the PC and scales the image and then transmits it to the glass panel
digitally over LVDS (Low Voltage Differential Signaling). Devices in the glass panel/CRT receive the signal, retime it
and produce the image.
Notebook displays employ a simpler design, since the monitor is directly attached to the source of the image. No
scaler is needed in a notebook display; instead the digital image is sent directly to the glass panel via LVDS.
We discuss below the key devices found in desktop and notebook flat-panel displays.
Monitor Board (desktop monitor only)

• Video ADC: This analog-to-digital converter receives analog video input from the PC and converts it to a digital
stream to be received by the scaler. This device is usually integrated into the scaling engine.
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• TMDS/DVI Receiver: This device receives digital video signals from the PC. Most monitors with a digital
receiver also have a legacy analog receiver. Like the analog receiver, this device is increasingly being integrated
into the scaling engine, though not at quite the same rate as ADCs.
• Scaling Engine: The scaler processes the video feed and scales it up to an image that can be displayed on the
screen.
• DRAM: Most scalers require external memory to help process the video image.
• LVDS Transmitter: The LVDS transmitter sends the scaled image from the monitor board to the LCD panel in a
digital format. Note that other types of transmission methods may be used; LVDS is a popular standard in
notebook LCD screens and in desktop flat panels. Like the receiver chips, this device is increasingly being
integrated into the scaling engine.
Notebook Base (notebook only)

• LVDS Transmitter: The LVDS transmitter sends the image from the graphics processor to the LCD panel in a
digital format. This can be integrated into the PC graphics processor or chipset.
LCD Panel
• LVDS Receiver: The LVDS receiver receives the scaled image from the monitor board or notebook base.
• Timing Controller: This device retimes the signal received from the monitor board before sending it to the LCD
row and column drivers. It is typically implemented as a custom ASIC.
• LCD Row/Column Drivers: LCD row (gate) and column (source) drivers are placed around the LCD panel,
producing the viewable image. Source drivers usually sit across the top of the panel and generate signals that
penetrate individual columns of pixels. Three source drivers are needed for each row of pixels: red, green and
blue. Gate drivers usually run along the side of the panel and manipulate individual rows of pixels. The gate
drivers intersect the signals driven by the source drivers, turning individual pixels on or off.
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PC
PC Displays
Displays
PC Display PC Display Semiconductor

Semiconductor Forecast Competitors
•PC display semiconductors are expected LCD Scaler/Controller
to grow at a 6% CAGR, from $4.0 billion Others
in 2005 to $5.4 billion in 2010. 13 %
•LCD drivers growing 7%; they should Pixelworks

4%
eventually approach 80% of IC revenue.
Genesis
36 %
Novatek
•LCD controllers ICs should grow at a 2% 7%
rate due to tough price competition.

•Microcontrollers growing 1%; CRT MCU Realtek
9%
revenues declining 29% offset by 9%
growth in desktop LCD.
MorningStar
$6,000 31 %
LCD Drivers
Other ASSPs (Timing, Interface)
$5,000 LCD Scaler/Controller
Microcontrollers
LCD Row and Column Drivers
Others
$4,000 Renesas 8%
3% Samsung
Toshiba 24 %
3%
$3,000 Sharp
3%
Matsushita
3%
$2,000
Seiko Epson
5%
$1,000 Magnachip
6%
$0 Novatek
2002 2003 2004 2005 2006 2007 2008 2009 2010 19 %
Himax
9%
Source: IDC, DisplaySearch, Dataquest, CIBC World Markets
NEC
17 %
PC Display Semiconductor Forecast: We expect PC display semiconductors to grow at a 6% rate through 2010,
growing from $4.0 billion in 2005 to $5.4 billion in 2010. LCD drivers should grow at a 7% CAGR driven by desktop
LCD and notebook penetration. The advance to larger size screens should also boost growth and help offset price
pressure. We expect LCD drivers to rise from 76% of total PC display IC revenue in 2005 to 80% in 2010.
LCD controllers, 8% of the total market in 2005, should grow at a 2% CAGR through 2010; intense price competition
in this market is almost completely offsetting unit growth in desktop LCD monitors (most of the IC vendors have
shifted their attention to the LCD TV market in the process). Microcontrollers, 7% of IC revenue in 2005, should grow
just 1%; 9% growth in desktop LCD microcontrollers is offset by CRT microcontroller revenues declining at a 29%
CAGR. Other ICs (mostly timing controller ASICs) should grow at a 4% rate through 2010.
PC Display Semiconductor Competitors: The market for LCD scaling engines is dominated by Genesis Microchip
and Taiwan-based MorningStar. In 2005, Genesis held 36% revenue share, while MorningStar held 31%. Other
vendors include Realtek with 9% share, Novatek with 7%, and Pixelworks with 4%.
The top suppliers of drivers for large-panel LCD panels in 2005 include Samsung, with 24% market share, Novatek
with 19% and NEC with 17%. Himax held 9% share, Magnachip (the spinout from Hynix) held 6%, and Seiko Epson
held 5%. Other vendors include Matsushita, Sharp, Toshiba, and Renesas.
CRT monitor microcontroller suppliers include NXP/Philips, Weltrend, Samsung Semiconductor, Myson and Novatek.
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PC
PC Displays
Displays
PC Display Semiconductor Market Trends

•Integration has become critical for low cost FPD monitor
designs: scalers now integrate digital ADC & DVI interface
receivers, microcontrollers, and memory.
•Digital interface attach rates are increasing.
•Many OEMs are adopting smart panel designs, integrating all
devices onto a single PCB in the monitor panel.
•Desktop FPD monitors and notebooks screen sizes are
increasing, requiring additional LCD driver ICs.
•LCD source driver channel density is on the rise as panel
makers look to reduce costs.
• Integration has become critical for low cost FPD designs. IC vendors now integrate more functionality into
the scaler chip, including digital and analog input receivers, microcontrollers, memory, and the LVDS transmitter.
• Digital interface attach rates are increasing. These are still found primarily in higher-end and larger size
monitors, both in CRT and LCD.
• Many OEMs are adopting smart panel designs, integrating all devices onto a single PCB in the monitor
panel. An emerging trend is that of smart panels, which includes monitor inputs, scalers, timing devices and LCD
drivers on a single circuit board in the monitor panel. This eliminates the need for a second PCB and reduces the
number of connectors (and associated transceiver ICs) and even simplifies the manufacturing process.
• Desktop FPD monitor and notebook screen sizes are increasing, requiring additional LCD drivers. The
mainstream desktop LCD monitor is moving from 15-inch to 17-inch, and notebooks are increasingly adopting
larger screens sizes (in the case of notebooks, wider screens are becoming more mainstream as well).
• LCD source driver channel density is on the rise as panel makers look to reduce costs. Greater channel
density reduces the number of drivers needed for a given resolution. For example, moving from 480 channels
(mainstream today) to 642 channels (used in newer designs) reduces the number of source drivers for a typical
1280 x 1024 monitor from nine to six (recall that three are needed per pixel: one for each RGB color). Note that
gate drivers face less pressure since they are lower cost to begin with, and only one driver is needed per pixel.
134
Hard
Hard Disk
Disk Drives
Drives
Hard disk drives (HDDs) are still closely tied to the PC

market, but drives have dramatically “outgrown” the
1:1 ratio with PCs as enterprise storage networks,
consumer devices, and personal storage are providing
new opportunities for mass storage.
In enterprise, terabytes are growing at a 50%+ CAGR.
Networked systems are enabling the separation of
processing and storage, allowing for easy, inexpensive
capacity additions as corporate data needs grow.
In consumer, DVRs and video game consoles are
proving to be an effective usage model for HDDs as
these markets require capacity points that cannot be
served adequately by NAND flash.
Personal storage is a fast-growing application, as
increased familiarity with digital content is driving
demand for solutions to manage that content.
Hard disk drives (HDDs) are the primary data storage devices used in data processing applications. The drives,
usually integrated within larger host devices, use a set of rigid disks to magnetically store bits of data in extremely
large quantities at very high speeds. All PCs ship with at least one hard disk drive, which stores the computer’s
operating system and software applications and the user’s files. They are fast, cheap, carry very large capacities, and
conform to industry-standard form factors. They have therefore become an integral part of PCs and servers.
Though still closely tied to the PC market, hard disk drives have dramatically “outgrown” the 1:1 ratio with PCs.
Enterprise storage, consumer devices, and personal storage are providing new opportunities for mass storage. On the
enterprise side, IT managers can supplement their individual PC storage with enterprise storage systems to store and
manage common-use applications and files. In these systems, arrays of drives are incorporated into special arrays or
networks designed specifically for data storage traffic, which can be accessed by servers on the data network. This
dramatically increases storage capacity and performance and also allows the IT manager the option to manage
processing and storage independently. Terabytes of enterprise storage continue to grow in excess of 50% per year.
On the consumer side, the rise of digital content has created new opportunities for HDDs in consumer electronics,
though flash has presented an alternative to HDDs in certain applications (MP3 players, for example). DVRs and
game consoles are proving to be effective usage models for HDDs as these markets require capacity points that
cannot be served adequately by flash; other smaller opportunities exist as well. A related driver is personal storage,
as consumer familiarity with digital content drives demand for storage solutions to manage and protect that content.
135
Hard
Hard Disk
Disk Drives
Drives
Hard disk drives are self-contained devices that use

rigid disks coated with a magnetic material to store bits
of data. They are available in standard form factors
using standard interfaces, differentiated by storage
capacity, speed, power consumption, and reliability.
Desktop drives are

designed for the
highest capacity at
the lowest cost.
Mobile drives are
smaller and consume
less power.
Enterprise drives
focus on speed,
performance and
durability.
Hard disk drives are self-contained devices that use one or more rigid disks coated with a magnetic material to store
bits of data. They are available in standard form factors using standard interfaces, but are differentiated by storage
capacity, speed, power consumption and reliability.
A hard disk drive has three basic subassemblies:
• A set of platters—which are flat, round, rigid disks—used as the storage media. Each platter is made up of a
substrate that is coated with a special media material designed to store data in the form of magnetic patterns.
The platters can be double-sided and are mounted on a spindle, which is attached to a spindle motor that
spins the platters at high speed.
• A mechanical device known as an actuator, which sits in the corner of the drive and controls a set of arms that
reach out over the surface of the individual platters. Mounted on the end of each arm is a slider and a
specialized electromagnetic read/write device called a “head.” The read/write heads, which are in essence
tiny electromagnets that perform the conversion from electrical signals to magnetic signals, are the interface
between the magnetic physical media on which data are stored and the other electronic components on the
hard disk, recording data to the disk and reading from it. Hard disk drives need one head for each platter
surface (i.e., two are needed for a double-sided platter).
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• A printed circuit board, which contains all the logic needed to run the drive system. Devices on the board
include a preamp, which amplifies signals between the head and the drive logic; a read channel, which
performs read and write functions; and a hard disk controller and microprocessor, which control the system
and implement the interface protocol. The disk drive also has some memory and motor control ICs for the
spindle motor and the actuator.
Disk Drive Types

While the technologies used are very similar across platforms, hard disk drives fall into three basic categories:
• Desktop. Desktop-class hard disk drives are used in desktop PCs and low-end workstations and servers.
They have standard physical dimensions: 4” wide by 5.75” deep by 1” high (though some drives are less than
1” high) and are generally referred to as “3.5-inch drives.” Most desktop drives use the ATA/SATA interface
and have one or two platters.
• Mobile. Mobile-class hard drives are used in notebook PCs and small form factor desktops. They are smaller
than desktop drives; the standard size has dimensions of 2.75” wide, 3.95” deep and 0.37” high and is
generally referred to as a “2.5-inch drive.” Some are even smaller and are often referred to as “micro-
drives”; these drives are found in consumer devices like portable media players. Most mobile drives use the
ATA/SATA interface and have one or two platters; they typically consume less power than other drives.
• Enterprise. Enterprise-class hard drives are used in workstations, servers, networked storage systems and
high-end desktop PCs. Most have similar physical dimensions to desktop drives, though some high-capacity
drives can be greater than 1” in height while others adopt the 2.5-inch mobile form factor. Most enterprise
drives use the SCSI interface, though drives designed for network storage often use Fibre Channel. Newer
drives are implementing SAS (serial-attached-SCSI), the follow-on to SCSI. Most enterprise drives have more
than one platter.
Note that the vast majority of hard disk drives are internal drives, meaning that they are designed to be implemented
inside a PC or enterprise system or other “host” device. These generally conform to the specifications indicated
above. External drives are sold as standalone units, which are fully enclosed and incorporate additional interfaces
such as USB, FireWire, or Ethernet.
A growing application for hard disk drives is the consumer electronics market. The larger HDD vendors have all
introduced modified versions of their desktop and mobile drives specifically for this market. These drives can vary
from standard HDDs in form factor, power consumption, speed, and cost, but generally fall into the same drive classes
described above.
Drive Storage Capacity

Storage capacity in a hard disk drive is measured in Gigabytes—colloquially known as a billion bytes but actually
1,073,741,824 bytes (computer specifications usually use binary numbers; therefore, a Kilobyte is 1024 bytes, a
Megabyte is 1024 Kilobytes and a Gigabyte is 1024 Megabytes, which gets us to 1,073,741,824 bytes). Note that a
byte is eight bits, which are the 1s and 0s of the digital world.
Desktop class drives generally have the highest capacity points over the greatest range, catering to corporate PCs,
consumer PCs, and the retail market. Most DVRs and personal storage solutions use desktop class drives as well.
Mobile drive capacity points are substantially lower and have a tighter range; these are primarily used in notebook
PCs but are also found in portable media players, game consoles, and other consumer electronics. Enterprise drives
typically trail desktop drives in capacity, and also have a tighter range.
A drive’s capacity is a function of 1) the amount of bytes that can be stored on each platter (this in turn is determined
by the size of the platter and the platter’s areal density) and 2) the number of platters in the drive. In general, drive
vendors seek to maximize the amount of bytes that can be stored on each platter (the first factor) and to minimize
the number of platters in the drive (the second factor). In the end, however, the final platter and density
implementation will depend on a number of tradeoffs that include engineering constraints, cost dynamics and
marketing requirements.
Drive Speed
The speed of a hard disk drive is usually measured on two fronts: transfer speed—which refers to the rate at which
data is transferred from the disk to the host system and vice versa; and positioning speed—the rate at which the drive
system can hop around the disk in search of the desired data. While many components within the drive affect these
metrics, one of the most significant is the strength of the spindle—so much so that spindle speed is usually quoted
right after drive capacity when describing a drive and is also the most commonly used specification used to classify
137
different drives by performance. Spindle speed describes the rate at which the platters in the disk drive turn,
expressed in revolutions per minute (RPM). The faster a platter spins, the faster the transfer rate when reading or
writing as well as the positioning when searching for the correct track and sector.
Spindle speed differs for different classes of drives. In the desktop market, most drives spin at 7,200 RPM, though
some higher-end desktop drives spin at 10,000 RPM. Mobile drives spin at speeds ranging from 5,400 RPM to 7,200
RPM (the notebook market requires drives of varying power consumption to meet the different platform
requirements). Enterprise drives also vary in speed: from 7,200 RPM at the low end to 15,000 RPM at the very high
end, with the most common being 10,000 RPM.
Interface
Hard disk drives use one of several standard interfaces to send Parallel ATA vs. Serial ATA Cables
data between the drive and the host system. Up until the last
few years, the most common interface was IDE (Integrated
Development Environment), also known as ATA (Advanced
Technology Attachment), which was used in most desktop and
mobile drives. ATA drives are configured as master or slave
using jumper pins on the drive itself, allowing for two drives to
connect into each ATA interface controller on the host. They use
wide 80-pin ribbon cables (18” in length) and connect directly to
PC motherboards (most PC chipsets include one or more ATA
controllers embedded in the south bridge). The data transfer rate
for ATA increased over time to 133 Mbps.
The evolution of the IDE interface is known as Serial ATA (SATA),
which has quickly displaced ATA in most PCs. SATA changes the
physical architecture from master-slave to point-to-point, so each
drive is connected to its own interface. SATA also changes the
cable interface to a narrow four-wire cable and extends the
length to one meter. Transfer rate was increased to 150 Mbps in
the first implementation, with 300 Mbps coming to market now
and a roadmap planned to 600 Mbps. SATA is also able to use
lower voltage power supplies. Source: The Computer Language Co. Inc., CIBC World Markets Corp.
While ATA/SATA has quickly become the most popular PC disk drive interface due to its lower cost, SCSI (pronounced
“scuzzy”) remains an important interface in the enterprise market as well as in high-end desktops. The SCSI interface
uses a “daisy chain” architecture allowing for up to 15 peripherals to be connected to a single interface controller
(each peripheral has a second port to connect to the next device). SCSI has also consistently maintained a transfer
rate advantage over ATA, with most SCSI drives in use today carrying a transfer rate of 320 MBps. Further, SCSI was
the first interface to support RAID (Redundant Array of Inexpensive Disks) configurations. For all of these reasons,
SCSI dominates the enterprise hard disk drive market, though the advent of Serial ATA may change the dynamics
somewhat. Note that as with ATA, SCSI drive cables connect to a SCSI controller on the PC or server motherboard;
unlike ATA, however, chipset vendors have not integrated this functionality into the PC chipset. Servers and SCSI-
enabled desktops therefore require a separate controller chip or add-in board to support SCSI drives.
The follow-on to SCSI—known as Serial Attached SCSI (SAS)—is currently in progress. SAS expands the number of
supported devices to 128, uses smaller cable connections (like Serial ATA) and provide universal interconnect
compatibility with SATA while retaining the reliability, performance and manageability advantages of SCSI.
About 25% of high end drives incorporate support for Fibre Channel, which is a high-speed transport technology used
in storage area networks. Fibre Channel serializes SCSI commands into Fibre Channel frames, which can be sent at
high speed (1.0625 Gbps, 2.125 Gbps, 4.25 Gbps, or even 10.625 Gbps) either point-to-point or through a switched
network of Fibre Channel switches. Most Fibre Channel networks, along with their associated arrays of hard disk
drives, are set up independent of the network of servers used for data processing, allowing any server to access data
stored on any hard disk drive without a direct connection. See the discussion of enterprise storage in the networking
section of this report for a more in-depth discussion of Fibre Channel.
138
Hard
Hard Disk
Disk Drives
Drives
HDD Unit Forecast HDD Suppliers

•We expect the HDD market to grow at a Fujitsu Others
13% CAGR, from 381 million drives in 6% 1%
2005 to 706 million drives in 2010. Toshiba

•Mobile drives should grow >20%, driven 9% Seagate
by desktop replacement trends and 28 %
consumer devices. Samsung

•Desktop class drives should grow 9% 9%
despite the shift to notebook; personal
storage and consumer electronics devices
will be the primary growth drivers.
Maxtor
•Enterprise class drives should grow 14 %
modestly as desktop class SATA drives
start to penetrate storage systems. Hitachi Western
15 % Digital
800,000
17 %
Enterprise Class HDD
700,000
Mobile Class HDD
600,000 Desktop Class HDD Source: IDC, CIBC World Markets Corp.
500,000
400,000 Desktop Mobile Enterprise

300,000 Seagate Hitachi GST Seagate
Western Digital Fujitsu Fujitsu
Maxtor Toshiba Hitachi GST
200,000
100,000 Samsung Seagate Maxtor

Hitachi GST Samsung Western Digital
Others Western Digital
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Hard Disk Drive Unit Forecast: The market for hard disk drives is significantly larger in unit terms than that of
PCs. In addition to the 1:1 unit shipments going into PCs, the market includes drives sold into mass storage arrays to
support servers and data centers, SAN and NAS systems (networked storage systems), personal storage solutions,
and emerging applications in the consumer, automotive and industrial markets. There is also a significant retail
market for add-on HDDs, both internal and external. In total, we estimate the market for hard disk drives totaled 381
million units in 2005, 83% larger than the PC market.
The hard disk drive market is also growing faster than the PC market. On the enterprise side, the number of multi-
drive enterprise storage systems continues to increase, as does the number of drives per storage system. This is
being enabled by more mature large enterprise storage solutions, the industry transition to SATA for the low and mid-
end (which enables cheaper storage systems for enterprise and SMB), as well as the emerging market for personal
storage systems. On the consumer electronics side, digital media devices are incorporating hard disk drives, most
notably DVRs, game consoles, and portable media players. Overall, we expect the hard disk drive market to grow
from 381 million units in 2005 to 706 million units in 2010, a CAGR of 13%.
By drive class, we estimate that 63% of drives shipped in 2005 were desktop class, 30% were mobile class—including
small form factor—and 7% were enterprise class. Looking ahead, we expect mobile devices to lead growth with a
21% CAGR and to represent 43% of total units in 2010, driven by desktop replacement trends and growth in
consumer applications. Desktop drives should still grow at a 9% CAGR despite the shift to notebook; personal storage
139
and digital consumer devices (mostly DVRs) should be healthy growth drivers. Our forecast for enterprise drives is a
more modest 5% CAGR, as lower-end enterprise storage systems are increasingly being populated with desktop (or
even mobile) class drives leveraging SATA (which we regard as desktop class) instead of SCSI or SAS.
Looking at the end application for HDDs, computing represented the largest opportunity in 2005 at 84% of total
shipments, with consumer applications representing the balance. Within computing, desktop PCs represented 62% of
shipments, followed by notebook at 23%, enterprise at 10% and personal storage at 5%. Looking forward, drives
that sell into notebooks and desktops should grow 20% and 5% respectively, in line with PC unit growth, and should
represent over 60% of the market in 2010. Drives that sell into enterprise storage (including all drive classes) should
grow at a 14% CAGR to roughly 10% of the market. Personal storage should grow the fastest at a 35% CAGR, to
represent over 10% of the market in 2010. In total, we expect the computing storage market to grow at 12% CAGR,
from 319 million units in 2005 to 564 million units in 2010, to represent 80% of total HDDs in 2010. Note that
outside of small-form factor notebooks and ultra-mobile PCs, we do not expect to see flash eat into the computing
market in any major way during the forecast period.
The consumer market represented the remaining 16% of HDD units in 2005 and is expected to grow at an 18%
CAGR, to roughly 20% of HDD units in 2010. The largest segment in 2005 was MP3/portable media players at 47% of
consumer HDDs (8% of total HDDs), though this market took a big hit in 2006 due to Apple’s decision to replace the
HDD-based iPod Mini with the flash-based iPod Nano (the video iPod remains HDD-based). We expect the HDD MP3
market to remain under constant pressure from flash, though the largest players should remain HDD-based.
The other segments of consumer HDDs require capacity points that cannot be served adequately by flash, and
therefore see more consistent growth. DVRs, which represented 35% of consumer HDD shipments in 2005 (6% of
total units), should grow at a 19% CAGR as these devices gain adoption in cable, satellite, IPTV, and DVR/DVD-R
implementations. Game consoles and handhelds should grow at an even faster 40% CAGR, as the new game
consoles have a high attach rate of HDDs. Automotive should grow at a 32% CAGR to roughly 13% of total consumer
HDDs during the forecast period. Handset HDDs will face pressure from flash until higher capacity microdrives hit the
market in volume in 2008; handset HDDs should grow to 11% of units in 2010. Digital cameras and camcorders
(mostly camcorders) will probably also see nice growth but represent less than 5% of the market in 2010.
The exhibits below display our computing and consumer hard disk drive unit forecast.
Computing HDD Unit Forecast Consumer HDD Unit Forecast

600,000 160,000
Personal storage Digital audio and PMP
Enterprise storage 140,000 Digital cameras and camcorders
500,000 Notebook PCs Automotive infotainment
Game consoles and handhelds
Desktop PCs 120,000 PDAs/Handsets
Set-top box, DVR, DTV
400,000
100,000
300,000 80,000
60,000
200,000
40,000
100,000
20,000
- -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
We can also segment the market by drive size. In 2005, 69% of HDDs shipped were 3.5-inch drives, 22% were 2.5-
inch, and 9% were 1.8-inch and below. 3.5-inch drives dominate desktop PCs, enterprise storage systems, personal
storage solutions, and DVRs. 2.5-inch drives dominate notebook PCs and automotive applications, and should come
to dominate game consoles as the new generation of consoles rolls out. 2.5-inch is becoming an important form
factor in the enterprise, and is also becoming popular in small form factor desktops portable personal storage
solutions. 1.8-inch and below dominates portable media players and the small (but growing) market in digital
cameras and camcorders, and over time should take a nice chunk of the notebook PC market.
In terms of growth rates, 3.5-inch drives should grow at an 8% CAGR, as strength in personal storage (38% CAGR)
and DVRs (13% CAGR) is partially offset by share loss to smaller 2.5-inch drives, which are penetrating desktops and
server markets. 2.5-inch should grow at an impressive 25% rate, driven by strong notebook growth (18% CAGR) and
140
increasing penetration of 2.5-inch in desktop (63% CAGR), enterprise storage (78% CAGR), and DVRs and gaming
consoles (84% CAGR). 2.5-inch drives are also seeing good growth in automotive and personal storage markets,
though this will likely represent less than 10% of total 2.5-inch drives in 2010. Though flash will continue to pressure
HDD’s presence in MP3 players, 1.8-inch and below drives are expected to grow at a 17% rate, as these drives move
beyond the portable media player market and into thin & light notebooks.
The exhibits below display our HDD unit shipment forecast by application for each size segment.
3.5” HDD Unit Forecast 2.5” HDD Unit Forecast 1.8” and Below HDD Forecast
450,000 300,000 80,000
Game consoles and handhelds Other Consumer Automotive infotainment
400,000 Automotive infotainment PDAs/Handsets
Set-top box, DVR, DTV 70,000
STB, DVR, DTV, Gaming Digital cameras and camcorders
Personal storage 250,000
Personal storage Digital audio and PMP
350,000 Enterprise storage
Enterprise storage 60,000 Personal storage
Desktop PCs Desktop PCs Notebook PCs
300,000 200,000 Notebook PCs

50,000
250,000
150,000 40,000
200,000
30,000
150,000 100,000
20,000
100,000
50,000
50,000 10,000
- - -
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Hard Disk Drive Suppliers: The largest supplier of hard disk drives in 2005 was Seagate with 28% unit share.
Even before it acquired Maxtor, Seagate was the top supplier of desktop drives with 33% share in 2005 and controlled
just over half the enterprise market. Seagate also has a growing presence in mobile drives with 12% share.
Aggregating Seagate and Maxtor’s share in 2005 would give the combined entity 43% overall unit share, though there
has been some attrition since the closing of the deal in 2006.
Western Digital was No. 2 in 2005 with 17% total unit share; Western Digital is No. 2 in desktop drives with 26%
share and has a small presence in enterprise and mobile. Hitachi GST, which acquired IBM’s hard disk drive business
three years ago, was No. 3 overall with 15% unit share; Hitachi was the top supplier of mobile drives with 32% share
and has a smaller position in enterprise and desktop. Maxtor as a standalone company followed with 14% share;
Maxtor was No. 3 in desktop drives with 21% share and had a small presence in enterprise. Other suppliers include
Samsung in desktop and mobile, Toshiba in mobile, and Fujitsu in mobile and enterprise drives. Each held less than
10% total unit share in 2005.
The exhibits below display 2005 unit share data for desktop, mobile, and enterprise hard disk drives.
2005 Desktop HDD Unit Share 2005 Mobile HDD Unit Share 2005 Enterprise HDD Unit Share
Others Western Digital WD
Hitachi 1% Samsung 4% 3%
8% Maxtor
7%
14 %
Samsung Hitachi
Seagate
11 % Seagate 32 %
33 %
12 %
Hitachi
12
13 % Seagate
51 %
Maxtor
21 %
Toshiba
23 % Fujitsu
Western 20 %
Digital Fujitsu
26 % 23 %
141
Hard
Hard Disk
Disk Drives
Drives
Performs interface
processing and sends Memory used to temporarily
signals between the host store data being transferred
Performs the data encoding and system and the read channel to and from the host system
Amplifies the analog conversions needed to read and
signal for reading and write data to and from the disk
writing to the disk
Buffer
Hard Disk (DRAM)
Read Host
Preamp Controller
Channel System
Microcontroller Cache
(SRAM)
Head Boot
Hard Disk Motor Servo (Flash) SRAM used in processing by
the embedded microcontroller
Platter Control ASIC

A driver which controls current Boot memory is used to
flow to spindle and voice coil store initial instructions
motors to spin the drive A DSP that interprets cylinder required to start up the drive
numbers and controls the the timing of SoC Solution
servo gate assertions, controlling Integrates HDC, read channel,
movement of the hard disk servo ASIC, and memory
Note: the diagram above shows a hard disk drive implemented with discrete ICs for each separate
function of the system. In practice, most HDDs are implemented with an SoC solution which combines
read channel, HDC, servo ASIC, and memory in a single IC.
Semiconductors in hard disk drives perform two basic functions: control of the movement of the hard disk spindle
and actuator, and read/write of data to and from the hard disk.
Hard Disk Read/Write

• Preamp: The preamp amplifies the analog signal from the read/write heads on the platter and sends the data to
the read channel.
• Read Channel: The read channel performs the data encoding and conversions needed to read and write the data
to and from the hard disk.
• Hard Disk Controller (HDC): This controller is the interface processor that sends instructions from the host
system to and from the servo ASIC and the read channel. It also determines when to raise and lower read, write
and servo gates and is responsible for defect management and error correction. Hard disk controllers usually
include a microcontroller to run the entire HDD system.
142
• Buffer Memory (DRAM): Buffer memory temporarily stores the data being transferred to and from the host
system.
• Cache Memory (SRAM): Cache memory is used to store processor instruction code once the drive is up and
running.
• Code/Boot Memory (Flash): Boot memory is used to store initial instructions required to start the drive.
• System-On-a-Chip (SoC) (not pictured in block diagram above): As mentioned above, most HDDs incorporate
an SoC solution that includes most of the read/write functions on a single IC. Most SoCs today incorporate the
read channel, HDC, servo ASIC and code and cache memory. Some SoCs also integrate buffer memory, removing
the need for a separate DRAM module. The exhibits below display block diagrams without and with SoCs.
Hard Disk Movement Control

• Motor Control: The motor control IC controls the amount of current to the spindle motors and the voice coil
motor (used to move the head stack), controlling drive commutation and speed. Motor controllers sold as ASSP
solutions are specifically designed for hard disk drives.
• Servo ASIC: The servo ASIC is a DSP that interprets cylinder numbers and controls timing of servo gate
assertions and events during the assertion periods. This digital device is most often integrated into the hard disk
controller or SoC.
Hard Disk Drive Without SoC Integration Hard Disk Drive With SoC Integration
Buffer
Hard Disk (DRAM)
Read Host
Preamp Controller
Channel System Preamp Read DRAM Host
Microcontroller Cache Channel SRAM System
(SRAM)
Flash
System-on- -
Boot
Hard a-chip
Motor Servo (Flash)
Disk Control ASIC Hard Motor MCU
Servo
Disk Control
143
Hard
Hard Disk
Disk Drives
Drives
Hard Disk Drive HDD Semiconductor

•HDD semiconductors are expected to Infineon IBM
1%
grow at a 7% CAGR, rising from $3.4
3%
Renesas
4%
billion in 2005 to $4.8 billion in 2010. QLogic/Marvell
•SoCs are expected to rise to 68% of 4%
Marvell
ASIC/ASSP revenue by 2010, absorbing LSI Logic 32 %
6%
discrete HDC/servo ASICs and read
channel ICs, which are expected to
decline steadily over the forecast period. TI
17 %
•Pre-amps and motor controllers should
see stable growth of 6% through 2010.
$5,000
System-on-a-chip
$4,500 Read channel
HDC/servo logic
$4,000 STMicro Agere
Preamplifier
Motor Controller
17 % 17 %
$3,500
$3,000
$2,500
$2,000
Hard Disk Read Motor
SoC Preamps
$1,500
Controllers Channels Control
$1,000
Marvell LSI Logic Marvell TI STMicro
Agere Qlogic/Marvell Agere
$500
STMicro TI
$0 STMicro Renesas IBM Agere Renesas
2002 2003 2004 2005 2006 2007 2008 2009 2010
Infineon Agere Infineon Marvell Marvell
TI Agere
STMicro
IBM
Hard Disk Drive Semiconductor Forecast: The hard drive IC market has seen nice growth on the back of strong
unit growth in the HDD market. It has also undergone some dramatic changes because of the increasing adoption of
SoC solutions, which now dominate desktop and mobile class drives. Looking ahead, we expect the market to
continue to benefit from unit growth, somewhat offset by the benefits of integration and normal component price
pressure. Overall, we expect the market to grow from $3.4 billion in 2005 to $4.8 billion in 2010, a 7% CAGR.
In terms of SoC adoption, we estimate that in 2005, 85% of drives used an SoC solution, up from 71% in 2004 and
57% in 2003. The 2005 figure included 97% of desktop drives and 80% of mobile drives, including small form factor.
By 2010, we expect desktop, mobile, and consumer SoC adoption will approach 100%. Enterprise SoC adoption
should begin to happen in 2007-08, reaching 45% by 2010. The exhibit on the following page right displays SoC
adoption trends for hard disk drives.
In terms of our device forecast, SoCs are, not surprisingly, expected to grow the fastest, at a 14% CAGR through
2010. In the process, SoCs should rise from 50% of total HDD IC content to 68% in 2010. Discrete HDC/Servo and
read channel devices are expected to decline rapidly as these devices get integrated into the SoC—we expect negative
CAGRs of 20% and 21%, respectively. Preamp and motor control ICs, which remain outside the SoC, are expected to
each grow at CAGRs of 6% apiece, representing 12% and 15% of the total HDD IC market in 2010, respectively.
The exhibits on the next page display SoC adoption trends as well as the percentage shift in content within the HDD.
144
SoC Adoption By Drive Class HDD Semiconductor Content Shift

120% 100%
Total SoC Adoption
System-on-a-chip
Desktop Class 90%
Read channel
100% Mobile Class HDC/servo logic
80%
Enterprise Class Preamplifier
Motor Controller
70%
80%
Semiconductor Revenue
60%
60% 50%
40%
40%
30%
20%
20%
10%
0% 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Hard Disk Drive Semiconductor Competitors: The hard disk drive IC market is dominated by a handful of
diversified analog and DSP vendors with competencies in mixed signal design and HDD system IP. As drive capacity
and performance have risen and the end market consolidated, the playing field has been limited to those with a strong
IP base, integration competencies and the desire to invest in the design of complex and integrated solutions.
The largest vendor of hard disk drive ICs in 2005 was Marvell, with 32% share; Marvell is strong in SoCs and read
channels. Note that Marvell acquired QLogic’s HDD semiconductor business in late 2005. Agere followed with 17%
share and has a strong presence across device types (note that LSI announced in 2006 its intention to acquire Agere).
STMicroelectronics followed with 17%; ST participates in the SoC market at Seagate in partnership with Agere and
also is strong in preamps and motor controllers. Texas Instruments followed with 17%; TI is the leader in preamps
and is No. 2 in motor controllers. Other players like LSI Logic, Qlogic, Renesas, Infineon, and IBM have been
marginalized for the most part, though some niches exist for their products.
The clearest competitive trend has been the advancement toward SoCs, which replace discrete read channels and
hard disk controllers along with their suppliers, unless they can come up with an SoC solution. Thus, those
competitors without a clear road map to an SoC have pared back drive business over the past few years: the market
has witnessed the exits of Texas Instruments (from read channels), Cirrus Logic (read channels, HDCs), NXP/Philips
(preamps, motor control ICs) and most recently Qlogic with the sale of its motor controller business to Marvell. Still
others (Infineon and STMicroelectronics) have seen their market share decline as they got integrated out. We
describe below the competitive environment for hard disk drives ICs by device, and follow with detailed exhibits.
System-on-a-chip (SoC): Marvell is the clear leader in HDD SoCs, holding 53% share in 2005. Marvell supplied
Western Digital and Samsung for the desktop and Toshiba, Fujitsu, Samsung and Western Digital for mobile. Note
that Marvell gained Maxtor as a new customer for desktop drives in 2006, though the business went away after
Seagate acquired Maxtor and shut down those platforms. Agere was No. 2 with 26% share, supplying Seagate for
desktop and mobile and Maxtor for desktop (that business was transitioning to Marvell until it was shut down).
STMicroelectronics, with 15% share, supplied SoCs to Seagate via a partnership with Agere. Infineon, with 6% share,
entered the SoC market in 2004 supplying desktop SoCs for Hitachi GST.
Hard Disk Controllers (HDC): The top supplier of discrete HDCs in 2005 was LSI Logic, with 37% share. Other HDC
suppliers include Qlogic/Marvell (27%), Renesas (9%), Agere (8%), TI (7%), STMicro (5%), Marvell (4%) and IBM
(3%). Note that most of these are hard disk controllers for enterprise drives, which haven’t been affected by SoCs.
Read Channels: Marvell is the top supplier of read channels, with 67% share in 2005, and supplies virtually all
enterprise read channels. Agere followed with 20%, mostly from mobile with Hitachi GST (though this business was
lost in 2006). IBM followed with 11%; most of that volume is consumed by Hitachi GST in the old IBM platforms.
Preamps: TI is the top supplier of preamps, with 71% share in 2005. STMicroelectronics followed with 18% and
Agere held 13%, though its share recovered nicely in 2006. Marvell is also a minor supplier of preamps.
Motor Control ICs: Motor control ICs are specialized high performance ICs that require both HDD platform knowledge
and more generalized expertise in analog motor control. They are dominated by three players: STMicroelectronics
(42% share), Texas Instruments (41% share), and Renesas (14%). Marvell and Agere also participate, but are small.
145
2005 Hard Disk Drive SoC Market Share Key Hard Disk Drive SoC Wins
Desktop Mobile
Infineon
6% Marvell Western Digital Toshiba
Samsung Fujitsu
STMicro Maxtor* Western Digital
15 % Samsung
Agere Maxtor* Seagate**

Seagate**
E
STMicroelectronics Seagate** Seagate**
Marvell
53 % Infineon Hitachi GST
* Seagate acquired Maxtor in 2006. Agere supplied all of Maxtor’s SoCs until 2006; Marvell began
Agere supplying Maxtor in 2006 but lost the business after the acquisition by Seagate.
26 % ** Agere and STMicroelectronics share the Seagate business, which is developed primarily with read
channel technology from Agere and control IP from STMicroelectronics.
Note that not all platforms indicated in the table above use SoCs. For example, some drives use
discrete read channel and hard disk controller solutions.
2005 Hard Disk Controller Market Share 2005 Read Channel Market Share
Marvell IBM Infineon

4% 3% IBM 2%
STMicro 11 %
5%
TI
7%
LSI Logic
37 %
Agere Agere
8% 20 %
Renesas
9%
Marvell
67 %
QLogic/Marvell
27 %
2005 Motor Control IC Market Share 2005 Preamp Market Share
Marvell
2% Agere Marvell
1% Agere 2%
Renesas
13 %
14 %
STMicro STMicro
42 % 18 %
TI Texas
41 % Instruments
71 %
146
The exhibits below display market shares for hard disk drive semiconductors by drive class.
2005 HDD Semiconductor Share By Class 2005 Desktop HDD Semiconductor Market Share
Renesas
IBM
Infineon 4% 1%
Enterprise 5%
20 % Marvell
25 %
TI
15 %
Desktop
54 %
Mobile
26 %
STMicro Agere
23 % 25 %
2005 Mobile HDD Semiconductor Market Share 2005 Enterprise HDD Semiconductor Market Share
Renesas Renesas IBM

IBM 3 % Infineon 1 %
2% STMicro
Agere 2% 1%
9% 4%
Agere
7% LSI Logic
28 %
STMicro
13 %
TI
15 %
Marvell
54 %
TI
21 % Marvell
QLogic/Marvell 21 %
21 %
147
Hard
Hard Disk
Disk Drives
Drives
Hard Disk Drive Semiconductor Market Trends

•The transition to SoC continues; adoption reached 85% in
2005 and should reach 97% by 2010.
•Enterprise SoCs should begin to appear in 2007.
•SATA now dominates the desktop and notebook and is
enabling new low-cost enterprise systems.
•The transition from SCSI to SAS in the enterprise has begun.
•Consumer HDDs continue to experience strong growth despite
the challenge from flash.
•Hybrid Hard Disk Drives are coming to market and will enable
intelligent caching with Windows Vista.
• SoC adoption reached 85% in 2005 and should reach 97% by 2010. SoC solutions pervade HDD designs;
by 2005 all major desktop and mobile drive vendors had adopted SoCs for all or some of their volume. SoC
penetration already reached 85% in 2005, and should receive another boost when enterprise drives begin
implementing SoCs in 2007. Note that Marvell bought QLogic’s enterprise HDC business with this goal in mind.
• SATA now dominates the desktop and notebook and is enabling new low-cost enterprise systems.
Though it had a slow start when launched in 2003, SATA has now taken over the mainstream desktop and
notebook PC market. We are also seeing SATA drives penetrate the enterprise market in new low-cost systems.
• The transition from SCSI to SAS has begun. For the enterprise market, HDD OEMs have begun to migrate
their SCSI product lines to SAS. We expect 2007-08 to be big adoption years for SAS.
• Consumer HDDs continue to experience strong growth despite the challenges from flash. The consumer
HDD market continues to grow double digit annually despite the challenge from NAND flash. Some applications,
most notably MP3 players, have already been conceded to flash, but applications which require higher capacities
(most notably DVRs and game consoles) remain captive to HDDs. Note that HDD IC vendors continue to design
low-cost, low-power solutions, and ramp capacity specifically for consumer applications.
• Hybrid HDDs will enable intelligent caching with Windows Vista. New caching features in Vista can be
enabled either with a flash module (Intel’s Robson) in the PC system or flash embedded in a hybrid HDD (HHD).
148
Optical
Optical Drives
Drives
Optical drives use direct access

disks written and read using lasers.
They offer much higher capacity
than magneto-optic (floppy) disks
and have become ubiquitous in
computing over the past few years.
CD and DVD are the mainstream
technologies today; Blu-Ray and
HD-DVD, two blue-laser DVD
formats, are being promoted as the
next-generation successor to DVD.
Capacity, Capacity,
Read Only Write Once Re-write Single Layer Dual Layer
CD CD-ROM CD-R CD-RW 650 MB
DVD DVD-ROM DVD-R DVD-RW 4.7 GB 8.5 GB

DVD+R DVD+RW
Blu-Ray BD-ROM BD-R BD-RE 25 GB 50 GB
HD-DVD HD-DVD-ROM HD-DVD-R HD-DVD-RW 15 GB 30 GB
The PC optical drive market includes CD- and DVD-based read and record data storage drives. These storage devices
use direct access disks read and written using a laser. The disks are removable, and the drives use lasers to read
from and write to them, similar to the audio compact discs from which the technology evolved (but using a different
format). On the back end, the drives use the standard PC ATA or SATA interface to transfer data to and from the host
system. Sold in standard form factors at consumer-oriented prices, they are bundled with PC systems and have
become ubiquitous in computing over the past few years.
Optical disks offer much higher capacity points than magneto-optic (floppy) disks. A standard 120 mm CD-ROM holds
650 MB of data, though some are slightly larger and hold 700 MB. Standard transfer speed is 150 KBps; CD-ROM
speed is quoted as a multiple of this number (e.g., a 24X CD-ROM operates at 3600 KBps). DVD-ROMs are more
dense than CD-ROMs and can store 4.7 GB of data on a single-layer disc or 8.5 GB on a dual-layer disc. Standard 1X
transfer speed is 9X the speed of a CD-ROM drive, or 1.35 MBps. Originally sold as read-only devices, most PC drives
include the capability to write (“R”) or re-write (“RW”) to the disks.
Two blue-laser DVD formats are currently being promoted to succeed DVD: Blu-Ray and HD-DVD. Blu-Ray can store
25 GB of data on a single-layer disc or 50 GB on a dual-layer disc; transfer speed is 36 Mbps. Blu-Ray is supported
by such hardware vendors as Sony, Samsung, Panasonic, Philips, Pioneer, Hitachi, Dell, HP, and LG. HD-DVD can
store 15 GB of data on a single-layer disc or 30 GB on a dual-layer disc; transfer speed is also 36 Mbps. HD-DVD is
supported by such hardware vendors as Toshiba, NEC, and Sanyo as well as Intel and Microsoft.
149
Optical
Optical Drives
Drives
Optical Drive Unit Optical Drive Suppliers

Forecast Others
Sony
•We expect the optical drive market to 2%
6%
Pioneer
grow from 301 million units in 2005 to 4% Hitachi-LG
456 million units in 2010, a 9% CAGR. NEC 26 %
•DVD-Recorder drives should grow 24% 5%
through 2010, from 41% of drive

shipments in 2005 to 80% in 2010. Panasonic
8%
•DVD-ROM drives should grow at a 2%
rate; CD-ROM, CD-RW, and Combo drives
should decline steadily. Philips-BenQ
•Blue-laser formats won’t be significant in 10 %
the PC market for several years. Toshiba-

Samsung
500,000 22 %
HD-DVD & Blu-Ray Lite-On
450,000
DVD-Recorder 17 %
Combo
400,000 CD-RW
DVD-ROM Source: IDC, CIBC World Markets Corp.
350,000 CD-ROM
300,000
250,000
200,000
150,000
100,000
50,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Optical Drive Unit Forecast: Optical drives have become ubiquitous in the PC market and in fact exceed PCs in
terms of unit shipments due to a significant retail drive market and the growth of dual-drive desktops in the consumer
market. We estimate the market totaled 301 million units in 2005. By technology, optical disk drives were broken
out 41% DVD-Recorder, 20% combo (CD-R/W and DVD-ROM), 16% DVD-ROM, 14% CD-ROM, and 9% CD-R/W.
Looking ahead, we expect the total market to grow at a 9% CAGR, reaching 456 million units in 2010. DVD-recorder
should see the strongest growth—a 24% CAGR, rising to 80% of drives in 2010. DVD-ROM should grow at a 2%
CAGR to 11% of the market in 2010. CD-RW and CD-ROM drives should decline at a more than 45% CAGR and
combo drives should decline at a CAGR of more than 25%, together representing less than 5% of the market in total.
We do not expect blue-laser formats to be significant in PCs over the next few years (they will be much more
important in the consumer electronics market for high-definition DVDs); we forecast a slow ramp to about 26 million
units in 2010.
Optical Drive Suppliers: The ODD market has seen some unusual consolidation trends: three of the top four
suppliers are actually JVs between two separate companies, with each partner company based in another country.
The top supplier in 2005 was Hitachi-LG with 26% unit share, followed by Toshiba-Samsung with 22% and Lite-On IT
with 17%. Philips-BenQ and Panasonic followed with 10% and 8%, respectively. Other suppliers include NEC,
Pioneer, and Sony.
150
Optical
Optical Drives
Drives
This ASSP performs digital

This ASSP demultiplexes processing on the signal, preparing
the analog signal and it for decode by the host system
converts it to digital
Servo Front End MPU/

Servo/Motor Control MCU
Front End Digital ASSP
Drivers
Analog Read Front End
RF ATA Host
CD/DVD Demod- ASSP Channel Decode/
Amp DSP (Encode*) Controller System
Drive ulator
Bay Laser
Driver SRAM DRAM ROM
Amplifies the signal

coming from the
DVD read laser
The digital ASSP uses

SRAM, DRAM, and flash
Controls the DVD
memory for processing and
read (and write) laser
boot code storage
Optical drive semiconductors perform only front end functions; this includes reading the CD or DVD and performing
the analog to digital conversion and preliminary decoding, as well as drive bay and laser control. Back end functions,
which include decoding the signal and processing it into data signals, are done by the host PC.
• Laser Driver and RF Amp: This optoelectronic driver controls the CD/DVD read and write laser. The
optoelectronic amplifier boosts the signal coming off the laser.
• Front End Analog ASSP: This device includes both the servo/motor driver and the demodulator/analog front
end. The servo driver controls the movement of the drive spindle. The demodulator receives the signal from the
RF amp and converts it to a digital format to be processed.
• Front End Digital ASSP: This device includes the servo control IC, read channel DSP, front end
decoder/encoder, the ATA/SATA controller and a microcontroller or microprocessor. The servo DSP controls the
servo driver and is also responsible for error correction control. The read channel DSP and front end decoder
perform the first layer of digital processing on the digital signal and prepare it for back end video/audio
processing; in a recorder drive, it also encodes the stream for writing it to the CD/DVD. The ATA/SATA controller
provides the interface to the host system using the ATA/SATA protocol.
• DRAM/SRAM/ROM: The digital ASSP and embedded microcontroller/microprocessor use several external
memories for cache and boot instructions.
151
Optical
Optical Drives
Drives
Optical Drive Optical Drive

Semiconductor Forecast Semiconductor Competitors
•Optical drive semiconductors are growing
at an estimated 6% CAGR, from $2.9 billion Optical Drive ODD
in 2005 to $4.0 billion in 2010. Chipsets Optoelectronics
•The optical drive chipset, which includes MediaTek Sharp
the analog front end and digital SoC, should Renesas Avago
grow in line with the market from $1.9 NEC Stanley Electric
billion in 2005 to $2.6 billion in 2010. Matsushita Sony
•Optoelectronics should grow 5%, from Rohm Nichia Chemical
$981 million in 2005 to $1.2 billion in 2010. Ricoh Toshiba
•MCUs/DSPs, used in higher-end drives, Toshiba OSRAM
should grow from $82 million in 2005 to Seiko-Epson Mitsubishi
$165 million in 2010, a 15% CAGR. Sanyo NEC
$4,500 Intersil Vishay
$4,000
Optoelectronics
Analog Front End & Digital SoC
Marvell Rohm
Microcontroller/DSP
$3,500 Source: CIBC World Markets Corp.
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Optical Drive Semiconductor Forecast: The market for optical drive semiconductors includes two device segments:
drive logic (an analog front end and digital SoC, sometimes augmented by a discrete DSP or microcontroller) and
optoelectronics. In total, we estimate the market was $2.9 billion in 2005, and is growing at a 6% rate to $4.0 billion
in 2010. We estimate 64% of IC revenue was ASIC/ASSP solutions in 2005, 3% was MCUs/DSPs and 34% was
optoelectronics. The mix should stay mostly consistent, though MCUs and DSPs should rise slightly as a percentage
as more complex DVD-recorder drives ramp up; these sometimes require a discrete microcomponent.
Optical Drive Semiconductor Competitors: The optical drive market is served by both merchant chipset and
custom ASIC vendors, with merchant vendors supplying most lower end CD-ROM and CD-RW drives and about half of
all mainstream DVD-ROM and combo drives. ASIC suppliers serve the higher end DVD-R/RW drives, though over
time these are likely to migrate to merchant as well. Blue laser drives are likely to remain captive for some time.
The largest supplier of optical disk drive chipsets is Mediatek, which supplies merchant solutions for all segments of
the market but dominates the low-end and mainstream. Other suppliers include Renesas, NEC, Matsushita, Rohm,
Ricoh, Toshiba, Seiko-Epson, and Sanyo—most of these are ASIC suppliers. High performance analog player Intersil
also has a solid position in laser drivers. Note that HDD IC leader Marvell recently entered the market.
The top optoelectronic suppliers for disk drives are Sharp, Avago, Stanley Electric, Sony, Nichia Chemical, Toshiba,
OSRAM, Mitsubishi, NEC, Vishay, and Rohm.
152
Optical
Optical Drives
Drives
Optical Drive Semiconductor Market Trends

•Integration has reduced chip count for mainstream optical
drives to one digital IC and one analog IC; single-chip solutions
dominate the low end.
•The shift to DVD-Recorder drives is changing the competitive
landscape in favor of high end suppliers.
•The standards battle continues for the successor to DVD,
though consumer electronics concerns will dominate.
• Integration has reduced chip count for mainstream optical drives to one digital IC and one analog IC;
single-chip solutions dominate the low end. Our block diagram on page 151 reflects the integration that has
already taken place. Note that vendors now offer single-chip solutions for the lower end that incorporate both
digital and analog functions (leaving only optoelectronics and memory separate). Mainstream and high end drives
still use the two-chip architecture, but IC vendors will be under pressure to integrate over time. Note that
Marvell’s entrance strategy is grounded in its single-chip SoC, which it is offering for the high end x16 DVD
recorders.
• The shift to DVD-Recorder drives is changing the competitive landscape in favor of high end suppliers.
Like any major technology transition, the shift to DVD-Recorders is favoring suppliers positioned in these drives,
primarily the captive vendors like NEC and Matsushita, which lead the market for DVD-Recorder ICs.
• The standards battle continues for the successor to DVD, though consumer electronics concerns will
dominate. Both Blu-Ray and HD-DVD have solid hardware backing at this point, with no clear winner evident
yet. We expect consumer electronics concerns will dominate the debate; the industry is primarily looking to high-
definition video content to drive interest in the new formats; PCs will be somewhat of an afterthought and will
therefore follow the CE market. Note that the battle should have minimal impact on the merchant optical drive
semiconductor vendors for now, as next-generation models will likely be implemented with only captive solutions.
153
Printers
Printers and
and MFPs
MFPs
The printer market has seen continued innovation despite

its maturity. The “razor” business model continues to
produce affordable printers for consumer and enterprise.
Multi-function peripherals, which include printing, fax,
scanner, and copier functions, have enjoyed success in
the home and SMB, and now represent over 40% of total
shipments. Photo printers have grown even more quickly,
and in 2005 were about half of total shipments.
Printers vs. MFPs Printer Type
100% 100% Color Laser
Mono Laser
MFP
80% 80%
Photo Inkjet
60% 60%
40% 40%
Standard Inkjet
20% Printer 20%
Impact
0% 0%
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Source: DisplaySearch, IDC, CIBC World Markets Source: IDC, CIBC World Markets Corp.
The printer market has seen continued innovation despite its maturity. OEMs have focused on driving steady
replacement by packing additional functionality as well as improving print quality and lowering cost. The “razor”
business model continues to produce affordable printers for consumer and enterprise—OEMs continue to subsidize the
initial cost of printers and rely on high-margin replacement toner and ink for profitability. This model drives a huge
focus on unit share which drives the installed base and therefore future purchases of ink cartridges.
Innovation has happened along two main vectors: features and imaging. On the features front, OEMs are
incorporating printing, fax, scanner, and copier capabilities into all-in-one devices, known as multi-function
peripherals, or MFPs. In 2005 over 40% of total shipments were MFPs.
On the imaging side, advancements in digital photography are driving increased demand for photo printing solutions,
and more than half of all printers sold in 2005 were photo capable. OEMs even offer small form factor printers
designed to print photos only.
Note that the MFP and photo printer trends are not mutually exclusive—many MFPs are photo-capable. Over time, we
would expect MFP penetration to continue to rise at a steady pace to well over half of total shipments. Photo printers
(and MFPs) should rise even more rapidly until they represent nearly all consumer shipments. The market for
standard inkjet printers is continually declining.
154
Printers
Printers and
and MFPs
MFPs
Printer and MFP Unit Printer and MFP

Forecast Suppliers
•We expect printers and MFPs to grow at Samsung
3%
Xerox
Brother 1%
at a 3% CAGR, from 120 million units in Dell 4 %
2005 to 138 million units in 2010. 6%
•MFPs should grow at 10% CAGR, from
44% of units in 2005 to 60% in 2010. Lexmark
•Inkjet printers should decline at a 9% 11 %
HP
CAGR, giving way to MFPs. 42 %
•Mono and color page printers should
grow at a 5% CAGR; new lower-cost color
laser printers should drive most of this
growth. Canon
16 %
160,000
Multi-Function Peripherals
140,000 Mono and Color Page Printers
Epson
Inkjet Printers
17 %
120,000
100,000
Printers MFPs
80,000
HP HP
Canon Epson
60,000
Epson Lexmark
40,000 Lexmark Canon
20,000
Dell Brother
Samsung Dell
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Brother Samsung
Source: IDC, CIBC World Markets Corp. OKI Xerox
Printer and MFP Unit Forecast: Though clearly tied to the PC market, printers represent a separate purchase for
enterprise and consumer PC users and do not track PC shipments all that closely. In recent years, printer shipments
have bounced between 57% and 66% of PC shipments. MFPs and photo printers have generated some additional
demand, driving several years at the high end of the range. This effect appears to be waning, and in 2005 the printer
ratio dropped to 59%, with 56% forecast for 2006 and down from there on. In total, we expect printer shipments to
trail PC growth, growing at a 3% CAGR, from 120 million units in 2005 to 138 million units in 2010.
The fastest growth segment is still expected to be multi-function peripherals, already at 44% of unit shipments in
2005. MFPs are expected to grow from 53 million units in 2005 to 83 million units in 2010, a 10% CAGR, and should
represent 60% of the market in 2010. Mono and color page printers should follow at a 5% CAGR, with particular
strength in the color laser segment as aggressive pricing by OEMs spurs increased adoption in the enterprise. Inkjet
printers will give way to MFPs over time, and should decline at a 9% rate, representing just 20% of units in 2010.
Printer and MFP Suppliers: HP dominated the printer market in 2005 with 42% unit share; HP is the market leader
in both standalone printers and MFPs. Epson followed with 17% and held the No. 2 position in MFPs and No. 3
position in printers. Canon followed with 16% share and held No. 2 position in printers and No. 3 position in MFPs.
Lexmark, which plays primarily in the enterprise market, was No. 4 with 11% share. Other major suppliers include
Dell (6% share), Brother (4%), Samsung (3%), Xerox (1%), followed by Oki, Lenovo, Sharp, and Konika Minolta.
155
Printers
Printers and
and MFPs
MFPs
A custom ASIC or SoC
Generates the controls the overall A high-performance 32-bit or 64-bit CPU
image on the LCD printer/MFP system performs the intense computations that
A digital-to-analog converter
screen drive the printing function
converts printing instructions to
analog, and the printer head driver
interfaces with the cartridge; a
corresponding IC on the consumable DRAM
drives the print cartridge LCD LCD The MPU uses
Screen Drivers Microprocessor DRAM and Flash

Flash
This block can include
either a Bluetooth or
Cartridge wireless LAN chipset
Printer
Print D/A LCD
Head Bluetooth/
Head Converter Controller Antenna
Driver WLAN Block
System Control
Head Motor ASIC/SoC Interface USB
Motor
Head Positioning Motor Controller Cable
Paper Loading Motor Driver
Interfaces with the USB,
FireWire, or serial cable
A motor driver controls to connect up to the PC
the movement of the
printing mechanism
MFP Block
Scan CCD Image A/D
Fax Codec RJ-11
Area Sensor Converter Line
Image Data Phone
MCU Driver
Scan Motor Processor Pump Line
Motor Driver
An image sensor An analog-to-digital

captures the image from A motor driver controls Implements the fax Interfaces with the
converter converts the Controls the scanning
the scan/copy area the movement of the transmission/reception telephone line, driving the
analog image signal to subsystem; also performs
scanning mechanism scheme analog signal
digital for processing digital processing on the
scanned image
Source: STMicroelectronics, NEC, TDK, CIBC World Markets Corp.
Printing Block
• System Control/ASIC/SoC: A custom ASIC or SoC controls the primary printing function. In mainstream
inkjet or mono laser printers, the ASIC/SoC usually integrates a microprocessor to perform the intense
computations involved in printing.
• Microprocessor: In high-end color laser printers, a discrete high-performance 32-bit or 64-bit CPU performs the
intense computations that drive the printing function.
• DRAM and Flash: The embedded or discrete microprocessor uses DRAM and flash.
• D/A Converter (DAC): A DAC converts digital printing instructions to analog and interfaces with the print head.
• Printer Head Driver: The printer head driver interfaces with the print cartridge. These are typically custom to
individual OEMs, as a means to insure only OEM-branded print cartridges can be used.
• Motor Driver: The motor driver controls the movement of the printing mechanism.
MFP Block – Scanner/Copier

• CCD Image Sensor: The image sensor receives the image from the scan/copy area.
156
• A/D Converter: The ADC converts the image from analog to digital for processing, printing, and storage.
• Motor Driver: The motor driver controls the movement of the scanning mechanism.
• Image Processor: An image processor controls the scanning subsystem and performs image processing.
MFP Block – Fax

• Fax Codec: The Fax AFE/codec performs the analog-to-digital conversion to generate the fax signal. Similar to
analog modem codecs, they are specialized mixed-signal processors and typically include a data pump and
embedded microcontroller.
• Line driver: This analog SLIC interfaces with the RJ-11 copper twisted pair (phone line), performing
transmission and reception functions.
Interface and Display

• USB/1394 Controller: A USB/Firewire controller manages the interface to the PC.
• Bluetooth Baseband and RF/IF (not pictured in diagram) –Bluetooth-enabled printers can interface wirelessly
with a PC via a personal area network. They can also use Bluetooth to connect directly to a digital camera to print
out photos images. In a Bluetooth chipset, the baseband performs the digital processing and protocol encoding
and the RF/IF performs the radio transmission/reception.
• Wireless LAN Baseband/MAC and RF/IF/PA (not pictured in diagram): Wireless LAN-enabled printers can
interface wirelessly with a PC or camera via an 802.11 wireless LAN in order to transfer images. In an 802.11
chipset, the baseband/MAC performs digital processing and protocol encoding and the RF/IF/PA performs the radio
transmission/reception and power amplification.
• Display Drivers: Display drivers produce the image on the LCD screen.
Print Cartridge/Consumable
• Print Head: A specialized print head IC sits on each individual print cartridge and controls the functioning of the
cartridge. Like the head driver on the printer, these are typically custom to individual OEMs, as a means to insure
only OEM-branded print cartridges can be used.
157
Printers
Printers and
and MFPs
MFPs
Printer and MFP Printer and MFP IC

•We expect the market to grow at a 5% STMicroelectronics
CAGR, from $1.9 billion in 2005 to $2.4 Texas Instruments
billion in 2010.
Avago/Marvell
•ICs should slightly outpace units as
mono and color laser printers outpace Freescale
inkjet, driving higher ASIC/SoC ASPs and NEC Electronics
greater microprocessor content. PMC-Sierra
•Much of the growth generated from ICs Toshiba
for scanning and fax in MFPs is now Seiko-Epson
behind us; integration and ASP pressure Kawasaki Micro
should now mitigate the effects of still-
NXP/Philips
rising MFP penetration.
Fax Codec and Line Driver
Scanning/Copying Subsytem
Embedded Microprocessor
$2,500
Printer SoC/ASIC and Head Driver
$2,000
$1,500
$1,000
$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Printer Semiconductor Forecast: We expect the market for printer and MFP semiconductors to grow at a 5%
CAGR, from $1.9 billion in 2005 to $2.4 billion in 2010. Semiconductor revenue should slightly outpace units due to
the rising penetration of laser vs. inkjet, both in the printer category and in MFPs. These laser printers use more
robust SoCs, and in the case of high-end or color laser, also include significant discrete microprocessor content.
Note that the rapid growth of MFPs has generated significant growth on the IC side, as these units require image
processing and analog ICs to enable scanning and copier functions as well as the codecs and line drivers ICs for fax
capability. In 2005, we estimate these two IC opportunities combined yielded more than $300 million in market
revenue. Much of the IC growth generated by this trend is now behind us, however, as OEMs shift focus to lowering
the cost of these features, primarily through integration. We expect the revenue associated with these two IC sub-
segments to grow only modestly through 2010 and to be modestly dilutive to the overall IC CAGR.
Printer Semiconductor Market Share: The printer IC market is dominated by a number of large, diversified
semiconductor vendors with design competencies in SoC/ASIC, microprocessing, and analog design. Major vendors in
this space include STMicroelectronics, Texas Instruments, Avago/Marvell (Marvell acquired Avago’s printer business in
2006), Freescale, NEC, PMC-Sierra, Toshiba, Seiko-Epson, Kawasaki Microelectronics, and NXP/Philips. A second set
of companies provides fax ICs into MFPs; these include Conexant, Silicon Labs, Agere, Austria Microsystems, and
Analog Devices.
158
Printers
Printers and
and MFPs
MFPs
Printer and MFP Semiconductor Market Trends

•The market remains heavily ASIC-based as OEMs continue to
value control over the design to keep out standardized ink
cartridges.
•The rise of multi-function peripherals has opened up
opportunities for imaging and communication ICs.
•All but the highest-end printers are moving to SoC solutions.
•802.11, Bluetooth, and UWB are all candidates for wireless
connectivity within printers.
• The market remains heavily ASIC-based as OEMs continue to value control over the design to keep out
standardized ink cartridges. To preserve the economics of the “razor” business model, OEMs need to preserve
the proprietary nature of their designs, especially with regards to the print cartridge. They have therefore kept
their printer designs predominantly ASIC-based.
• The rise of multi-function peripherals has opened up opportunities for imaging and communication
ICs. MFPs can include printing, scanning, copying, and fax functions, and therefore require specialized ICs to
enable these functions. Note that while the core printing functions in MFPs are enabled by ASICs, as mentioned
above, imaging and communications functions has allowed merchant suppliers to penetrate the printer market.
• All but the highest-end printers are moving to SoC solutions. Integration is a major focus for OEMs,
especially considering they usually lose money on printer hardware. The market has seen many discrete ICs
move into the core ASIC/SoC over the past few years, in particular the microprocessor. At this point, only high-
end color laser printers utilize a discrete MPU, and while this market is growing now with the rising penetration of
color laser, it saw a major drop just a few years ago as inkjet and mono laser printers moved to SoC.
• 802.11, Bluetooth, and UWB are all candidates for wireless connectivity within printers. Though not
included in our IC forecast, we expect to see wireless networking technology move into printers over time.
Penetration thus far has been slow, but could jump nicely when UWB is available in volume.
159
Networking
Networking
We now move from computing applications, which

allow users to manipulate data stored locally within a
single PC or server as well as to interact with
peripherals, to networking applications, which enable
the transfer of data between these devices.
This section deals primarily with equipment used to
connect PCs, servers, and storage in a single physical
location, e.g., a small business, a single corporate
branch office, or a home network environment.
Equipment used to send data over longer distances
(e.g., modems) typically utilize public telecom and
cable infrastructure or corporate wide area networks
and are discussed later in the section on telecom and
datacom. Voice-over-IP, which utilizes corporate
local area networks but sends traffic over service
provider networks, is also discussed later.
We now move from computing applications, which include equipment that allows users to manipulate data stored
locally within a single PC or server as well as to interact with directly attached peripherals, to networking applications,
which enable the transfer of data between PCs and servers.
This section deals primarily with equipment used to connect PCs, servers and storage in a single physical location—
e.g., a small business, a single corporate branch office, or a home network environment. Given the close ties to
computing, networking equipment is usually designed with the PC in mind. Metrics like speed, ease of install and
configurability and low maintenance cost generally take precedence over factors such as ensuring quality of service or
multiple classes of service support (a situation that is reversed in telecom networks).
Equipment used to send data over longer distances (e.g., modems) typically utilizes public telecom and cable
infrastructure or corporate wide area networks and is discussed separately (in the section on telecom and datacom).
This equipment, though data–centric in its operation, is designed to leverage the existing voice or video infrastructure
to send data rather than act as a standalone network, though some standalone wide area data networks do exist.
The economics are also dramatically different, as telecom and datacom equipment is tied to service provider capital
expenditures, while networking equipment is tied more heavily to IT spending.
160
Networking
Networking
The OSI Reference Model

The OSI reference model
provides a framework for the
development of networking
technologies and standards.
The model divides networking
functions into seven layers, all of
which can be designed
independent of each other. The
upper layers (4-7) deal with user
applications, and function
independently of the type of
physical network used to carry
information. The lower layers
(1-3) are dedicated to issues
relating to the actual transport of
information around the network.
Source: Computer Desktop Encyclopedia, The
Computer Language Co.
Networking technologies are designed to share data between computing devices. These devices connect using a wide
variety of terminal equipment and operate using disparate communications protocols, transmission media and data
transfer rates. Given the disparate technologies, the challenge of internetworking becomes how to connect these
networks such that data can be reliably transmitted among them.
In order to meet the challenges of internetworking, network architects began to segment communications tasks into
separate and self-contained layers of functionality. Each layer is designed to perform a certain task or range of tasks
and is independent of the layers above and below it. This process was formalized in 1984 by the International
Organization for Standardization (ISO) with the publication of a seven-layer reference model. The reference model
governs how information from a user application in one computer is transmitted across a network or inter-network to
a user application in another computer. In this way, it provides a framework for the coordination of standards
development, allowing existing and evolving standards to be set within a common framework. The OSI model has
therefore become the primary architectural model for internetworking communications.
The layers of the OSI reference model can be grouped into two categories: upper layers (4-7) and lower layers (1-3).
The upper layers deal with actual user software applications (like Microsoft Outlook or Internet Explorer), and function
independently of the type of physical network used to carry information. The upper layers are typically implemented
in software running on the networked device. The lower layers are dedicated to data transport issues and can be
implemented in either software or hardware.
161
In order to understand the function of each layer of the model, we can look at the process of sending an E-mail from a
PC. A computer is a layer 7 device, meaning that it can operate from the highest layer (which is where applications
are run) to the lowest layer (the PC can put signals directly onto a network cable plugged into a port). At the
application layer (7), Outlook (or another E-mail client) deals with the composition of the E-mail, including formatting,
attachments, and security features. At the presentation layer (6), the E-mail is converted into a standard format
compatible with all E-mail programs. At the session layer (5), a channel is opened between the PC and the network
for message transmission. At the transport layer (4), the operating system passes the E-mail to the computer’s
networking subsystem. At the network layer (3), the system makes sure it has a clear path to the rest of the data
network. At the link layer (2), a network address for the E-mail is attached to the message. Finally, at the physical
layer (1), the PC sends out the actual signal over the network cable. In receiving an E-mail, the process is reversed,
though the functions performed are the same.
The OSI Reference Model: Layer 1-7 Summary

The Physical Layer (1)
This layer defines the electrical, mechanical and functional specifications for transmitting a data signal over a network
link. The physical layer is also responsible for establishing, maintaining and terminating the physical signal between
network devices. Physical layer protocols typically define parameters such as voltage level, shape or template of
transmission signal, data transfer rates, maximum transmission distances and physical connectors.
The Data Link Layer (2)
The data link layer controls the transfer of data across a physical network link. As such, data link layer protocols
define the characteristics of network links including network topology, physical addressing, frame formats, frame
sequencing, error notification and flow control. The IEEE (Institute of Electrical and Electronics Engineers) further
subdivides the link layer into two sub-layers: logical link control (LLC) and media access control (MAC). The LLC sub-
layer manages communications between devices separated by a physical link, while the MAC sub-layer manages
access to the physical network medium.
The Network Layer (3)
The network layer is responsible for establishing, maintaining and clearing a network-wide connection between two
transport layer entities. The network layer principally provides routing and other functions that enable data to be
transmitted over disparate physical links. The network layer provides both connection-oriented and connectionless
service to layers above it. Most network layer protocols are routing protocols. Note that network layer routing
functions are based on logical addressing rather than physical addressing.
The Transport Layer (4)
This layer functions as the interface between the application-oriented upper layers and their underlying network-
dependent layers, providing transparent yet reliable inter-network data transport services to the higher layers.
Effectively, the transport layer hides the detailed operation of the underlying network from the upper layers.
Transport layer functions include flow control, multiplexing, virtual circuit management and error correction. Flow
control manages the rate of data transmission between two entities such that the transmitting devices do not send
data at a rate greater than what the receiving entity can process. Multiplexing allows several communications
channels to be carried over the same physical link without any data loss. Virtual circuit management involves the
creation, maintenance and termination of virtual circuits (a virtual circuit is a lower speed channel carried over a
higher speed physical link). Finally, error checking involves mechanisms for the identification and correction of
transmission errors.
The Session Layer (5)
This layer is responsible for establishing, managing and terminating a communication channel between presentation
layer entities through a series of communications requests and responses. In addition, the session layer determines
whether communication will be half-duplex (two-way transmission, but only one direction at a time) or full-duplex
(simultaneous two-way transmission), maintains synchronization between communicating entities, and performs
exception reporting.
The Presentation Layer (6)
This layer is concerned with the syntax of data during transfer, i.e., it ensures that data is formatted using a common
interface for user applications. To achieve network interoperability, a number of transfer syntaxes have been defined.
The presentation layer negotiates and selects the appropriate transfer syntax for each communication so that data
transmitted may be understood by both systems. If the transfer syntax differs from the application syntax, the
presentation layer performs the necessary conversion. Some common transfer syntaxes include the ASCII and
EBCDIC for text and data, motion picture experts group (MPEG) and QuickTime for video and graphics interchange
format (GIF), joint photographic experts group (JPEG) and tagged image file format (TIFF) for graphics images. The
presentation layer also performs data compression/decompression and encryption/decryption if required.
162
The Application Layer (7)

This layer interacts with and provides services directly to user software applications. It deals directly with the
communications component within an application (e.g., the “Inbox” in Microsoft Outlook) and provides the interface to
the services of the network. Functionality provided by this layer typically includes identification of communication
partners, determination of network resource availability, synchronization, file transfer, message interchange services
such as E-mail, agreement of privacy (encryption) standards and identification of constraints on data syntax.
Networking Equipment, Components, and the OSI Model

Though it all seems technical and theoretical, it is important to understand the layers of the OSI model in order to
identify the intended functionality of the various types of networking equipment. For instance, a layer 1 device would
deal only with actual physical signaling. An example of a layer 1 device would be a repeater (a device used to boost a
signal over a length of cable), which simply receives a signal (at the physical layer [1]) and spits it back out.
Layer 2 deals with addressing. A layer 2 example would be a switch, which receives traffic (at the physical layer [1]),
checks the address of the traffic (at the data link layer [2]), and sends the traffic out again (at the physical layer [1])
over the proper channel to reach the recipient.
Layer 3 deals with routing. A layer 3 example would be a router, which receives traffic (at the physical layer [1]),
checks the address of the traffic (at the data link layer [2]), determines the best route for the data to take to its
destination (at the network layer [3]) and then re-addresses and sends out the traffic (at the data link [2] and
physical [1] layers).
We won’t carry the example all the way up to layer 7, but it is clear why we called a networked PC a layer 7 device. It
can do all the functions of a switch, router, or other more complicated devices because of its robust and flexible
operating system. In fact, layer 4-7 network devices are often designed as specialized servers designed to run
networking software.
We can also carry the analysis forward to the component world (though we are skipping ahead a bit). An Ethernet
PHY is a physical layer (1) device, as it deals with reception and transmission of the signal over copper wire or optical
fiber. An Ethernet PHY would be found in all types of Ethernet equipment, from a repeater (a layer 1 device) up to a
load balancing device or a networked PC (a layer 4-7 device).
An Ethernet MAC is a data link layer (2) device, as it applies and removes an address to a data packet. An Ethernet
MAC would be found in all types of Ethernet equipment that operate at layer 2 and above, such as an Ethernet switch
or NIC card all the way up to the load balancer.
A network search engine is a network layer (3) device, as it looks up addresses in a route table. A network search
engine would be found in Ethernet equipment that operates at layer 3 or above, from routers up to our load balancer.
As mentioned above, layer 4-7 devices are generally implemented in software running on a specialized networking
OS. For high-performance equipment, OEMs often use a combination of microprocessors, specialized ASICs, ASSPs,
and FPGAs to perform these tasks.
163
Networking
Networking
Communications Flow in the OSI Reference Model

For two PCs to communicate, data must travel down the
layer stack to the physical layer so it can be passed
between nodes in the network. At each node, the packet
is processed and forwarded; how far up the layer stack it is
processed depends on the function served by the node.
Application
Presentation
Session
Transport
Network
Data Link
Physical
PC LAN Switch Router LAN Switch PC
2 2
We now look at the OSI reference model in action, and track how it governs communication between networked
devices. For data to be transferred from a user application program (e.g., Outlook or Internet Explorer) on one
computer (or other connected computing device) to a user application program on another computer, it must pass
through each of the OSI layers on both the transmitting and receiving computers. This is because user applications
operate at layer 7 of the OSI model, while the port used to transmit the data operates at layer 1.
To get the data from layer 7 to layer 1 on the transmitting device, control is passed from one layer to the next,
starting at the application layer, down through the middle layers until it reaches the physical layer. The data then
travels as layer 1 traffic over the physical network link to the receiving device and back up the layer hierarchy.
If more than one physical link separates communicating devices, for instance if the devices are on different floors in
an office building, the information contained within the transmitted signal will be processed by each intermediate node
sitting on the network between those two devices. These nodes can be hubs, switches, routers, servers, or anything
else connected to the network. How far up the OSI layer stack the information will be processed depends on the
function served by the node. For instance, LAN switches tend to process information at layer 2, meaning that the
information will travel up the layer stack from layer 1 to layer 2, will be processed by the switch at layer 2 and then
will go back down to layer 1 within the switch before it is sent on its way. Routers process data at layer 3; the path is
similar except that the information will travel as high as layer 3 before being sent back down. More complex devices
operate at layers 4-7, as they need to look at the type of data being transmitted in order to perform their functions.
164
Networking
Networking
Encapsulation in the OSI Reference Model

Each layer of the OSI model can communicate directly with
peer devices at the same layer. In order to communicate
with layers above and below, control information in the
form of headers and trailers is used. Higher layer headers
and trailers are treated as payload data for lower layers.
This technique is known as encapsulation.
Device 1 Information Unit Device 2
Application Application
Presentation Presentation
Session Data Message Session
Transport L4H Data L4H Segment Transport

Packet or
Network L3H Data L3H
Datagram
Network
Frame or
Data Link L2H Data L2H
Cell
Data Link
Physical Data Physical
L4H = Layer 4 header L3H = Layer 3 header L2H = Layer 2 header

L4T = Layer 4 trailer L3T = Layer 3 trailer L2T = Layer 2 trailer
Each layer in the OSI model can communicate with only three other places in the network: the layer directly above it
within the device, the layer directly below it in the device and its peer layer in other networked devices.
The latter process, communication with peer devices, is straightforward: at any given layer, networked devices use
the same protocols and are designed to interact together. In order to communicate with other layers, however,
control information in the form of headers and trailers prepended or appended to the payload data stream is used.
Each layer uses the information in the header/trailer below it in order to process the received payload data. As
information travels up the stack, each OSI layer removes the header attached by its corresponding peer layer and
forwards the remaining information to the next higher layer. On the way down, each layer will add its own headers
and trailers; these will be treated as payload data by lower layers. This is known as encapsulation.
Some common terminology used in referring to the information units passed between OSI layers is defined below.
• Message: An information unit whose source and destination layers lie above the network layer.
• Segment: An information unit, including header/trailer, whose source and destination layers are transport
layer entities.
• Packet or Datagram: An information unit, including header/trailer, whose source and destination layers are
network layer entities. Datagrams are used in connectionless services.
165
• Frame or Cell: An information unit, including header/trailer, whose source and destination layers are data link
layer entities. A frame is of variable length while a cell has a fixed length (like in an ATM network).
Encapsulation Demonstration
To demonstrate the principles of encapsulation, we will again follow an E-mail as it makes its way through the PC, but
will now complete the process by sending it over the network and opening the E-mail on the recipient’s PC. An E-mail
application at layer 7 on the transmitting PC generates the E-mail and tells the system to send it over the network
(that’s Microsoft Outlook telling Windows it has an E-mail to send). The PC initiates a session (Windows accesses the
communications software on the Ethernet NIC/LOM connection) and puts headers and trailers on it and sends it to the
lower layers. As it travels down the network stack (within the NIC card at this point), each layer adds headers and
trailers to the outside of the previous layer until a fully stacked frame or cell is created. The frame or cell is then
placed on the network by the physical layer device (the PHY device on the NIC card).
The frame or cell, encapsulated in some physical layer protocol (e.g., Ethernet), is then read by the physical layer and
data link layers of all other devices to determine if the frame or cell was intended for it. In the case of switches and
routers, the devices will forward the frames out toward other network devices (the distinction being that switches will
dump the frame out the port closest to the destination, whereas a router will actually find the best route for the frame
and forward it on).
Once it finally reaches its destination, the cell will travel up the layer stack. Each layer (starting with those in the NIC
card, then the communications software, then Windows) will strip off the headers and trailers from the layer below
and pass the data up until it reaches the application (Outlook again or some other E-mail client).
166
Networking
Networking
Four Key Markets:

Ethernet (LAN)
The most pervasive local area networking protocol, Ethernet is used to
connect PCs and other networked devices in a single physical location.
Wireless LAN (802.11)

Wireless LANs connect users in a single location using radio waves. They
are usually used in conjunction with a LAN or broadband Internet
connection to “extend” the wired network wirelessly.
Bluetooth
The most common personal area networking protocol, Bluetooth
connects two devices in close proximity wirelessly. Bluetooth is
particularly prevalent in the handset market.
Storage
Enterprise storage systems, including direct attached storage (DAS),
storage area networks (SAN), and network attached storage (NAS).
This section deals with equipment used to implement pure data network technologies, i.e., those networks that
connect multiple computers, peripherals, or storage devices together in a single physical location. Networking
equipment is usually designed around the needs of corporate IT networks, though SMB/home/consumer networking
has gained significant traction in the past few years as well. Key networking technologies include:
• Ethernet: The primary wired data networking technology for computers and servers, Ethernet is a fast, scalable,
cost-effective technology used to connect PCs in a corporate or home network.
• Wireless LAN (802.11): Wireless LAN technology mimics a wired LAN but replaces the Ethernet cable with
radio waves—allowing for the networking of PCs at distances up to 300 feet without wires. It is usually used in
conjunction with a LAN or broadband Internet connection to “extend” the wired network. Wireless LAN technology
uses unlicensed spectrum, primarily 2.4 GHz and 5 GHz.
• Bluetooth: A personal area networking technology, Bluetooth is a fast, cheap, low power wireless protocol used
to connect two devices in close proximity. Bluetooth is particularly prevalent in the handset market.
• Storage: Enterprise storage, while primarily implemented via direct-attached hard drives today, is increasingly
moving to Fibre Channel-based storage area network and network attached storage systems, mimicking an
Ethernet network and providing increased efficiency, manageability, scalability and upgradeability.
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Ethernet
Ethernet
Ethernet is the most popular protocol used in local area

networks. PCs, servers, and printers equipped with
Ethernet ports connect to switches that direct traffic
around the network. Data packets bound for locations
outside the LAN are addressed and forwarded by routers.
LAN Switch Hub

Fast/Gigabit
Network Printer with Ethernet
Ethernet Port
Fast/Gigabit
Ethernet
PCs with NICs or LAN-

on-Motherboard (LOM)
Server Gigabit
Ethernet
PCs with NICs or LOM
Router or Connection to the WAN

Layer 3 Switch
Source: Cisco Systems, CIBC World Markets Corp.
Ethernet is the most pervasive protocol used in local area networks. Ethernet is a packet-based broadcast
technology, meaning that it sends addressed information out over the network rather than establish a dedicated line
between two devices (we discuss packet switched and circuit switched networks in more detail in the
datacom/telecom section). A PC that has data to send “broadcasts” the data, along with the recipient’s address, over
the network. All devices attached to that network link read the address; if the packet is bound for that device it
extracts the payload; otherwise that packet is ignored. In practice, most Ethernet networks use a switched
architecture, meaning that switches are used to forward traffic between clients on the network; this cuts down on
redundant traffic and frees up bandwidth on the network.
To connect to an Ethernet network, client devices require a Network Interface Card (NIC), which provides the link to
the network. Most PCs today ship with LAN-on-motherboard (LOM), which eliminates the need for a discrete NIC
card. Each client connects via Category 5 cable up to an Ethernet switch (fiber can also be used, though this is less
common). As the client sends packets out, the switch reads the address and determines which of its ports the
recipient sits on and broadcasts the packet out on that port, where it is received and opened by the recipient client.
Switches in the LAN are generally connected to one another via uplink ports (an uplink port is the same as a standard
Ethernet port but is sometimes a higher speed port) to form a LAN backbone. This LAN backbone allows
communication between clients throughout the LAN and also interfaces with a router to send and receive data to and
from the Internet (or to other corporate LANs over a WAN).
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Ethernet
Ethernet
Types of Ethernet Equipment

NIC (Network Interface Card) - Add-in card installed in PCs, servers,
and other Ethernet clients to connect the device to the network. Most
client devices have migrated to LAN-on-motherboard solutions.
Hub - Simple LAN device that connects multiple clients and forwards data
traffic without much protocol processing.
Bridge - Simple LAN interconnect device used to connect two LANs.
Layer 2 Switch - The basic LAN building block, layer 2 switches connect
multiple LAN segments and provide packet forwarding between input and
output ports through a switch fabric in order to reduce network congestion.
Router - Intelligent packet forwarding device that operates at layer 3 of

the OSI stack. Routers are placed strategically within a network and
communicate with each other to determine the optimal route through the
network for packet forwarding. Routers also perform protocol translation.
Layer 3 Switch - Adds routing capability to the basic Ethernet switch,

eliminating the need for packets to be routed centrally.
Layer 4-7 Switch - Performs packet forwarding and routing based on

deeper data packet information (as per layer 4 of the OSI model), enabling
multiple classes of service (CoS) and better quality of service (QoS). It can
also do load balancing and intelligent provisioning.
Types of Ethernet Equipment

Network Interface Card (NIC): Network interface cards are add-in cards that provide network terminals with an
interface to the LAN. NICs operate at the lowest two layers of the OSI reference model. NICs are responsible for
segmenting and framing the user data stream (data link layer functions) and for signal shaping and conditioning
(physical layer functions) required to transmit data over the LAN medium. IEEE compliant NICs ship with a
predefined, hard-coded MAC address that uniquely identifies the terminal device from all others connected to the LAN.
LAN-on-Motherboard (LOM): Most PCs now ship with a LAN-on-Motherboard, which essentially captures the entire
functionality of a NIC card on a single chip down on the PC motherboard.
Hub: Hubs reflect the trend in LAN network topologies away from bus architectures toward star architectures. Hubs
connect multiple terminal devices, each via a dedicated cable, and provide a connection to other hubs, switches or
routers. Hubs operate at the data link layer and the physical layer and simply forward data packets based on the
destination MAC address. Hubs do not perform significant packet processing and do not make routing decisions.
Hubs provide congestion control in LANs. Unlike a bus topology, in which all devices on a LAN segment are physically
connected, the star topology connects terminal devices to the hub only. This way, when a terminal device has data to
transmit, it does not prevent other devices from transmitting simultaneously. In addition, unlike the bus topology in
169
which every packet is examined by each device on the network, the hub forwards the packet only to the intended
recipient. Hubs also serve as a point of data aggregation in the LAN.
Bridge: Bridges are simple LAN interconnection devices that connect two bus-based LANs running the same protocol.
Like hubs, bridges operate at the lowest two layers of the OSI reference model (the data link layer and the physical
layer) and forward traffic from one LAN segment to another based on the MAC address of the data packet. They do
not perform any significant processing of data packets, nor do they make any routing (layer three) decisions. They
simply extend the physical size of a LAN.
Switch: Switches serve to interconnect multiple LAN segments and/or terminal devices. Like hubs and bridges,
switches operate at the data link layer and physical layer of the OSI reference model and provide packet forwarding
based on destination MAC addresses. Switches differ from bridges and hubs by offering packet forwarding between
multiple input ports and multiple output ports through a central switch fabric. They therefore prevent network
congestion on LAN segments that do not include either the originating or receiving device. Furthermore, switches
allow multiple simultaneous communications across the fabric on a point-to-point basis. Switches may support
simultaneous communications over a single, high speed physical link through time division multiplexing.
Router: Routers are intelligent packet forwarding devices that operate at the three network dependent layers
(physical, data link and network layers) of the OSI reference model and serve two basic functions: determining
optimal routes or paths through the network and packet forwarding. Routers typically serve to interconnect LAN
segments as well as to interconnect LAN segments to the WAN. As such, routers typically support multiple data
networking protocols, such as T1/E1, T3/E3, Ethernet, Token-Ring, FDDI, Frame Relay, ATM and SONET/SDH.
Routers, especially high speed routers, perform the packet routing in hardware in order to provide the greatest
possible performance.
Unlike switches that view the network on a link-to-link basis, routers view the network on a global basis and have
knowledge of neighboring routers. Routers dynamically maintain network topology data, including neighboring
routers, route distance, route delay and route congestion levels, and update this information as network conditions
change. In addition, routers are self-learning devices. When introduced into a network, a router exchanges
information as to network topology with neighboring routers. In this process, the newly introduced router learns the
topology of the network from its neighbors, while simultaneously allowing its neighbors to update their view of the
network to reflect the existence of the new router. When making packet forwarding decisions, routers depend on this
accumulated network intelligence. Routing decisions may be based on such factors as destination address, payload
type, packet priority level (contained in the IP header), least-cost route, route delay and route congestion levels.
Layer 3 Switch: As discussed, switching typically takes place at layer 2 of the OSI reference model. Layer 3
switching is the switching of packets through a network based on decisions made by edge routers and carried out by
switches. The network is divided into sub-segments, with each sub-segment given a unique tag or label. When a
packet reaches an edge router, the router identifies the destination address, selects the appropriate output port from
its routing table and prepends a tag or label to the packet header. The edge router then forwards the packet to a
layer 3 switch and the packet passes between layer 3 switches that forward the packet based solely on the prepended
tag or label. By making intelligent routing decisions at the edge of the network and performing only switching in the
network core, the number of network routers may be reduced, thereby limiting the number of router peers with which
each router must interact.
Layer 4-7 Switch: Layer 4-7 switching operates at the transport layer (layer 4) and above of the OSI reference
model. Layer 4-7 switching goes beyond IP to transport layer protocols such as TCP or UDP to make packet
forwarding decisions. Layer 4-7 switches are able to look deep into data packets to extract information regarding the
packet content and the application protocols exchanging the data packet. Using this information, together with details
about network congestion, delay and loss, the layer 4-7 switch makes packet forwarding decisions. With the ability to
differentiate classes of traffic, layer 4-7 switches have the ability to prioritize those flows with more strict
requirements, thereby meeting quality of service demands. They also perform load balancing functions, keeping
congestion down to manageable levels.
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Ethernet
Ethernet
Strong corporate profits and a focus on productivity

drove strong IT spending through the 1990s, pushing
corporate PC LAN penetration to over 90%. In 2001,
switch port faltered as IT budgets compressed with the
economic downturn. The market stabilized in 2002,
and has grown nicely from 2003 to 2005 on stronger
economic activity. Continued growth and healthy
upgrades of corporate LANs should combine with rising
consumer usage to drive growth going forward.
Switch Port Shipments PC LAN Penetration
250,000 100%
LAN ATM
90%
Shared FDDI
Token Ring 80%
200,000
Shared Ethernet
Switched Ethernet 70%
LAN penetration in business,
government, and education
Ports in Thousands
150,000 60%
LAN penetration in home and
50% small office
100,000 40%
30%
50,000 20%
10%
- 0%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Dell’Oro, CIBC World Markets Corp. Source: Dell’Oro, CIBC World Markets Corp.
After being introduced in the early 1990s, Ethernet equipment enjoyed a steady ramp as corporate IT departments
began building LANs to connect their PCs. From under 10 million switch/hub ports shipped in 1993, the market grew
to more than 160 million port shipments in 2000 (larger than the PC market, actually). The economic boom of the
1990s coupled with the growth in productivity and the increasing use of e-commerce and the Internet quickly drove
corporate PC LAN penetration above 90%.
With Ethernet ubiquity in the enterprise basically achieved by 2000, the economic downturn in 2001 and the
compressed IT budgets that accompanied it caused the industry’s first decline in port shipments. The market then
stabilized in 2002 and experienced healthy growth from 2003 to 2005 as business spending rebounded with stronger
economic activity.
On the consumer and SMB, or small to medium-sized business, side, LAN usage has grown steadily but more slowly.
Lower-cost switch and router equipment and the increasing penetration of broadband are accelerators in this market,
though we doubt LAN usage will ever approach similar levels to the corporate environment.
Looking ahead, growth in the Ethernet market will be dependent on continued growth in the enterprise as well as
upgrades of corporate PCs (layer 3 switching, power-over-Ethernet, etc.), boosted by continued penetration of
Ethernet in the home and small business environment as well as the consumer space.
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Ethernet
Ethernet
Ethernet Port Forecast Ethernet Equipment

•Total Ethernet ports are expected to grow Suppliers
at a 10% rate, from 549 million ports in
2005 to 866 million ports in 2010. Ethernet Switches
•Ethernet connectivity is ubiquitous in PCs Others
and penetration has plateued. Foundry Alcatel
11 %
•Switch ports are still growing from both 1%

Enterasys
1%
new LAN buildouts and healthy upgrades; 1%

networking OEMs continue to pack better Extreme
2%
performance and more advanced security Allied Telesyn
3%
and manageability to keep these going. NetGear
3%
•Networking CPE should remain >15% of D-Link
the market; these include printers, game 4% Cisco
Nortel 53 %
consoles, set-tops, modems and other PC 4%
peripheral and consumer devices.
3Com
1,000,000
8%
Infrastructure
900,000 Networking CPE
Switching
800,000 NIC/LOM HP
8%
700,000
Unit/Port Shipments (000s)
600,000 PCs Servers

500,000
Dell HP
400,000 HP Dell
300,000 Lenovo IBM
200,000 Acer Fujitsu/F-S
100,000 Fujitsu/F-S NEC
- Toshiba Sun
2003 2004 2005 2006 2007 2008 2009 2010
Source: Dell’Oro, IDC, Dataquest, CIBC World Markets

Source: Dell’Oro, IDC, CIBC World Markets Corp.
Ethernet Port Forecast: Key unit opportunities in the Ethernet market include PCs, switches, networking CPE, and
infrastructure equipment. PC ports are usually implemented either with discrete NICs (network interface cards) or
LOM (LAN-on-motherboard) solutions. Switches include the traditional LAN infrastructure, from the smallest SOHO
switches to the most advanced layer 4-7 switches. Networking CPE includes devices such as broadband modems, set-
top boxes, game consoles and PC peripherals that incorporate Ethernet connectivity. Infrastructure includes a variety
of high-end computing, communications, and storage hardware found in large IT and telecom networks.
PC NIC and LOM ports are expected to grow roughly in line with PCs, growing from 221 million ports in 2005 to 363
million ports in 2010, a 10% CAGR. Nearly all PCs ship with Ethernet capability today; servers use a mix of NIC and
LOM solutions and often carry more than one Ethernet port for additional bandwidth as well as for redundancy.
The second major opportunity is Ethernet switches, which include simple layer 2 switches (simpler devices that switch
and forward packets), layer 3 switches (add routing functionality) and layer 4 and above switches (switches with
higher layer intelligence, for load balancing and other management capabilities). Looking ahead, switch ports are
expected to grow 8%, from 224 million ports in 2005 to 324 million ports in 2010. A shift toward higher layer
switches should continue; in 2010, estimated switch ports are split 51% layer 2 and 49% layer 3 and above. Note
that although we forecast them separately, the line between layer 2 and 3 switches is blurring.
172
The third unit opportunity is networked CPE devices that incorporate Ethernet functionality (boadband modems,
printers, game consoles, set-top boxes, VoIP phones and other PC peripheral and consumer devices). We expect this
segment to grow from 103 million ports in 2005 to 158 million ports in 2010, a 9% CAGR.
The fourth unit opportunity is infrastructure equipment, which includes blade servers, storage networking devices
(iSCSI), broadband infrastructure (DSLAMs, CMTS, etc.), and ATCA equipment. We expect this segment to grow from
1.2 million ports in 2005 to 21.4 million ports in 2010, a 66% CAGR.
In terms of speed/protocol, the majority of Ethernet traffic today uses 100 Mbps Fast Ethernet links, though the
market is ramping quickly to Gigabit Ethernet. In 2005, we estimate the FastE/GigE split was 64%/36%. By 2010,
the split should be 18%/80% with the balance shifting to 10 GigE (for infrastructure and high end switching market).
By device type, 35% of NIC/LOM ports, 76% of switch ports, and 97% of networking CPE ports were at FastE in 2005.
GigE totaled 65% of NIC ports, 24% of switch ports, 3% of networking CPE ports, and 98% of infrastructure ports in
2005. By 2010, GigE should represent 90%-100% of NIC/LOM and switch ports and 68% of infrastructure ports (the
rest being 10 GigE). Note that Fast Ethernet should continue to dominate networking CPE ports.
The exhibits below display the mix of switch ports by functionality, as well as by speed for switches, NIC/LOM and
other networking CPE and infrastructure applications.
Ethernet Switch Ports By Layer Served Ethernet Switch Ports By Speed

100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 10 Gigabit Ethernet

20%
Layer 3 Switches Gigabit Ethernet
10% 10% Fast Ethernet
Layer 2 Switches
0% 0%
2003 2004 2005 2006 2007 2008 2009 2010 2003 2004 2005 2006 2007 2008 2009 2010
NIC/LOM Ports by Speed Networking CPE and Infrastructure Ports by Speed

100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
10 Gigabit Ethernet 10 Gigabit Ethernet

20% 20%
Gigabit Ethernet Gigabit Ethernet
10% 10% Fast Ethernet
Fast Ethernet
0% 0%
2003 2004 2005 2006 2007 2008 2009 2010 2003 2004 2005 2006 2007 2008 2009 2010
Ethernet Equipment Suppliers: Cisco was the dominant supplier of Ethernet switches in 2005 with 53% port share.
HP and 3Com followed with 8% share each. All other suppliers of Ethernet equipment each held less than 5% share;
these include Nortel, D-Link, NetGear, Allied Telesyn, Extreme, Enterasys, Foundry, and Alcatel.
PC and server vendors (for NIC/LOM solutions) include Dell, HP, Lenovo, Acer, Fujitsu/F-S, Toshiba, NEC, and Sun.
Vendors of networked CPE devices include manufacturers of modems, printers, game consoles, set-top boxes, and a
variety of other PC peripherals and consumer electronics devices.
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Ethernet
Ethernet
The microprocessor and A switch fabric chipset Usually found in layer 3 switches,
core logic control overall switches data packets aids in the routing process by quickly
switch functioning between ports looking up network addresses
Look-up
Core
Microprocessor Engine/CAM
Logic
Memory used by the
Switch Fabric Chipset (Layer 3 Switch)
processor
SRAM Flash MAC MAC MAC MAC SRAM

Ethernet
Switch
SRAM memory is used
by the switch fabric and
the look up engine
Performs Ethernet protocol

processing, removing and
applying Ethernet overhead
Ethernet Ethernet Ethernet Ethernet
PHY PHY PHY PHY
RJ-45 RJ-45 RJ-45 RJ-45

Interfaces with the Ethernet
Ethernet Ethernet Ethernet Ethernet
cable, performing transmission Cable Cable Cable Cable
and reception function and
converting the signal between an
analog serial stream and a digital
parallel stream, and vice versa
An embedded PCI or PCI-
Express controller
RJ-45 provides the interface with
Ethernet Ethernet PHY the host system
NIC/LOM Cable
Host
Interfaces between the host
system and the Ethernet
MAC PCI
System
cable, performing physical
layer (a/d conversion) and
MAC layer (protocol SRAM
Source: IDC, CIBC World Markets Corp. SRAM memory is
processing) functions used by the MAC
Ethernet Port (NIC and Switch)

• Ethernet PHY: Sometimes called a transceiver, the PHY interfaces with the RJ-45 Ethernet cable (or optical
fiber) and converts the serial analog stream to a digital parallel stream and vice versa. In a switch, these are
implemented as multi-port (quad, octal, etc.) PHYs. In a NIC/LOM, they are part of the Ethernet controller.
• Ethernet MAC, SRAM: The MAC assigns and removes Ethernet headers and overhead. In a switch, these are
usually integrated into the switch fabric chipset. In a NIC/LOM, they are part of the Ethernet controller. MACs
typically use a small quantity of SRAM memory.
Switching Block (Switch Only)

• Switch Fabric: The switch fabric receives packets from the various Ethernet ports and switches them between
ports or sends them to the uplink port (if the destination is a port on another switch or the WAN or Internet).
• Lookup Engine/CAM: Usually found in layer 3 switches, a lookup engine aids in routing by quickly finding
addresses. A specialty SRAM known as a CAM (content addressable memory) is used to store the route table.
• Microprocessor, Core Logic, SRAM, Flash: This block—which contains a microprocessor, one or more co-
processors, core logic, FPGAs, SRAM and flash—controls the overall system and performs high-end functions.
174
Ethernet
Ethernet
Ethernet Semiconductor Ethernet Semiconductor

Forecast Competitors
•We expect the market to grow at a 6% Vitesse
1%
Others
5%
CAGR, from $2.1 billion in 2005 to $2.8 Standard Micro
billion in 2010. IBM Micro
2%
4%
•We expect Gigabit Ethernet to grow from Agere Broadcom
$1.3 billion in 2005 to $2.1 billion in 5% 34 %
2010, an 11% CAGR. Avago
•10/100 Mbps Ethernet is expected to 5%
decline at a 29% CAGR, from $867 million LSI

in 2005 to $157 million in 2010. 6%
•10 Gigabit Ethernet should be used in Realtek

high-end switches and servers; we expect 7%
it to grow to over $550 million in 2010.
$3,000
Intel Marvell
10 Gigabit Ethernet
12 % 18 %
Gigabit Ethernet
$2,500
Fast Ethernet
PC LAN
$2,000
PHY & Switch Switch

Controllers
$1,500
ASSPs ASICs
(PHY + MAC)
Broadcom LSI Logic
$1,000 Broadcom
Marvell IBM
Intel
Avago Agere
$500
Realtek
Realtek Avago
Marvell
Vitesse TI
$0
Agere
2003 2004 2005 2006 2007 2008 2009 2010
Vitesse Intel Fujitsu
Agere
Note: Our Ethernet semiconductor forecast includes all silicon used in PC LAN connections as well as in
other client applications. On the infrastructure side, we include all Ethernet-specific devices, including
PHYs, MACs, and switch fabric ICs. Our forecast excludes network processing, CAM, and control plane
devices that are used in high-end switches and switch/routers. These devices are included in our
communications infrastructure semiconductor forecast, found in the telecom/datacom section.
Ethernet Semiconductor Forecast: The market for Ethernet ICs is expected to grow at a 6% CAGR, rising from
$2.1 billion in 2005 to $2.8 billion in 2010. Revenue growth should trail units due to aggressive ASP declines, though
this will be offset partially by 1) the mix shift toward Gigabit, 2) faster growth rates for higher ASP infrastructure ports
and 3) growth of layer 3+ switch solutions.
Growth is expected to be led by Gigabit Ethernet, expected to rise from $1.3 billion in 2005 to $2.1 billion in 2010, an
11% CAGR. 10 Gigabit Ethernet, initially being used in LAN backbones and high-end servers, is expected to grow
from modest revenue in 2005 to $554 million in 2010. 100 Mbps Fast Ethernet is expected to decline at a 29% rate,
from $867 million in 2005 to $157 million in 2010.
By device, about 29% of Ethernet IC revenue in 2005 was derived from PC clients (NIC/LOM solutions). 65% of
revenue was derived from switch applications, split roughly 75/25 in favor of switch ASICs/ASSPs vs. PHY chips. 6%
was derived from networking CPE applications and 1% from infrastructure. We expect this mix to change just slightly
175
over the forecast period. Switching is expected to grow at a 4% rate through 2010, followed by NIC/LOM at 3%; both
segments should see aggressive ASP declines, though this should be offset modestly by the transition to GigE and
growth of layer 3 switching. Networking CPE devices should see the strongest growth at an 8% CAGR as penetration
of Ethernet technology in these devices increases, outweighing price declines that will accelerate as Ethernet hits the
consumer electronics market. Infrastructure Ethernet ICs should grow from a small base to 7% of total in 2010.
The exhibits below display Ethernet IC revenue mix by speed and device.
Ethernet IC Revenue Mix By Speed Ethernet IC Revenue Mix By Device

100% 100%
80% 80%
60% 60%
40% 40%
10 Gigabit Ethernet
20% 20% Infrastructure
Gigabit Ethernet Networking CPE
Fast Ethernet Switch/Infrastructure ASSP/ASIC
Switch/Infrastructure PHY
NIC/LOM
0% 0%
2003 2004 2005 2006 2007 2008 2009 2010 2003 2004 2005 2006 2007 2008 2009 2010
Ethernet Semiconductor Competitors: The Ethernet semiconductor market has grown more competitive as LANs
have become ubiquitous in corporate PCs. In 2005, the top vendors were Broadcom with 34% share, Marvell with
18% and Intel with 12%. Note that Broadcom and Marvell each took share due to their strong GigE portfolios in both
NIC/LOM and switches. Following the top three were Realtek and LSI, with 7% and 6% share, respectively, followed
by Avago and Agere each with 5%. Other major vendors included IBM, Standard Micro, and Vitesse.
In terms of devices, the PC controller space is served by Intel, Broadcom, Marvell, and Realtek. Note that Intel and
Marvell have a joint solution for GigE controllers; Marvell integrates Intel’s MAC with its PHY, which Intel resells;
Marvell and Intel also offer their own controllers to the market independent of the partnership products.
On the switch side, Broadcom and Marvell dominate the mainstream and performance GigE PHY and switch ASSP
markets, while Vitesse has carved out a nice niche at the low end for SMB applications. Realtek and Intel lead in Fast
Ethernet, though Broadcom and Marvell also have a presence there. Agilent and Agere also offer ASSP solutions,
though they have failed to gain significant traction.
A great percentage of switches still use custom ASICs—the best example is Cisco (over 50% of the market in port
shipments), which uses mostly custom ASICs. The leading switch ASIC vendors (to Cisco and others) include LSI
Logic, IBM, Agere, Agilent, Texas Instruments, and Fujitsu.
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Ethernet
Ethernet
Ethernet Semiconductor Market Trends

•Gigabit Ethernet has moved from the corporate desktop to the
mainstream consumer PC; the Gigabit premium is now below $3 for
a PC controller and heading to negligible levels.
•Chipset vendors may begin pulling the MAC into the PC chipset,
leaving only a PHY external.
•High end NICs are coming to market incorporating RDMA, iSCSI,
TOE engines, and network management capability.
•10 Gigabit merchant ICs are starting to hit the market.
•Gigabit Ethernet switching continues to ramp aggressively from
top to bottom.
•While ASICs continue to play a significant role in switch designs,
all but the largest switch vendors are moving to ASSP solutions.
•GigE switch designs have consolidated around Broadcom and
Marvell, though Vitesse is now established at the low end.
•Switches based on integrated switch/MAC/PHY SoCs are beginning
to ramp for the low end.
•Multi-port (4-, 8-port) PHYs are enabling high-density (24-, 48-,
72-port) Gigabit switches.
• Gigabit Ethernet has moved from the corporate desktop to the mainstream consumer PC. 2005 was a
big year for Gigabit Ethernet in PC clients, with most PCs shipping moving to Gigabit as the price premium came
down. In total, we estimate that nearly 65% of NIC/LOM ports shipped with Gigabit in 2005 (vs. 35% in 2004).
We expect this trend continued in 2006 and expect nearly 85% of PCs to ship with Gigabit Ethernet. By 2007,
this percentage should increase to over 95% according to our forecast.
• Chipset vendors may begin pulling the MAC into the PC chipset. This would allow a PC OEM to implement
the GigE port with just an external PHY, lowering the total bill of materials. We would expect this architecture to
start as a low end solution, with most higher-end PC platforms opting for the traditional MAC+PHY controller.
• High end NICs are coming to market incorporating RDMA, iSCSI, TOE engines, and network
management capability. With Gigabit Ethernet now fully penetrated in the server market (and 10 Gigabit
ramping in some cases), NIC/LOM suppliers are looking to add increased functionality to enable lower latency,
more efficient data throughput, and greater management features. Broadcom’s C-NIC is a prime example; it
incorporates RDMA technology and a TOE engine for lower latency and better performance, iSCSI for storage, and
network management features to give IT managers better control over their server client devices.
• 10 Gigabit merchant ICs are starting to hit the market. A number of credible start-ups are now shipping
merchant PMD and PHY devices for 10 Gigabit over fiber, while others have focused on the controller (most of
177
these are shipping full NIC card solutions to enable the ecosystem). Others are pursuing 10 Gigabit copper PHYs,
while a third group attacks switching. We would expect these products to see meaningful design-in traction in
2007 with more volume in 2008 and beyond.
• Gigabit Ethernet switching continues to ramp aggressively from top to bottom. Originally a high-end
technology with a hefty premium, Gigabit Ethernet is now showing up across the entire switch market, from high
end modular switches to 8-port switches for SMB. In 2005, at least eight switch vendors shipped more than one
million ports of Gigabit Ethernet. Total ports increased 70% year-over-year and topped 52 million, or about 24%
of total switch port shipments and 51% of switch revenue. With the Gigabit premium continuing to come down,
we expect the market to accelerate toward our 2010 estimate of 90% port shipment penetration.
• While ASICs continue to play a significant role in switch designs, all but the largest switch vendors are
moving to ASSP solutions. ASIC suppliers continue to dominate the landscape for Ethernet switch fabric ICs.
The best example is Cisco (over 50% of the market in port shipments), which jointly designs its fabric ICs with a
multitude of suppliers (Cisco itself has more than 250 ASIC engineers). As the market moves to Gigabit, we
expect only the largest switch vendors to retain the same level of ASIC investment; most should move to ASSP
solutions. To meet this demand, the major ASSP vendors have been introducing more advanced switch fabric
chipsets, with integrated MACs, layer 3-7 functionality (for routing support) and built-in support for uplink ports.
Next-generation designs are even incorporating network search engines for more robust routing. Note that the
maturity level of these ASSP solutions is also incubating the ODM market, with vendors like Accton, Delta, Alpha,
BATM, Runtop, Cameo and others.
• GigE switch designs have consolidated around Broadcom and Marvell, though Vitesse is now
established at the low end. While designs using Gigabit Ethernet ASSPs are still in the early part of their
product life cycles, design wins to date point to a consolidation around two vendors: Broadcom and Marvell.
These vendors have mature PHY and switch fabric IC solutions and strong customer relationships. Vitesse has
made some significant progress at the low end, specifically with unmanaged layer 2 switches and CPE devices,
and is also becoming a significant supplier to this market. Other players such as Agere, which acquired both a
switching ASSP start-up and a PHY start-up to add to its ASIC capability, and SwitchCore, a start-up based in
Sweden, have been less successful at penetrating this market.
• Switches based on integrated switch/MAC/PHY SoCs are beginning to ramp for the low end. Already
shipping are 8-port switches based on single SoCs incorporating switch, MAC, and PHY functionality, and 24-port
designs should ramp soon. Much of Vitesse’s success on the low end is due to its aggressive roadmap with single-
chip switches. Note that these switches are targeted at the low end; we do not expect the mainstream market to
migrate to integrated SoCs for some time.
• Multi-port Gigabit PHYs are enabling the high-density Gigabit switch market. The earliest Gigabit
Ethernet deployments on the switch side were uplink ports, requiring only one or two per switch. In order to
enable Gigabit throughout the LAN, higher density switches (those with 24 or 48 ports) were required, which are
enabled by higher density multi-port PHYs. Both Broadcom and Marvell are shipping 4- and 8-port PHY devices
and others are ramping multi-port devices now as well.
178
Wireless
Wireless LAN
LAN
Wireless LANs use the 802.11 protocol to send data

traffic over unlicensed 2.4 GHz and 5 GHz radio waves,
mimicking Ethernet but with a wireless connection.
Wireless LAN has seen runaway success in home
networking, specifically for distributing a broadband
Internet connection wirelessly around the home. The
technology got a big boost from Intel’s Centrino program,
which has driven notebook penetration to north of 80%.
Wireless LAN in a Home Application

Wireless
NIC
1
802.1
Fast Ethernet DSL/Cable Connection
Wireless DSL/Cable Modem

Access Point
Wireless LANs connect multiple PCs (or other connected devices) in a single location and provide the ability to share
files, hardware and resources in a fashion similar to traditional wireline Ethernet LANs. The distinction, of course, is
that no physical wiring is needed to connect any single client PC to its neighbor (or the server, or printers, or PDAs
etc.). Instead, wireless LAN encodes data using the 802.11 protocol and broadcasts it over unlicensed spectrum.
Although most networking technologies to date have been geared to corporate networks, wireless LAN offers the first
true connectivity solution for the home. In fact, it is the home networking market that has really driven wireless LAN
sales to date, boosted by Intel’s Centrino program, which incentivized OEMs to include WLAN in notebooks, eventually
driving penetration notebook WLAN penetration north of 80%. In the home setting, wireless LANs act as the primary
method of sharing a broadband Internet connection. Access points designed for the home interface directly with a
cable or DSL modem (using an Ethernet connection) and distribute the bandwidth to wireless-enabled PCs.
Many industry participants believe that wireless LAN will eventually evolve into a home media distribution system,
used to send video, voice and data around the home wirelessly. Under this topology, modems, PCs, set-top boxes,
game consoles, and VoIP-enabled phones would all be networked together wirelessly, with the ability to share content
and an Internet connection between them. Voice service could easily be distributed wirelessly to WLAN-enabled VoIP
phones. Video could be distributed from wireless-enabled set-tops and digital TVs. Game consoles could access the
Internet (this is already common) as well as the content stored in the PC. Consumer portables and data-enabled
cellular handsets could easily hook up to the network and access a variety of these devices.
179
Wireless
Wireless LAN
LAN
In the corporate environment, 802.11 can be used to

extend the LAN without wires, allowing for greater
mobility among users. We have seen slow but steady
uptake as security, bandwidth, handoff, and
channelization concerns have been addressed.
Wireless LAN in a Corporate Application
802.1
1
Wireless
Wireless
Access
NIC
Point
Fast/Gigabit Fast/Gigabit
Ethernet Ethernet
LAN
Switch
Server Gigabit
Ethernet
PCs with NICs or LOM
Router or
Connection to the WAN
Layer 3 Switch
Source: Cisco, CIBC World Markets Corp.
In the corporate setting, a WLAN is meant to augment the connection from user to user currently accomplished with
NICs and Ethernet cable. It is not designed to replace the traditional LAN switch and backbone architecture, as it
requires this equipment to switch and route data and to provide the interface to access and edge routers and out to
the WAN. Rather, 802.11 “extends” the LAN without wires. In a typical corporate setting, wireless-enabled PCs
access specialized transmit/receive access points distributed at regular geographic intervals throughout the building or
campus. Access points act both as transmit/receive bases and as a connection between the wireless and wired LAN.
Wireless LAN technology presents even greater utility when used in a campus setting. Wireless LANs provide true
mobility throughout the campus and can be used to provide intranet and Internet access to notebook computers,
PDAs and other handheld devices across the campus with no need to connect or configure equipment. They are
especially popular with campuses that have inherently mobile users, such as universities and airports.
In terms of adoption, enterprise wireless LAN has been slow to gain steam, owing in large part to IT concerns over
issues like security, bandwidth, handoff, and channelization. The major enterprise networking OEMs, however, have
made a lot of progress addressing these issues. Tougher security standards have been implemented directly into the
802.11 standard, and computing and networking software have additional safeguards as well. 802.11n offers more
bandwidth and channelization. Switch management software and hardware solutions are now coming to market to
support dynamic roaming between access points. Power-over-Ethernet is enabling easier access point deployments.
Some challenges still remain, but we are seeing steady progress in corporate WLAN.
180
Wireless
Wireless LAN
LAN
Wireless LAN Protocols

802.11b - The first wireless LAN standard
to take off, 802.11b runs at 11 Mbps and
operates in the 2.4 GHz band.
802.11a – 802.11a runs at 54 Mbps and operates in the 5

GHz band, and offers more channels than 802.11b. It was
never a success as a standalone protocol, but is still
included in multi-band (a/b, a/g) solutions.
802.11g - 802.11g adds additional modulation schemes

to 802.11b, increasing speeds to 54 Mbps while remaining
in the 2.4 GHz band. Backward compatible with 802.11b.
802.11n – A next generation standard, expected to boost

throughput to 108 Mbps or higher. 802.11n uses MIMO
technology in both the 2.4 and 5 GHz bands.
Although most wireless LAN technologies use the same topology, they can vary widely in terms of standard, each with
its own frequency band, data transfer rate and modulation scheme. A major hurdle holding up volume wireless LAN
deployments was the lack of a clear standard for the equipment makers to center around. Until about five years ago,
two key standards, IEEE 802.11 and HomeRF, were competing for OEM adoption. However, aggressive actions by
OEMs and chip manufacturers, together with the formation of the Wireless Ethernet Compatibility Alliance (WECA),
helped the industry settle on 802.11 as the dominant standard.
Within 802.11, the first sub-standard to take off was 802.11b, an 11 Mbps technology that operates in the 2.4 GHz
band (the same band used by other consumer devices such as cordless telephones, microwave ovens, and Bluetooth
devices). This band is free from government regulation, allowing users to set up wireless LANs without license or
approval. The FCC has defined three spectrum ranges, known as ISM bands, for use by unlicensed continuous
operation up to 1 Watt: industrial (902-928 MHz), scientific (2.4-2.4835 GHz) and medical (5.15-5.35 GHz and
5.725-5.825 GHz). 802.11b was the first wireless LAN standard, operating in the 2.4 GHz ISM band, though it was
quickly replaced with the faster 802.11g. 802.11g uses the same frequency—and thus remains backward compatible
with 802.11b products—but supports data rates of up to 54 Mbps.
Another sub-standard, 802.11a, offers data transfer rates up to 54 Mbps using the less crowded 5 GHz band.
802.11a received a lot of attention but never much deployment as a standalone technology. The primary advantage
of 802.11a, which offers similar data transfer rates as 802.11g, is its higher channel density that provides better
181
average user throughput in congested networks. However, because of its 5 GHz frequency, 802.11a suffers from
narrower range and greater power consumption than 802.11g. It is also not compatible with the large installed base
of 802.11b and 802.11g. As a result, 802.11a deployment has been included as a second band in multi-band
implementations (a/b, a/g solutions), but as mentioned above, very little 802.11a-only equipment ever shipped.
The newest WLAN standard is 802.11n (not yet finalized), which uses both the 2.4 GHz and 5 GHz bands and
leverages MIMO (multiple input multiple output) radio technology to boost bandwidth to 108 Mbps or higher. 802.11n
is expected to be an effective solution for both the home and enterprise. The first products, which are being sold as
“pre-n” or “draft-n” solutions, came to market in 2006. The standard should be ratified some time in late 2007 or
early 2008.
The exhibit below displays WLAN standards and working groups.
IEEE Standards
802.11a The leading standard at 5 GHz, 802.11a operates at speeds up to 54 Mbps. The standard employs a more advanced modulation
scheme, called orthogonal frequency division multiplex (OFDM), than 802.11b that allows data to be encoded on multiple radio
frequencies concurrently. Products based on 802.11a currently deliver a much shorter range than 802.11b/g because of the higher
frequency band, though there is less interference as this band is less crowded.
802.11b The first standard to gain wideband adoption, 802.11b operates in the 2.4 GHz band at speeds up to 11 Mbps. The standard uses
one of several Direct Sequence Spread Spectrum (DSSS) modulation schemes, including Complementary Code Keying (CCK).
802.11b products typically have a range of 200-300 feet.
802.11d 802.11d enables mobile client access between additional countries.
802.11e The 802.11e standard adds a MAC enhancement for quality of service (QoS) features and multimedia support that are critical for
voice, video and audio delivery over wireless LAN. This standard is seen as a critical enhancement toward wide-scale usage in the
networked home.
802.11f 802.11f enables multi-vendor access point-to-access-point communication for DSSS-based equipment.
802.11g 802.11g operates at 2.4 GHz, but uses the OFDM modulation scheme for speeds above 11 Mbps to boost data rates. 802.11g-
based equipment runs at data rates of up to 54 Mbps, making it competitive with 802.11a. A key advantage of 802.11g is that it is
backward compatible with 802.11b; thus, 802.11b NICs will operate with 802.11g access points, though only at 11 Mbps and vice
versa.
802.11h Enhancements incorporated in 802.11h automate frequency band conformance and tuning, employing dynamix frequency selection
(DFS) and transmit power control (TPC). The technology enables 5 GHz compatibility in Europe and is also included in
HiperLAN/2.
802.11i 802.11i adds security features to improve on WEP and supports 802.1x authentication, Temporal Key Integrity Protocol (TKIP) and
advanced encryption standard (AES).
802.11n The next-generation 802.11 standard should support speeds of 108 Mbps or higher, and theoretically can evolve to 540 Mbps over
time. 802.11n builds upon previous 802.11 standards by adding MIMO (multiple-input multiple-output). MIMO uses multiple
transmitter and receiver antennas to allow for increased data throughput and range. Though pre-standard products are currently
shipping, the finalized 802.11n standard is not due for final approval until 2007 or 2008.
802.11p A working group that is extending the 802.11 standard to automobiles. As part of a dedicated short range communications (DSRC)
system, 802.11p operates in the 5.9GHz band and deals with roaming from cell to cell in a fast-moving vehicle.
Source: IEEE, WECA, TechWeb Encyclopedia, company reports and CIBC World Markets Corp
182
Wireless
Wireless LAN
LAN
WLAN Unit Forecast WLAN Equipment Suppliers

•Wireless LAN units are expected to grow WLAN NICs and Access Points
at a 23% CAGR, from 165 million units in Symbol
Others
2005 to 464 million in 2010. 3Com

1%
10 %
•Mobile, consumer, and PC peripheral SMC

1%
2% Linksys
devices to lead growth with a 39% CAGR. Cisco 31 %
•PC connections should grow 23% as 3%

Buffalo
notebook growth continues and desktop 7%
WLAN penetration increases; after-market

PC adapters should decline 16%.
Belkin
7%
•Access points should grow 17%, with the

client/AP ratio increasing from 5.4:1 in
2005 to 7.1:1 in 2010. NetGear
16 % D-Link
21 %
500,000
Notebook PCs
Access points & gateways
450,000 Printers/Peripherals
Consumer Electronics & Other
400,000 Mobile Devices Others Dell
After-market NIC/adapter 19 % 17 %
350,000 Desktop PC embedded
Notebook PC embedded
300,000
ASUS
250,000 2%
Apple
200,000
3%
HP
150,000
NEC 16 %
4%
100,000
Sony
50,000 4%
- Fujitsu/F-S Toshiba
2002 2003 2004 2005 2006 2007 2008 2009 2010 6% 11 %
Lenovo Acer
Source: IDC, CIBC World Markets Corp. 7% 10 %
Wireless LAN Unit Forecast: We forecast a breakout in wireless LAN unit over the next few years as the market
moves beyond PCs into the realm of consumer devices and wireless handsets. Notebooks, access points, and
residential gateways are still growing at fairly solid clips, but should be surpassed over the long term by these new
connected devices. Consumer electronics, PC peripheral, PDA, and wireless handset OEMs are all beginning to
integrate wireless LAN into their devices and plan for an increased number of models using the technology over time.
Declining chipset price points and improved power consumption should bolster this trend. Overall, wireless LAN units
are expected to grow at a 23% rate, from 165 million units in 2005 to 464 million units in 2010.
Note that we forecast faster growth for wireless LAN clients than for access point devices. To illustrate, we expect the
client to access point ratio to increase from 5.4:1 in 2005 to 7.1:1 in 2010. This reflects the growing number of client
devices over and above the PC that will leverage the existing access points and gateways currently in use in the home
and enterprise. There should still be healthy replacement in the home driven by newer standards (802.11n), plus
continued growth in the enterprise market, but clients are still growing at a faster clip. In total, we expect wireless
LAN clients to grow at a 24% CAGR, from 139 million units in 2005 to 406 million units in 2010. Access points and
gateways are growing at a 17% CAGR, from 26 million units in 2005 to 57 million in 2010.
In terms of application, we expect PCs and PC adapters to grow at a healthy rate, but to decline as a percentage of
the market over time, from 58% of total wireless LAN clients in 2005 to 40% in 2010. Notebooks remain the bulk of
these units, and should benefit from strong unit growth plus some marginal penetration growth—in total we forecast a
183
22% CAGR through 2010, with notebook unit shipments topping 150 million. Desktops should grow at a more than
40% CAGR but should still represent less than 10% of total PC wireless LAN units in 2010. Though they will get a
boost from 802.11n in 2007-2008, we expect after-market NICs and adapters to decline at a 16% CAGR, to less than
15 million units in 2010.
Consumer, mobile, and PC peripheral applications should become more meaningful as 802.11 is incorporated into
such devices as game consoles, wireless handsets, digital cameras, MP3 players, set-top boxes, printers, MFPs, and
PDAs. We expect these devices to grow at a 39% CAGR through 2010, growing from 26% of client connections in
2005 to 48% in 2010. Note that more than half of 2010 units are forecast to be derived from the handset and
converged mobile device market with its huge unit TAM, though our forecast assumes less than 10% penetration in
handsets by 2010.
On the access point side, we forecast a 17% CAGR as mentioned above, with the market growing from 26 million
units in 2005 to 57 million in 2010. About 23% of all access points in 2005 were standard access points, 70% were
residential gateways, and 7% were enterprise access points. We expect a gradual shift away from standard access
points over time in favor of more advanced residential gateways in the home and enterprise access points in the
corporate market.
The exhibits below display unit share for NICs and access points by application.
Wireless LAN NIC Unit Share By Application Access Point Unit Share By Application
100% 100%
80% 80%
60% 60%
40% 40%
Printers/MFP
Consumer Electronics
20% Mobile Devices 20% Enterprise access points
Desktop PC (embedded)
Residential gateways
Notebook PC (embedded)
Standard access points
Aftermarket NIC
0% 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireless LAN Equipment Suppliers: The top supplier of dedicated wireless LAN equipment (NICs, access points,
and gateways) in 2005 was Linksys (a subsidiary of Cisco) with 31% unit share. D-Link was next with 21% share,
followed by Netgear with 16%. Belkin and Buffalo each held 7% share and Cisco (excluding Linksys) followed with
4% share. Note that Cisco specializes in enterprise access points, where it held a 73% share in 2005. Other major
vendors include SMC, 3Com, and Symbol.
As embedded notebook wireless LAN represents a huge chunk of all wireless LAN shipments, it is important to note
the top suppliers of notebook PCs. In 2005, the top notebook suppliers were Dell with 17% share, HP with 16%,
Toshiba with 11%, and Acer with 10%. Lenovo and Fujitsu followed with 7% and 6%, respectively. Other major
suppliers include Sony, NEC, Apple, and ASUS; each held less than 5% of the market in 2005.
184
Wireless
Wireless LAN
LAN
Baseband - Performs the first level of
processing, implementing the modulation
scheme (encoding technique)
MAC - Performs protocol processing, applying
Enterprise Access Point Only
Controls radio wave
and removing 802.11 overhead
generation/reception and SRAM and Flash – used by the 802.11 MAC
converts the analog radio
signal to a digital stream
(and vice versa)
DRAM
Sits in front of the antenna
Ethernet RJ-45
and boosts signal strength Microprocessor/ Ethernet
Microcontroller Controller
Antenna Cable
SRAM The microprocessor controls overall An Ethernet controller (in an access

Power Baseband/ access point/gateway functioning and
RF/IF manages network data flow and
point) or switch (in a gateway) provides
Amp MAC the interface to the wired LAN
Flash subsystems; DRAM is used by the MPU
Microprocessor/ Ethernet Switch

Microcontroller Ethernet MAC PHY Ethernet Cable
DRAM Switch MAC PHY Ethernet Cable
Modem Line DSL/Cable SLIC Analog

DSL/Cable VoIP Codec
Driver/Tuner Modem Phone
Connection DSP Codec
SoC SLIC Lines
Modem SoC - implements the Residential Gateway Only

DSL or DOCSIS protocol
Modem Front End or Tuner - VoIP DSP – decodes VOIP calls
interfaces with the wire or coax Codecs – convert VoIP calls to analog
Source: CIBC World Markets Corp. SLICs – interface with analog telephones
Wireless LAN NICs and access points blend devices from the Ethernet and wireless handset worlds. The wireless LAN
signal is received and transmitted through the RF block, which includes a power amp, RF and IF transceiver. The
signal is processed by a baseband, which implements the modulation scheme, and then an 802.11 MAC removes or
applies 802.11 overhead (the baseband and MAC are almost always integrated into a single digital chip). Data
packets are then relayed to the host system (in a NIC/client) or to a processor (in an access point or gateway).
Note that the diagram above (and discussion below) shows the core 802.11 chipset (PA, RF/IF, and baseband/MAC),
as well as the additional silicon that would be required to enable an enterprise access point or a residential gateway.
Though we thought it useful to show them in the block diagram, our forecast and market share discussion of wireless
LAN semiconductors excludes these ICs and focuses only on wireless LAN-specific ICs, i.e., the 802.11 chipset.
RF (NIC, Access Point, and Residential Gateway)

• Power Amp: The power amp sits in front of the antenna and boosts signal strength.
• RF/IF Converter (RF): The RF front end controls the radio wave generation on the transmit side and receives
the radio wave signal on the receive side, translating between low-frequency analog signals used by the system
(specifically by the IF transceiver) to high-frequency RF signals used in radio communications. In newer
185
implementations, the RF converter and IF are integrated in a single direct conversion transceiver, as shown in the
block diagram on the preceding page.
• I/Q Modem (IF): The IF performs all quadrature modulation of “I” and “Q” baseband signals, converting the
analog radio signal to a digital stream to be processed by the baseband and vice versa. In most implementations,
the IF is integrated with the RF in a single direct conversion transceiver, as shown in the block diagram above.
Baseband/MAC (NIC, Access Point, and Residential Gateway)

• Baseband Processor: The baseband processor performs the first level of digital processing on the signal,
implementing the modulation scheme (encoding technique). The baseband and MAC are usually integrated in a
digital protocol IC, as shown in the block diagram.
• MAC: As in wired Ethernet, the MAC applies and removes overhead and implements the 802.11 protocol. Note
that some wireless LAN chipsets implement additional security, QoS, and multimedia functions on top of the base
802.11 standard; the logic that facilitates these features is integrated into the MAC. The MAC is usually
integrated with the baseband in a single ASSP, as shown in the block diagram.
• SRAM and Flash: These memories are used by the 802.11 MAC.
Control Block and Ethernet Interface (Enterprise Access Point Only)

• Processor: An embedded microprocessor performs control functions in the access point along with some data
path functions. As enterprise access points are often centrally controlled, the processor will often perform
advanced access control, security, and management functions not found in consumer wireless LAN.
• DRAM: DRAM is the primary memory used by the embedded processor.
• Ethernet Controller: The Ethernet controller provides the interface between the wired network (through the
Ethernet cable) and the access point system. As in an Ethernet NIC application, the MAC handles the Ethernet
protocol and the PHY interfaces with the cable and performs signal conversion.
Gateway Block (Residential Gateway Only)

• Processor: An embedded microprocessor performs control functions in the access point along with some limited
data path functions. In most residential gateways they are integrated into the baseband/MAC.
• DRAM: DRAM is the primary memory used by the embedded processor.
• Ethernet Switch: Though the basic wireless access point needs only one Ethernet port to interface with the PC
or wired network, most access points are actually gateway devices which usually include multiple Ethernet ports.
These are usually implemented with a single-chip Ethernet switch, which includes Ethernet PHY, MAC, and switch
functions. Most gateways have 4-5 ports of 10/100 Ethernet, though this can vary.
• DSL Line Driver (used in DSL gateways): A DSL line driver interfaces with RJ-11 telephone line.
• DSL Data Pump/SoC (used in DSL gateways): A DSL modem SoC implements the DSL protocol; it has an
integrated DSP data pump to implement the DSL protocol and an analog front end to interface with a line driver.
• Cable Tuner (used in cable modem gateways): A tuner interfaces with the coax and tunes the cable RF frequency
for transmission and reception.
• DSL Data Pump/SoC (used in cable modem gateways): A cable modem SoC implements modem functions, and
has an integrated front end processing (QPSK/QAM modulation for transmission and QAM demodulation for
reception) and a DOCSIS MAC.
• VoIP DSP: A VoIP packet processor DSP performs the TDM-to-IP conversion on IP-based phone calls. Integrated
codecs perform the analog-to-digital and digital-to-analog conversion.
• Line Driver/SLIC: This SLIC is a line driver that interfaces with the telephone line, sending and receiving the
analog signals to and from analog telephones.
186
Wireless
Wireless LAN
LAN
WLAN Semiconductor WLAN Semiconductor

•We expect wireless LAN semiconductors Others
Airgo 5%
to grow 15% through 2010, from $1.1 3% Intel
billion in 2005 to $2.2 billion in 2010. 23 %
Conexant
•802.11b revenue peaked in 2002; 10 %
802.11g likely peaked in 2006; 802.11n
should ramp meaningfully through the end
of the forecast period. Texas
Instruments
• Chip count has been reduced from 5 or 6 10 %
in 2001 to 2 chips (an RF/IF chip and a
baseband/MAC) + a power amp.
•Consistent with units, client chipsets are Marvell
11 %
Broadcom
growing faster than access points. 22 %
$2,500
Atheros
802.11n (includes pre-N)
Dual Band (802.11a + 802.11b/g)
16 %
802.11g
$2,000
802.11a
802.11b
NIC and Embedded PC Consumer &

AP/Gateway Chipset Wireless

$1,500
$1,000
Broadcom Intel Marvell
Atheros Atheros TI
TI Broadcom Atheros
$500
Marvell Marvell NXP/Philips
Conexant Conexant
$0 Airgo Broadcom
Ralink STMicro
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, CIBC World Markets Corp. Realtek
Wireless LAN Semiconductor Forecast: Although a focus on mobility and the growth of broadband have brought
wireless LAN to the forefront of the technology sector, it is its low cost of implementation that has driven the
technology to high volume, with nearly 165 million units shipped in 2005. Almost the entire cost of a wireless LAN
client implementation is in the chipset, and that semiconductor BOM has rapidly dropped from nearly $30 in 2001 to
under $7 in 2005 (lower for the biggest OEMs). This has been enabled by integration, as the chip count for a wireless
LAN chipset has dropped from five or six in 2000 to just two or even one (plus a power amp) today. Aggressive price
declines should continue to partially offset unit growth, though we still expect a 15% CAGR for wireless LAN ICs
through 2010. Overall, we expect the market to grow from $1.1 billion in 2005 to $2.2 billion in 2010.
Wireless LAN chipsets are generally segmented by protocol. In 2005, 802.11b represented 5% of total chipset
revenue, down from 18% in 2004 and 50% in 2003. 802.11g took most of that share, reaching 75% of total in 2005,
up from 70% in 2004 and 40% in 2003. 802.11a/b/g chipsets are still a relatively small piece of the market at 16%
in 2005, owing to higher chipset costs with little incremental benefit over b/g. 802.11n (including pre-N), which held
3% share in 2005, is starting to gain significant traction in 2006.
Over the next few years, we expect the market to shift rapidly to 802.11n. By 2010, we expect 78% of total revenue
will be from 802.11n devices. 802.11g revenue should peak in 2006 at 70% of the market and should still be a big
factor for a few more years in the consumer market; eventually it should give way to 802.11n once chipset costs
187
come down; we forecast 802.11g to decline to about 20% of the market by 2010. 802.11a/b/g should peak in 2007
at 20% of the market and decline to just 2% of total in 2010.
Consistent with our unit forecast, we expect WLAN client silicon to outgrow access point silicon. Client silicon should
rise from 84% of the semiconductor TAM in 2005 to 87% in 2010, yielding a 16% revenue CAGR. Access point silicon
should drop from 16% in 2005 to 13% in 2010, yielding a 10% CAGR.
The exhibits below display the wireless LAN semiconductor revenue splits by client vs. access point and by device.
Wireless LAN Revenue Share by Protocol Wireless LAN Revenue Share; Client vs. AP
100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
802.11n (includes pre-N)
20% Dual Band (802.11a + 802.11b/g) 20%
AP Semiconductor
802.11g
10% 802.11a 10% Client-side Semiconductor
802.11b
0% 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireless LAN Semiconductor Competitors: The rapid growth we’ve seen in wireless LAN has been made possible
by the large number of vendors on the supply side offering competitive solutions. In 2005, at least six vendors
derived more than $100 million in revenue from this market.
Two vendors combined for 55% share in 2005—interestingly, neither had more than 5% share just three years
earlier. The largest supplier in 2005 was Intel with 23% revenue share. Note that Intel sells its chipset only into
embedded PC applications as part of the Centrino platform, and does not participate in access points, gateways, or
consumer/handset wireless LAN.
Broadcom followed with 22% share; note that Broadcom was only a minor player in 802.11b, and really made its
mark with the transition to 802.11g. Even in 2005, the vast majority of Broadcom’s sales were 802.11g, where the
company held 38% of the market.
Rounding out the top three was pure-play Atheros, which held 16% share in 2005. Like Broadcom, Atheros is strong
in 802.11g with 17% share and is well positioned in dual band as well. Note that Atheros has been the most
aggressive vendor in moving to single-chip solutions, which has allowed it to stay competitive even vs. suppliers with
more diversified businesses and deeper pockets.
Marvell held 11% of the market in 2005, up roughly 7 percentage points vs. 2004, owing primarily to the ramp of
Sony’s PSP and Microsoft’s Xbox 360, where Marvell is the sole supplier. Marvell has made embedded platforms a
focus for the company, and in addition to its gaming wins (it also has the PS3), the company has excellent design win
coverage in emerging wireless LAN-enabled handsets as well as in printers and digital cameras.
Texas Instruments and Conexant each held 10% share in 2005. TI has moved away from PC applications and is
instead focusing on handsets and residential gateways. Conexant has had the most interesting history in 802.11—the
company acquired GlobespanVirata, which had itself bought the wireless LAN business of Intersil, which was at the
time the dominant player in the market with more than 60% share. Conexant’s WLAN business struggled initially as
Centrino cratered the pricing environment for WLAN in PC applications; Conexant was also late to market with a
802.11g solution, which muted growth prospects in 2005.
Note that the market for 802.11n was just starting to ramp in 2006. Broadcom, Atheros, and Marvell are early
leaders in the market. Airgo, which pioneered MIMO technology for wireless LAN and for some time has been
shipping to top tier OEMs, is also actively migrating its product portfolio to be compatible with competing solutions in
the pre-n battle.
188
Wireless
Wireless LAN
LAN
Wireless LAN Semiconductor Market Trends

•The market has shifted hard to 802.11g; 802.11a/b/g has
had a minor impact.
•802.11n pre-standard products have started to ramp
significantly in 2006, disrupting the market again; “n” should
come to dominate the market over the next few years.
•Intel has been successful with its Centrino campaign, and
has driven notebook penetration to upwards of 80%.
•Cost has become hugely important; vendors that cannot
compete have pared back their investments.
•Most vendors have moved to all standard CMOS 2-chip
solutions; single-chip solutions target handset and
consumer.
•Most chipset vendors are looking to the consumer and
handset markets for the next volume application to
implement wireless LAN.
• The market has shifted hard to 802.11g; 802.11a/b/g has had a minor impact. 802.11g is now the
dominant standard for wireless LAN in both the installed base and current shipments. It was especially popular in
the consumer PC market, where users embraced the faster speeds and backwards compatibility. Multi-mode
solutions, on the other hand, don’t boost the throughput speed and instead offer more channels, a feature more
attractive to high end enterprise users. In terms of market share, the largest beneficiaries of the shift to 801.11g
have been Broadcom and Atheros, which combined for nearly 60% of 802.11g share in 2005 and 38% overall.
The biggest losers were Conexant, which was behind Broadcom and Atheros by several months (Conexant’s share
losses are also due to share gains in notebooks by Intel), and Agere, which had no 802.11g product.
• 802.11n pre-standard products have started to ramp significantly in 2006, disrupting the market
again; “n” should come to dominate the market over the next few years. The IEEE is currently finalizing
the standard for 802.11n, which leverages MIMO technology in both the 2.4 GHz and 5 GHz bands and could
boost the throughput to 108 Mbps and eventually to speeds approaching 540 Mbps. This should support ASPs, as
these new chipsets will be more expensive. It will also likely cause some share shifts, as some vendors have
chosen to hit the market with pre-standard solutions before the final standard is ratified (Marvell, Atheros,
Broadcom, and Airgo are already shipping pre-N or MIMO product). Eventually, market share, at least in PC
applications, should shift back as Intel and others develop solutions after the standard is finalized.
189
• Intel has been successful with its Centrino campaign, and has driven notebook penetration to upwards
of 80%. Most client implementations of wireless LAN in the early years were PC cards that were plugged into
laptops. Some PC makers then attempted to integrate wireless LAN directly into the notebook as a differentiating
feature, though it was for a minority of notebook models, primarily at the high end. In 2003, Intel was set to
launch a new mobile processor (the “Pentium M”), and decided to bundle wireless LAN in with the platform, which
it branded “Centrino.” To use the Centrino name and marketing dollars (Intel allocated $300 million to the
Centrino campaign), PC makers had to buy not just the Pentium M but also the core logic and wireless LAN chipset
from Intel. This had the effect of shifting market share away from incumbent wireless LAN suppliers to Intel, but
had the much more important effect of increasing wireless LAN penetration in notebooks. We now estimate that
upwards of 80% of notebooks now ship with embedded wireless LAN.
• Cost has become hugely important; vendors who cannot compete have pared back their investments.
When wireless LAN began gaining traction in 2000, only three major vendors were shipping in volume: Intersil
(which later sold the unit to Globespan, which was bought by Conexant in early 2004), Agere, and NXP/Philips
(which at the time just did RF chips). In 2001 a number of mature companies such as Texas Instruments, Cirrus
Logic, RF Micro Devices, and National Semiconductor entered the market (most through acquisition) along with
then-start-up Atheros. In 2002 Marvell and Broadcom entered and Intel joined the market in 2003 with the
Centrino platform. These entrants turned the competitive landscape on its head, driving chipset costs lower and
levels of integration and performance higher.
Today, only three vendors serve all segments of the wireless LAN market: Broadcom, Atheros, and Marvell. Intel
has limited its exposure from the start to embedded notebook designs. Conexant, Texas Instruments,
NXP/Philips, RF Micro Devices, and STMicroelectronics no longer target PC applications, and instead focus on other
embedded handset, gateway, or consumer clients. Agere, Cirrus Logic, National Semiconductor, and a host of
others (including start-ups) have exited entirely.
• Most vendors have moved to all standard CMOS 2-chip solutions; single-chip solutions target handset
and consumer. When wireless LAN began to ramp to volume in 2000, most solutions used as many as five
chips, using a mix of CMOS (for the digital chips), SiGe (for radio components), and GaAs (for the power amp).
Today, most offerings have migrated to a 2-chip solution; baseband/MAC and RF, all in CMOS; though some
power amps (especially for 5 GHz) are external and are still done in GaAs. Most vendors also offer single-chip
solutions, mostly targeted at the handset and consumer markets where power consumption and cost are even
more critical. Atheros has been more aggressive with single-chip and uses it throughout its portfolio.
• Most chipset vendors are looking to the handset and consumer markets for the next volume
application to implement wireless LAN. Chipset vendors are working hard to enable the consumer electronics
and handset wireless LAN connection discussed in our unit forecast. Low-cost, low-power, small-form factor
wireless LAN chipsets are the key here, and vendors have been devoting more resources toward addressing the
needs of this demanding application. Already, a number of big designs have gone to volume, mostly for gaming
(PS3 and Wii embedded; Xbox and Xbox 360 as an add-on). Printers and consumer portables are also
contributing, though handsets are viewed as the next “real” big wave.
190
Bluetooth
Bluetooth
Bluetooth is a personal area networking

protocol, used to send data between devices in
close proximity at rates of up to 3 Mbps.
Bluetooth has found its primary volume application in
the handset market, where it functions as a reliable
protocol to connect the handset to other devices,
including wireless headsets, PCs, and consumer devices.
PC peripherals and consumer portables are also using
Bluetooth as a cable replacement for connection to the
PC, or to connect to one another without the PC.
Bluetooth is the leading personal area networking technology, a short-range, low-power, high-bandwidth wireless
transmission protocol aimed at connecting wireless handsets, PC peripherals and consumer devices. Bluetooth is
standards-based, universal and cost effective, offering relatively high bandwidth (up to 3 Mbps) over a short distance
(30-300 feet, depending on the device class) in an unregulated frequency band (2.4 GHz), with extremely low power
consumption and low implementation cost ($2-$4).
Bluetooth has found its primary volume application in the wireless market, where it functions as a reliable protocol to
connect the handset to other devices, including wireless headsets, automotive stereo systems, PCs and consumer
devices. Smart handheld devices, PC peripherals, and consumer portables are also using Bluetooth to perform data
transfers without wires; and in many cases the entire PC can be removed from the equation (e.g., a digital camera
can print straight to a Bluetooth printer, a PDA can transfer phone numbers to a cell phone, etc.).
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Bluetooth
Bluetooth
Bluetooth Unit Forecast Handset Suppliers

•We expect Bluetooth units to grow at a
33% CAGR, from 308 million units in
Others
17 %
2005 to 1.3 billion units in 2010.

Nokia
•Bluetooth in wireless handsets is Sagem
33 %
expected to grow from 209 million units 2%
in 2005 to 764 million units in 2010; this

BenQ/Siemens
5%
represents a 58% penetration rate. Sony

•Other significant applications include Ericsson
6%
headsets, PCs, peripherals, consumer LG
electronics, and PDAs. 7%
•Bluetooth will be implemented almost Samsung Motorola

13 %
entirely in silicon, with little additional 18 %
content added by OEMs.

1,400,000 PC Suppliers
Add-ons, access points, and other
Gaming Dell
1,200,000
Consumer Electronics (ex. Gaming) 18 %
PCs & Peripherals
Headsets Others
1,000,000
Mobile Handsets 39 %
800,000
600,000 HP
16 %
400,000
200,000 Lenovo
Sony
2%
6%
Acer
Gateway Apple
- 5%
2% 2% NEC Toshiba Fujitsu/F-S
2002 2003 2004 2005 2006 2007 2008 2009 2010 3% 3% 4%

Bluetooth Unit Forecast: We estimate that Bluetooth unit shipments totaled 308 million in 2005. Of these, nearly
80% sold into cellular handsets and wireless headsets. The remainder found homes in PCs, PC peripherals, consumer
devices, and add-ons and access points. We expect the market to ramp quickly over the next few years, growing at a
33% CAGR to 1.3 billion units in 2010. The primary driver should be increasing penetration in wireless handsets and
the accompanying headsets; these should represent 69% of the 2010 total. Gaming and consumer devices, which
represented less than 5% of the market in 2005, should also be important growth drivers and should each represent
8% of total units in 2010. PCs and peripherals should remain 8%-10% of the market through 2010.
Bluetooth Suppliers: Bluetooth is almost always implemented as an embedded solution within a larger system, and
therefore “Bluetooth equipment” is a somewhat misleading term. As handsets represented 68% of Bluetooth unit
shipments in 2005, it is important to note the leading handset vendors. In 2005, the top handset suppliers were
Nokia with 33% unit share, Motorola with 18%, Samsung with 13%, LG with 7% and Sony Ericsson followed with 6%.
The top suppliers of Bluetooth headsets are these same handset OEMs, all of which sell branded headsets to go with
their phones (though they are interoperable with any Bluetooth-enabled handset). Third party headsets are also
available from vendors like Plantronics, Logitech, and dozens of other smaller players.
PCs are also a large end market for Bluetooth; top PC makers in 2005 were Dell, HP, Lenovo, Acer, Fujitsu/Fujitsu-
Siemens, Toshiba, NEC, and Apple. On the gaming side, new consoles from Sony and Nintendo integrate Bluetooth.
192
Bluetooth
Bluetooth
The baseband uses

flash memory
Antenna
Flash
Host
Power Radio Bluetooth System
Amp (RF) Baseband
Sits in front of the antenna

and boosts signal strength
Controls radio wave generation

and reception, converts the Performs protocol
analog radio signal to a digital processing, implementing
stream and vice versa the modulation scheme
(encoding technique)
Bluetooth modules have similar configurations to those of wireless LAN client implementations. A power amp
interfaces with the antenna and relays signals to a radio (RF) chip. The radio chip processes the RF signal and passes
it to the Bluetooth baseband, which implements the Bluetooth modulation scheme (the encoding technique) and
extracts the data packet. On the transmit side, the process is reversed: the baseband encapsulates the data using
the Bluetooth modulation scheme and sends it through the RF and power amp to the antenna.
Note that most Bluetooth solutions combine all functions on a single chip, sometimes leaving out the power amp but
still integrating the RF and baseband. Other implementations use just a Bluetooth RF, integrating baseband
functionality with a host processor (e.g., Qualcomm integrates the Bluetooth baseband in its handset baseband IC).
• Radio (RF): The RF controls radio wave generation on the transmit side and receives the radio wave on the
receive side.
• Baseband Processor: The baseband processor implements the Bluetooth modulation scheme, extracting the
packet from the Bluetooth frame on the receive side and encapsulating in on the transmit side.
• Flash: Flash memory is the primary memory used by the baseband.
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Bluetooth
Bluetooth
Bluetooth Semiconductor Bluetooth Semiconductor

•We expect the market to grow at a 17% RF Micro
CAGR, from $1.1 billion in 2005 to $2.3 STMicro 2 % Others
2%
billion in 2010. Infineon 2 %
4%
•Revenue growth should trail units as ASP Texas
Instruments
declines help drive units shipments into 7%
the mainstream.
•Revenue growth could start to exceed
unit growth in 2010 and beyond as NXP/Philips
CSR
46 %
converged Bluetooth-UWB solutions ramp 13 %
to volume; these will carry higher ASPs

than standalone Bluetooth.
$2,500
Bluetooth Chipset
Broadcom
$2,000
23 %

$1,500
$1,000
$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Bluetooth Semiconductor Forecast: We expect a strong implementation cycle for Bluetooth as falling chipset ASPs
drive wireless handset and PC peripheral OEMs to increase the usage of Bluetooth in their product portfolios. Overall,
we expect the market to grow from $1.1 billion in revenue in 2005 to $2.3 billion in 2010, a 17% CAGR.
Bluetooth Semiconductor Competitors: The emerging Bluetooth competitive landscape has consolidated
somewhat as handset, headset, and PC designs have ramped, with a few suppliers winning out among a wide variety
of competitive solutions first available to the market. The largest supplier in 2005 was Bluetooth pure-play Cambridge
Silicon Radio with 46% share; CSR is the largest supplier of Bluetooth ICs to handsets, with Nokia and Samsung as
key customers. CSR also dominates the headset market.
Broadcom held 23%, gaining 6 points of share from 2004, primarily due to key wins at Motorola and Samsung for
handsets, a partnership with Qualcomm for Bluetooth RF chips and exclusive deals with Palm for PDAs and Apple for
PCs. Broadcom intends to more aggressively target headsets in 2007.
NXP/Philips was the No. 3 supplier in 2005 with 13% share, with a mix of both handset and headset chipsets. Other
vendors in the space include Texas Instruments, Infineon, STMicroelectronics, and RFMD. Note that several vendors
have exited the market over the past few years, including Agere, Conexant, Microtune, and Freescale. Marvell is the
only significant new entrant to the market in the recent past, with products set to ramp in 2007.
194
Bluetooth
Bluetooth
Bluetooth Semiconductor Market Trends

•Cellular handsets and headsets are proving to be the largest
market for Bluetooth; voice quality and power consumption are
therefore key factors in winning designs.
•Single-chip Bluetooth solutions have taken over the market.
•Some implementations will integrate the Bluetooth baseband into
the host system.
•Bluetooth is starting to penetrate consumer and gaming devices.
•3.0 Mbps Enhanced Data Rate (EDR) products are ramping quickly
following standardization in 2004.
•Bluetooth-wireless LAN combo solutions are coming to market
targeting next-generation handsets.
•Bluetooth and UWB will adopt the same front end later in the
decade.
• Cellular handsets and headsets are proving to be the largest market for Bluetooth. The center of the
Bluetooth universe is clearly the handset market, with all major OEMs quickly proliferating the technology
throughout their high end and mainstream models. Penetration was likely in the 45%-50% range in 2006,
marching into the 50s through 2010. The headsets associated with the cellular market are also growing nicely,
with shipments estimated to approach 50 million units in 2006 and to top 100 million units in 2010.
• Voice quality and power consumption are key factors in winning designs. The major Bluetooth IC
vendors recognize that handsets will continue to dominate the Bluetooth market, and organize their Bluetooth
design teams around the handset market. Factors such as voice quality, power consumption, and cost top the list
of design goals in order to meet the needs of handset OEMs.
• Single-chip Bluetooth solutions have taken over. Although the first Bluetooth chipsets used separate
baseband and radio chips, most vendors have moved to single-chip implementations. Note that single-chip
designs have been critical to driving down the cost of the chipset bill-of-materials to the $2-$4 range; this has
been critical to driving Bluetooth into the mainstream.
• Some implementations will integrate the Bluetooth baseband into the host system. Although we expect
single-chip devices to dominate over the next five years, we expect many wireless handset IC vendors will seek to
incorporate Bluetooth baseband processing into their devices, eliminating the need for a discrete baseband IC (or
195
the baseband logic within a single chip). A key example is Qualcomm, which has incorporated Bluetooth
baseband functionality into some of its handset chipsets. Note that most of these designs require an external RF
IC and several chip vendors address this opportunity with seamless, standards-based solutions.
• Bluetooth is starting to penetrate consumer and gaming devices. Given the buzz generated by Bluetooth
in the handset market, it is no surprise that the technology is being adopted by consumer and gaming devices. In
some cases the goal is to interact directly with the handset (e.g., a picture phone can print to a Bluetooth photo
printer, or a PDA can sync contacts with a handset), while in other cases the range and bandwidth requirements
are suitable for Bluetooth (Sony’s PS3 and Nintendo’s Wii each use Bluetooth to talk wirelessly to their
controllers). We estimate consumer and gaming will represent more than 15% of the total units in 2010 (from
less than 5% in 2005).
• 3.0 Mbps Enhanced Data Rate (EDR) products are ramping quickly following standardization in 2004.
The Bluetooth 2.0+ EDR specification alters the signal encoding system used by Bluetooth to allow it to transmit
at up to 3.0 Mbps and extends the range to 100 meters. EDR products are backward compatible with
conventional Bluetooth 1.1 products. Note that EDR products ramped quickly in 2005 to represent more than
10% of Bluetooth chipset shipments; EDR should represent the vast majority of shipments by 2008.
• Bluetooth-wireless LAN combo solutions are coming to market targeting next-generation handsets.
Many comm IC players view wireless LAN as the next major connectivity technology to penetrate the handset. In
order to ease adoption, combo solutions are now coming to market that integrate Bluetooth and wireless LAN in a
single chipset or reference design, or in some cases on a single chip. The drivers for wireless LAN in a handset
are not quite as clear as they were for Bluetooth (headsets are an easy concept given that the primary function of
a handset is voice telephony), so it will be some time before the adoption curve becomes clear for wireless LAN or
combo solutions in handsets.
• Bluetooth and UWB will adopt the same front end later in the decade. The Bluetooth SIG (special interest
group) announced in 2006 that the next generation of Bluetooth would adopt a common front end interface with
ultra wide band (UWB) technology. This paves the way for much higher data rates for Bluetooth, and also for
combo solutions to handle Bluetooth and UWB in a single chipset or SoC. We expect Bluetooth products based on
the UWB front end to come to market in 2008 and reach 15% of chipset units in 2010.
196
Storage
Storage
The buildout of high-performance computing

infrastructure, adoption of higher-bandwidth LAN and
WAN connections, new applications offering richer
content, and increased focus on data security and
redundancy have driven continued strong demand for
high-capacity storage in the enterprise. Terabyte
shipments continue to grow at more than 50% per year.
The type of storage systems being implemented is also

changing. Storage embedded within PCs and servers
offers insufficient capacity, manageability, and
scalability for the modern enterprise. OEMs have
responded with more complex direct-attached systems
(RAID) as well as networked topologies like SAN and
NAS. Over time, DAS should replace most PC- and
server-attached storage, while SAN and NAS continue to
penetrate IT systems where greater scalability,
manageability, and performance are required.
The three preceding networking technologies we have discussed in this section are all used in the transference of data
between computing devices. We now turn from data networking to enterprise storage, which is used “behind the
scenes” in the enterprise network for the storage, retrieval, backup, and management of corporate software and data.
Over the past few years, storage equipment makers have attempted to bring the benefits of networking to enterprise
data storage. The legacy model, which stores applications and data files on disk drives within individual servers, is
being replaced by newer networked storage systems. By treating storage as a separate resource from processing,
enterprise IT managers are realizing greater efficiency, reliability, scalability and upgradeability in their infrastructure.
There are a wide variety of storage topologies and technologies employed in enterprise IT systems today. Most
systems use a direct attached storage (DAS) architecture, which connects servers directly to drives and drive arrays.
Though they do not offer the flexibility, scalability, manageability, and performance of networked storage, DAS
systems are robust and easy to set up and maintain, and therefore remain an important part of the IT infrastructure.
High-performance and high-reliability storage systems use storage area networks (SAN), predominantly based on the
Fibre Channel protocol. These mimic the LAN topology, using specialized storage switches and adapter cards. SANs
are the topology of choice for the highest-end storage applications.
Some simpler IT systems use network-attached storage (NAS), which connect drive appliances directly to the Ethernet
network. This brings the benefits of networked storage while leveraging the LAN (no new SAN network is needed).
197
Storage
Storage
Direct Attached Storage

Direct attached storage systems are primarily
implemented with RAID controllers, which are directly
connected to disk array systems or internal drives. The
cheapest, simplest, and easiest to implement, direct
attached is the most widely used storage topology.
Internal RAID
RAID Ethernet
with Internal
Drives Internal
LAN
RAID Switch
Controller
Internal RAID RAID
with Disk Array
Storage Server
Arrays
External Ethernet
RAID
RAID
External Tape
RAID Library
Server
Controller
Direct attached storage systems are the cheapest, simplest and easiest to implement and are currently the most
widely used storage topology. In a DAS system, servers are connected via standard hard disk drive cables either to
enterprise-class hard disk drives within the server or to storage arrays that contain multiple drives. The interaction
between the server and the disks is controlled by RAID (redundant array of independent disks), a set of protocols for
data striping, duplication, and drive management. A RAID controller, which sits between the server and the individual
disks, implements the RAID software stack to enable these features.
RAID controllers can be either internal or external. In an internal configuration, the RAID controller is housed inside
the server and connects to drives within the server or to simple disk arrays like JBODs (just a bunch of disks). In an
external configuration, the RAID controller is housed inside the disk array itself, and the server connects to the disk
array over a standard hard disk drive cable.
As mentioned above, DAS systems are cheap, simple and easy to implement. The multiple flavors of the RAID
standard allow for varying degrees of redundancy and performance enhancement. However, they have limitations in
terms of reliability, scalability and manageability that make DAS systems difficult to support as capacity grows larger.
SANs have made major headway against large DAS systems over the past few years, especially for the highest-end
storage applications.
198
Storage
Storage
Storage Area Networking (SAN)

In a SAN environment, separate Fibre Channel networks
switch storage traffic between disk arrays and servers.
Storage is managed as a single resource, and tasks such
as backup and disk maintenance can often be performed
without any processing by host servers or PCs.
Tape
Library Ethernet
Fibre LAN
Channel
Switch
Fibre
FC Fibre
Channel
Switch FC
Channel
Fibre FC
Channel
HBA
Fibre
Channel
Ethernet
Storage Array Server

Storage area networks (SANs) are implemented with disk arrays sitting on a high-speed storage-focused network
separate from the data network. In this way, they separate processing functions from storage, and are therefore
well-suited to large corporate networks. SANs allow IT managers to treat all storage as a single resource and also
allow tasks such as backup and disk maintenance to be performed without any processing by host computers.
In a SAN, servers do not connect directly to drives or arrays; they instead connect to a storage-specific network
designed to carry storage traffic using the Fibre Channel protocol. These storage networks serialize SCSI traffic into
Fibre Channel frames for high speed transport. Fibre Channel is somewhat similar to Ethernet, but is optimized for
mass transfers of data as opposed to IP packet routing. The protocol uses optical fiber interconnects and runs at 1.0,
2.0 Gbps, or 4.0 Gbps.
To connect to the SAN, each server is outfitted with a Fibre Channel host bus adapter (HBA), which connects to a
network of specialized Fibre Channel switches. These switches provide the connection between servers and storage
arrays, which also have to be specialized to run over Fibre Channel. Tape libraries can also be connected to the SAN,
allowing for backup to take place without the use of servers on the data network.
Note that as SANs have evolved, OEMs have begun building more intelligent appliances to help manage the network
such as SAN routers which interconnect between islands of storage in disparate locations. As these are used in only
the highest-end implementations, we do not picture them in our network diagram.
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Storage
Storage
Network Attached Storage (NAS)

In a NAS, storage appliances are connected directly to
the Ethernet local area data network. Instead of a full-
blown operating system, NAS systems use a slim
microkernel OS specialized for handling only file reads
and writes. NAS systems operate like mini-SANs in
that they are self contained storage servers.
Tape
N NAS
A
Library S Storage
Appliance
Ethernet Gigabit
Ethernet
LAN
Switch
Ethernet
Server
In a NAS environment, storage appliances are connected directly to the Ethernet LAN. NAS appliances operate like
mini-SANs in that they are self contained storage servers. NAS systems usually contain a number of hard disks, often
arranged into logical, redundant storage containers or RAID arrays. Instead of a full-blown operating system, NAS
systems use a slim microkernel OS specialized for handling only file reads and writes. Storage capacity is added by
connecting NAS appliances to the Ethernet network as simply as if a new PC or server were being added.
Note that NAS technology has begun penetrating the consumer market in recent years, sparked by the rise of digital
content and home networks. Home NAS appliances can do more than simple USB external HDDs, as they allow for
direct access by more than one PC or connected device on the network, and can also connect to other drive arrays for
automatic backup. Note that Gigabit Ethernet will be an important enabler for this market, as 10/100-based devices
in the market today are dramatically outpaced by USB 2.0 at 480 Mbps or Firewire 800 in terms of raw data transfer.
200
Storage
Storage
Types of Storage Equipment

Enterprise Hard Disk Drive - Enterprise hard disk drives are the highest-
performance drives on the market. They are usually housed either inside
servers, in storage arrays, or inside NAS appliances, and use the SCSI or
SAS protocol. Enterprise drives are included in our forecast for HDDs.
RAID RAID Controller – A client card used to connect servers to storage arrays;
they can be housed either in the server (internal) or in the array (external).
Storage Array - Storage appliance with multiple hard disk drives used in
enterprise storage applications. In DAS systems, they either incorporate
RAID controllers or connect to internal RAID controllers inside servers. In
SAN systems, they connect to Fibre Channel switches.
FC Fibre Channel HBA - A client card used to connect servers to the Fibre
Channel network. Analogous to a NIC in an Ethernet network.
Fibre Channel Switch - The basic SAN building block, Fibre Channel
FC
switches connect and switch storage traffic between servers and storage
arrays.
N NAS Appliance - NAS appliances integrate storage and LAN connectivity.

A
S They include multiple HDDs and a slim OS to manage data transfers.
Tape Library – Tape library appliances are optimized for backup functions
in an enterprise IT infrastructure system. They are implemented
independently of the storage topology.
Types of Storage Equipment

Enterprise Hard Disk Drive: Similar to HDDs used in PCs, enterprise hard disk drives are the highest-performance
drives on the market. They are usually housed either inside servers, storage arrays, or NAS appliances. Hard disk
drives used in storage systems are not included in our forecast, and are instead discussed in the section on HDDs.
RAID Controller: A client card used to connect servers directly to storage arrays. They can be housed either in the
server (internal) or in the array (external), and use standard hard disk drive interfaces like SCSI, ATA, SATA, or SAS.
Storage Array: Storage appliance with multiple hard disk drives used in enterprise storage applications. In DAS
systems, they either incorporate RAID controllers or connect to internal RAID controllers inside servers. In SAN
systems, they include Fibre Channel connectivity to connect up to SAN switches.
Fibre Channel HBA and Switch: An HBA is a client card used to connect servers to the Fibre Channel network. A
Fibre Channel switch is the basic SAN building block used to connect and switch storage traffic between servers and
storage arrays.
NAS Appliance: A mass storage array optimized for NAS systems, NAS appliances integrate storage with Ethernet
LAN connectivity and can be added directly to the Ethernet network to provide enterprise storage.
Tape Library: Storage appliance optimized for backup functions in an enterprise IT infrastructure system.
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Storage
Storage
Storage Equipment Key Storage Equipment

Unit/Port Forecast Suppliers
•Total enterprise storage units/ports Disk Storage Systems (TBs) RAID Controllers
should grow at a 23% CAGR, from 14.0

100% 100% Highpoint
Others
AMCC/3Ware
90% 90%
million in 2005 to 38.7 million in 2010. 80%
Hitachi
80%
Promise
•RAID controllers should grow at a 16%

Sun
Network App. Adaptec
70% 70%
CAGR, with external RAID outpacing 60%

Dell
60%
internal RAID. 50%

EMC
50%
•Fibre Channel HBAs and switch ports 40% IBM 40%

LSI Logic
should each grow at CAGRs of 30% to 30% 30%
reach 55% of total ports in 2010. 20% 20%

HP HP
•iSCSI targets should grow from a small 10% 10%
base to 6% of total port shipments in 0% 0%
2010. Disk Storage Systems (TB) RAID Controllers
40,000
iSCSI SAN Targets Fibre Channel Switches Fibre Channel HBAs

35,000 Fibre Channel Infrastructure 100% Others 100%
QLogic Others
Fibre Channel HBAs (ports)
90% 90%
30,000 RAID Controllers LSI Logic
80% Cisco 80%
Unit/Port Shipments (000s)
25,000
70% 70%
McData Emulex
20,000 60% 60%
50% 50%
15,000
40% 40%
10,000
30% 30%
Brocade
5,000 20% 20% QLogic
10% 10%
-
2003 2004 2005 2006 2007 2008 2009 2010 0% 0%
FC Switch Ports HBAs (ports)
Source: Dataquest, Dell’Oro, IDC, CIBC World Markets Corp.
Storage Equipment Unit/Port Forecast: The market for enterprise storage is expected to represent a growing
percentage of IT budgets over the next five years as IT managers shift from adding network functionality to adding
storage infrastructure, optimizing network efficiency and reducing IT maintenance costs. While sufficient bandwidth
exists in both service provider wireline networks and corporate networks to support the transport of data and Internet
traffic, the buildout of storage capacity to store that data in corporate networks and public hosting companies has
been a lot slower relative to demand growth. Consequently, we expect units/ports used in enterprise storage systems
to grow at a 23% rate through 2010, rising from 14.0 million units/ports in 2005 to 38.7 million ports in 2010.
Within the storage pie, we expect the mainstream RAID controller market to grow at a more moderate but still-strong
pace of 16%, rising from 4.8 million ports in 2005 to 10.1 million ports in 2010. External RAID controllers, growing at
a 21% CAGR, should outgrow internal controllers at 14%.
Over on the Fibre Channel side, we expect host bus adapter ports to grow at a 30% CAGR, from 2.1 million ports in
2005 to 8.0 million ports in 2010. This is derived from an 18% growth rate in discrete HBA units and an increase in
the average port/HBA from 1.23 in 2005 to 1.51 in 2010, boosted by a 54% growth rate of blade server HBA ports,
growing from just 328,000 ports in 2005 to 2.9 million in 2010.
Fibre Channel switch ports are expected to grow 30%, from 3.6 million ports in 2005 to 13.1 million ports in 2010.
Fixed port switches and chassis switches should grow at similar rates (23% for fixed; 26% for chassis). Blade server-
202
embedded switches, however, should see a big ramp, growing from just over 300,000 ports in 2005 to 27% of all
switch ports in 2010.
iSCSI SAN targets, still a developing market, are expected to lead growth in storage with a nearly 70% CAGR,
growing from a very small base of 175,000 ports in 2005 to 2.4 million ports in 2010. iSCSI is IP-based and therefore
does not require switches beyond the Ethernet-based data network; they also don’t require discrete HBAs, though the
client server or PC must either have an iSCSI enabled-NIC (like Broadcom’s C-NIC) or be running iSCSI on the host
processor.
Storage Equipment Suppliers: The enterprise storage market includes vendors of disk storage systems, RAID
controllers, Fibre Channel switches, and HBAs. Though there is some overlap, for the most part they are discrete
markets, each with their own competitive dynamics. Note, however, that the vendors of disk storage systems
typically resell components (as well as software) from the other segments within larger system solutions for their
customers; these components are sometimes re-branded.
The largest vendor of disk storage systems in 2005 (in terms of terabytes, which is a more meaningful figure than
units) was HP with 31% share. IBM was second with 17%, followed by EMC with 12% and Dell with 11%. Other
major systems suppliers include Network Appliance, Sun Microsystems (including StorageTek), and Hitachi.
The largest vendor of RAID controllers in 2005 was HP with a 32% share. LSI Logic and Adaptec followed with 28%
and 25% share, respectively. Other vendors include Promise Technology, AMCC/3Ware, and HighPoint.
Over on the Fibre Channel side, QLogic and Emulex were the top suppliers of HBAs in 2005, with 44% and 37% port
share, respectively. LSI Logic held a small 6% share.
In Fibre Channel infrastructure, Brocade was the top supplier with 49% overall share, stemming from its 66% share of
fixed-port switches and 33% of chassis-based switches. McData was No. 2 with 25% overall share, with 16% of the
fixed-port switch market but nearly 44% share of the chassis-based switch market, where it is the No. 1 supplier.
Note that in 2006 Brocade announced that it would acquire McData, which would give the combined company 74%
share overall before any attrition. Cisco was the No. 3 player in 2005 with 14% share, almost entirely from chassis
solutions. QLogic was next with 12%; most of its share was derived from fixed-port solutions.
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Storage
Storage
This ASIC provides the
A microprocessor runs the interface to the individual disks,
RAID software stack as well as to the server in an
external RAID system
RAID Hard Disk Drives
Controller Microprocessor Hard Disk

Controller/
(Internal RAID)
(Internal and PCI-X/PCI-E Expander Disk Enclosure

Host System (External RAID)
External) Controller
SRAM Flash
SRAM Flash
Both the RAID controller

and microprocessor use
SRAM and flash memory Performs control
and monitoring
Implements the Fibre Channel
protocol, providing the disk
array’s interface to the SAN
FC-RAID Disk Enclosure Hard
Sub-system Enclosure Management Disk
Drive
Fibre
Optical
FC-RAID Fiber
GBIC SerDes Channel
Controller
Port Bypass
Controller
Hard
Disk
Storage Or
Loop
Drive
Array Interfaces with the GBIC (optical

module), performing transmission
External
Controller
and reception and converting the RAID
signal between an analog serial Controller SRAM Flash
stream and a digital parallel stream Hard
Disk
Opens and closes nodes and Drive
distributes data to and from the
system’s drives; SRAM and flash
Source: IDC, CIBC World Markets Corp. memory are used by the PBC/LC
RAID systems enable critical storage functions such as data redundancy, striping (for performance), and disk
management. Their architecture and implementation vary widely, from low end systems that control just a few disks
within a single server, targeted for small/medium business, all the way to large switched disk arrays managing
thousands of drives used in large corporate enterprises.
At the core of a RAID system is the RAID controller, which performs the compute-intensive calculations needed to
implement the RAID stack at high speed. A RAID controller is usually implemented as a separate add-in board. In
internal RAID systems, the RAID controller is used directly inside the server, and is attached directly to the drives,
which are also located within the server.
In an external RAID system, the RAID controller is implemented within an array of disks as a subsystem to perform
RAID processing. Larger disk arrays will usually have a number of subsystems, including a Fibre Channel subsystem
to interface with a Fibre Channel SAN and a disk enclosure to manage the communication with individual disks.
RAID Controller – Internal (used in servers)

• IOP/Microprocessor: A microprocessor runs the RAID protocol stack, enabling the striping, redundancy, and
disk management features of RAID. The microprocessor in an internal RAID implementation is sometimes call an
204
I/O processor (IOP). These processors are usually optimized for high-speed RAID processing, and usually include
the interface to the host controller, which is usually PCI-X or PCI-Express based.
• Hard Disk Controller: The hard disk controller provides the interface to the individual drives.
• ROC (RAID-on-Chip, not shown in above diagram): A ROC chip includes both the IOP and hard disk controller.
ROC solutions can be used either on discrete RAID controller cards, but are mainly targeted for ROM (RAID-on-
motherboard) implementations.
• SRAM and Flash: SRAM and flash are used by the microprocessor as well as by the hard disk controller ASIC.
RAID Controller - External (used within disk arrays)

• Microprocessor: A microprocessor runs the RAID protocol stack, enabling the striping, redundancy, and disk
management features of RAID. In higher end systems, multiple high-performance processors are sometimes
used.
• Hard Disk Controller: The hard disk controller performs the SCSI/ATA processing to communicate with the
drives within the enclosure. In lower end PATA/SATA/SAS RAID systems that do not have separate interface
cards, this controller also interfaces with the server on the front end. In higher end systems (especially Fibre
Channel), this is not needed since a separate controller card performs this interface.
• SRAM and Flash: SRAM and flash are used by the microprocessor as well as by the hard disk controller ASIC.
FC-RAID Storage Array

• SerDes: The SerDes interfaces with the optical module, performing transmission and reception and converting
the signal between an analog serial stream and a digital parallel stream.
• Fibre Channel Controller: A Fibre Channel controller ASIC implements the Fibre Channel protocol, providing the
interface to the SAN.
• Port Bypass Controller (PBC): The primary logic device in the disk enclosure, a PBC opens and closes nodes
between drives, distributing data to and from the system’s drives.
• Loop Controller: More complex Fibre Channel disk arrays use loop controllers for a switched architecture instead
of a PBC.
• Enclosure Management: In high-end systems, enclosure management chips monitor and control the drives in
the storage array.
• SRAM and Flash: SRAM and flash are used by the port bypass controller or loop controller.
• Expander (used in lower-end SAS/SATA-based arrays, not shown in the diagram): An expander IC, used in serial
arrays like SAS or SATA (instead of a PBC or loop controller), increases the number of drives that can be included
in the array. Note that SAS expanders can support both SAS and SATA drives; therefore most IC designers are
focusing on SAS expanders.
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Storage
Storage
Control plane SRAM memory is used
Communications FC Port Switch Fabric by the switch fabric and
Comm processor - controls SRAM
overall system functioning Processor Controller Chipset the FC port controllers
SRAM, flash - memory used
by the MIPS processor
FC Port FC Port FC Port
SRAM Flash Controller Controller Controller
This ASIC (or series of

Fibre ASICs) switches storage
packets between ports,
Channel and includes individual

controllers for each port
SerDes SerDes SerDes SerDes
Switch
GBIC GBIC GBIC GBIC
Optical Optical Optical Optical

Fiber Fiber Fiber Fiber
Interfaces with the GBIC (optical

module), performing transmission This ASIC performs Fibre
and reception functions and Channel protocol processing,
converting the signal between an removing and applying Fibre
analog serial stream and a digital Channel overhead; it usually
parallel stream, and vice versa includes an integrated
processor and system interface
Fibre Channel HBA
Controller ASIC
Host Optical
GBIC SerDes
Fiber
Bus MPU
PCI-X/PCI-E
Controller
Host
System
Adapter
SRAM Flash
SRAM and flash memory are used
by the controller ASIC
Fibre Channel Switch

• SerDes: The SerDes converts the serial analog stream from the GBIC to a digital parallel stream and vice versa.
• Switch Fabric Chipset: The switch fabric chipset is a set of ASICs that switch storage traffic between switch
ports. The chipset usually has integrated port controllers that interface with the SerDes on the front of the switch.
• Communications Processor, SRAM and Flash: A processor, usually MIPS or PowerPC based, performs control
plane functions. The processor will usually use SRAM and flash, while some additional SRAM is also used by the
switch fabric chipset in switching and port control.
Host Bus Adapter (HBA)

• SerDes: The SerDes converts the serial analog stream from the GBIC to a digital parallel stream and vice versa.
• Fibre Channel Controller ASIC: The controller ASIC performs protocol processing on the Fibre Channel stream,
applying and removing Fibre Channel overhead to storage packets. The controller usually incorporates a
processor, though the HBA can have a discrete MPU as well. It also usually includes a host interface.
• SRAM and Flash: SRAM and flash are used by the controller ASIC and the embedded microprocessor.
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Storage
Storage
Storage Semiconductor Storage Semiconductor

•Storage semiconductors growing at 7%,
AMCC Others
with the market growing from $1.1 billion Marvell 2% 5%
in 2005 to $1.5 billion in 2010. 4%
Silicon Image
•IC revenue growth should lag port 4%
LSI Logic
shipments as the market matures and 29 %
Vitesse
more integrated solutions are introduced, 5%
driving down ASPs.
•RAID controller ICs growing 3% to 41% Freescale
7%
of the total storage IC market in 2010
•Disk interconnect ICs growing 5%.
•HBA ICs growing 7%, Fibre Channel PMC-
infrastructure ICs growing 14%. Sierra/Avago
IBM
14 %
$1,800 16 %
iSCSI SAN Targets
Fibre Channel Infrastructure
$1,600
Fibre Channel HBAs Intel
Disk Arrays
$1,400 RAID Controllers
14 %
RAID
HBA and
$1,200
Processors/ Disk Array ICs

$1,000 SAN ASICs
Controllers
IBM PMC-Sierra
$800
Intel
$600 LSI Logic LSI Logic IBM
$400
Agere AMCC Vitesse
Mindspeed Promise/Marvell LSI Logic
$200
Broadcom Vitesse/Adaptec
$0
2003 2004 2005 2006 2007 2008 2009 2010
Broadcom
Storage Semiconductor Forecast: Storage ICs should benefit from ramping port and unit growth of enterprise
storage systems, but semiconductor revenue should significantly lag port shipments as the technology matures and
system suppliers introduce more cost efficient, higher density solutions. To a certain extent, the industry is being
forced to enable lower cost storage, especially in the Fibre Channel arena, as a number of lower-cost competitive
technologies both from within the storage world (SAS and SATA) and from the networking world (Ethernet/iSCSI and
Infiniband) threaten Fibre Channel’s hold on the enterprise. Overall, we expect a CAGR of 7%, with IC revenues
growing from $1.1 billion in 2005 to $1.5 billion in 2010.
Digging into the forecast, RAID controller ICs, which include both ASICs and comm processors used in internal
controllers and disk arrays, totaled just over $540 million in revenue in 2005, representing about 49% of total
semiconductor market revenue. About 63% of this was derived from Fibre Channel RAID (all from external RAID),
with another 28% from SCSI (both internal and external). The remainder was split between legacy ATA and the
emerging SATA and SAS. Looking ahead, we expect the RAID controller IC market to grow the slowest among device
categories at a 3% CAGR, from $542 million in 2005 to $619 million in 2010. Normal ASP erosion should be
augmented by the shift to lower-ASP SAS and SATA controllers.
Disk interconnect ICs, which are used both to connect the front and back ends of the storage array and for disk
management, totaled $238 million in 2005 according to our estimate, about 22% of the total storage semiconductor
revenue. We expect this segment to grow at a 5% CAGR to $307 million through 2010. Much of this growth should
207
be driven by SAS expanders used in the back end of SAS-based storage arrays; Fibre Channel ICs (controller, PBC,
loop switch, and enclosure management) should decline slightly.
On the Fibre Channel network side, switch ICs totaled about $195 million in 2005 and HBA controllers were another
$119 million, about 28% of market revenue in total. Infrastructure ICs should grow at a 14% CAGR through 2010.
Fibre Channel HBA ICs should grow at a slower 7% CAGR, partially due to the increasing mix of dual-port HBAs
(where the ASIC costs less than two discrete single-port ASICs).
Finally, we expect iSCSI ICs to grow from a small base in 2005 to $60 million in 2010 as that technology gets off the
ground. Note that there is likely an opportunity for iSCSI silicon only in disk arrays, as the protocol leverages the
Ethernet data network for transport. The server connection will have to change to support iSCSI as well, but this will
likely be done as an enhancement to the Ethernet NIC (e.g., Broadcom’s C-NIC) rather than a discrete iSCSI HBA or
controller IC.
Storage Semiconductor Competitors: The enterprise storage market is served primarily by custom ASICs, with
limited penetration to date by merchant suppliers. In many cases, particularly in the Fibre Channel market, the
system vendor is heavily involved in the design of the ASIC (using the ASIC partner as little more than a foundry in
some cases)—in fact, we would say this is true to a greater extent than in any other market in semiconductors outside
of maybe game consoles. Theoretically, then, we could list QLogic, Emulex, Brocade, McData, and Cisco as
semiconductor participants, but for the purposes of this report we will focus on the actual ASIC supplier.
The top two chip suppliers for the enterprise storage market in 2005 were LSI Logic and IBM, with 29% and 16%
share, respectively. Both of these vendors have fairly broad market coverage, supplying ASICs for Fibre Channel
switches and HBAs as well as RAID controllers and disk arrays. LSI also has done a nice job winning designs for next-
generation SAS controllers and expanders. Note that in addition to third party customers, IBM serves its internal
enterprise storage business, while LSI serves its Engenio storage systems business.
Following the two big ASIC suppliers was Intel, which held 14% share in 2005. Intel is the major supplier of RAID
controllers, which are typically implemented as embedded ARM processors, and also sells embedded processors into
disk arrays and switches. PMC-Sierra followed, also with 14%; PMC is a key supplier of disk interconnect ICs for disk
arrays, and further acquired the Fibre Channel controller business of Avago in 2006 (note that PMC’s 11% market
share includes Avago’s business). Freescale rounded out the top five with 7% share, derived primarily from
embedded processors sold into disk arrays and switches.
Among the smaller vendors, Vitesse held 5%, with a large but eroding presence in disk interconnect and an emerging
SAS business. Silicon Image and Marvell participated with SATA bridge products, while AMCC serves its internal
3ware SATA RAID controller unit.
The following table lists storage semiconductor competitors and the markets in which they participate.
Fibre Channel
Fibre Channel HBA
Disk Array Switch ASICs
RAID Controllers ASICs Communications
Interface and (partners for
and Processors (partners for QLogic Processors
Interconnect ICs Brocade, McData*,
and Emulex)
Cisco, and Engenio)
Intel Vitesse LSI Logic IBM Intel
LSI Logic LSI Logic IBM LSI Logic Freescale
IBM PMC/Avago* Agere Agere IBM
AMCC QLogic Toshiba
Promise/Marvell Broadcom AMCC
Vitesse/Adaptec
Broadcom
*PMC acquired Avago’s Fibre Channel Controller business in 2006. Brocade announced in 2006 its intention to acquire McData.
208
Storage
Storage
Storage Semiconductor Market Trends

•SATA RAID controllers have made some inroads at the low
end; the more meaningful transition will be from SCSI to SAS.
•ROC solutions seek to integrate the IOP and hard disk
controller, and are enabling RAID on the motherboard.
•SANs are increasingly the architecture of choice for high-end
enterprises, and continue to take share from direct-attached.
•Storage arrays are getting more intelligent, especially as
Fibre Channel-based arrays increase in penetration.
•The transition to 4 Gbps Fibre Channel is well under way.
•Standard products have not gained much traction outside of
a few pockets in RAID controllers and disk arrays.
•OEMs are looking to merge IP with SCSI and Fibre Channel.
• SATA RAID controllers have made some inroads at the low end; the more meaningful transition will be
from SCSI to SAS. The vast majority of RAID controllers—over 70% in 2005—utilize the SCSI protocol. This is
because SCSI drives have been the only drives with enough performance for enterprise requirements. In the past
few years, however, drive and storage OEMs have come to market with systems using the Serial-ATA (SATA)
protocol (while it has already replaced ATA in performance PCs, SATA has made some inroads at the low end as a
low-cost alternative with “good-enough” features and performance for small and medium business).
The big transition, however, will be from SCSI to SAS (Serial Attached SCSI). SAS drives and RAID systems
began to hit the market in volume in 2005, and should begin to replace SCSI both in servers and within disk
arrays. Note that because it is a serial protocol, SAS also enables lower-cost systems that can bypass Fibre
Channel altogether, though these will likely target the same small and medium business customers where SATA
has had success.
• ROC solutions seek to integrate the IOP and hard disk controller, and are enabling RAID on the
motherboard. ROC (RAID-on-chip) solutions integrate the disk interface, embedded microprocessor (IOP), and
PCI-X/PCI-E functionality on a single chip. These designs are now in the market from a number of vendors,
especially for newer SATA and SAS controllers. They primarily target the internal RAID market, and are
specifically intended to enable RAID-on-motherboard (ROM). ROM takes ROC one step further, by incorporating
RAID functionality directly on the motherboard. This reduces bill-of-material costs for the server and also allows
209
for smaller form factor server designs. We believe these solutions will be used primarily at the low end of the
server market. Note that the major server chipset vendors (Intel and Broadcom) are both pushing RAID-on-
motherboard solutions.
• SANs are increasingly the architecture of choice for high-end enterprises, and continue to take share
from direct-attached. The most obvious trend in storage has been the growth of Fibre Channel-based storage
area networks. These are more robust than direct attached solutions and thus have been gaining traction in the
high-end enterprise. While this segment is not fully penetrated just yet, the major HBA and switch vendors are
beginning to expand into the small-and–medium business segment as well in order to increase the served market
opportunity, though lower-cost SATA and SAS based systems could prove to be more effective solutions for this
segment.
• Storage arrays are getting more intelligent, especially as Fibre Channel-based arrays increase in
penetration. Most storage arrays connect via direct attached topologies and thus support only SCSI, ATA, SATA
or SAS. As SANs have gained traction, however, more and more arrays sit within Fibre Channel networks and
thus need to support the more robust features of the SAN. This is creating additional opportunities for IC
providers, which are serving this market with port bypass controllers, loop controllers, and enclosure management
ICs.
• The transition to 4 Gbps Fibre Channel is well under way. SAN technology was originally based on Fibre
Channel running at 1.0 Gbps. As adoption has grown, the market quickly moved to 2.0 Gbps; the vast majority of
systems sold in 2005 used 2.0 Gbps links. 4.0 Gbps Fibre Channel was next to roll out, with HBAs, switches, and
disk arrays now shipping in high volume from a multitude of vendors. The transition to 4.0 Gbps will likely take 2-
3 years, and the competitive landscape should shift to vendors of 4.0 Gbps along the way.
• Standard products have not gained much traction outside of a few pockets in RAID controllers and
disk arrays. Most storage equipment designs use a combination of ASICs, microprocessors and FPGAs,
sometimes employing ASSPs for specific functions. The projected unit/port growth of the market has prompted a
handful of comm IC companies to plow additional R&D dollars into storage ASSPs and we are seeing positions
build out steadily right now. Most are starting either with solutions for disk arrays or RAID controllers, as market
share in Fibre Channel HBAs and switches remains concentrated in the hands of players with in-house ASIC
capability. To date, the market has remained heavily ASIC-based, due primarily to the fact that the major system
vendors view silicon and hardware design as key competitive advantages.
• OEMs are looking to merge IP with SCSI and Fibre Channel. OEMs are now developing system based on
iSCSI, FCIP and other protocols to merge the advantages of Fibre Channel SAN systems and IP. The technology
challenges are substantial, however, as Ethernet/IP networks approach most traffic with a “best case” effort in
mind and as a result don’t meet the predictable performance requirements of storage. Note that there is likely
only an opportunity for iSCSI silicon in disk arrays, as the protocol leverages the Ethernet data network for
transport. The server connection will have to change to support iSCSI as well, but this will likely be done as an
enhancement to the Ethernet NIC (e.g., Broadcom’s C-NIC) rather than a discrete iSCSI HBA or controller IC.
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Telecom/Datacom
Telecom/Datacom
We now move from networking to wide area

communications technologies. The WAN blends legacy
equipment initially designed for voice telecom with
newer technologies designed for data. Although the
transmission media used is similar, the technologies
and equipment that sit behind it are different: voice
networks are generally circuit switched while data
networks are generally packet switched.
The wide area network can be thought of in three
segments: long-haul, used for city-to-city or country-
to-country transport, metro, used for intra-city
transport, and access, used to connect individual
enterprise and residential customers to the network.
In each case, the traditional voice infrastructure has
been overlaid with data networking equipment used to
switch, route, and transport data alongside voice.
We now move from networking equipment used in discrete locations to the telecom and datacom realm, the “wide
area networks” (WANs) that move voice and data traffic over longer distances. These networks are a lot older than
the data-centric networks we have discussed so far; they are also a lot more challenging to design, build, and
maintain. An extra layer of complexity is added with the blending of legacy technology originally designed specifically
for voice telecommunications with newer technologies designed to send data traffic over the public telecom network.
Voice Networks
Wide area networks began as strictly voice networks, designed to offer local and long distance telephone service. As
such, they emphasize the requirements of high-reliability voice telecommunications. In these networks, quality-of-
service is a key feature, as tolerance for latency, information loss and variations in speed of delivery are extremely
low among telephone users. Further, information must be delivered strictly in the order it is received and it must be
able to flow in both directions simultaneously (known as full-duplex). On the other hand, bandwidth requirements are
minimal (a telephone line uses just 64 Kbps of bandwidth, less when compressed) and usage patterns are fairly stable
and predictable. Thus, while voice networks have historically been expensive to install and run, they can be operated
at close to full capacity (around 80%-90%), reducing the need for extensive headroom in the network.
Voice networks have historically been circuit-switched; the transmission is enabled by establishing a dedicated
communication channel between devices on a network. Such channels are established on demand and as available
211
and provide continuous and exclusive access between the terminal devices until the connection is terminated. In
other words, upon initiation of a telephone call, a dedicated channel through the transmission network and switching
matrices is established and a prescribed level of bandwidth is guaranteed for the duration of the connection.
Data Networks
With the growth of Internet data technologies such as E-mail, World Wide Web, instant-messaging and E-commerce,
service providers have made significant investments to layer data network technologies on top of their voice
infrastructure. Though the expertise and expense required to run data over voice-centric networks are significant
relative to pure data networks, providers saw this as a better option than building entirely new data-only networks.
We therefore find a public data network with a blend of voice and data equipment.
In general, data traffic travels over the same pathways that voice traffic does in the WAN, though the equipment that
handles data traffic at each point-of-presence (POP) may be different. Data networks do not require the same
quality-of-service that voice networks do, and in fact data traffic does not necessarily need to be delivered in the
same order it was sent. On the other hand, bandwidth requirements are large and extremely variable (often referred
to as “bursty”), requiring lots of headroom in the network.
In general, data traffic is better suited to packet switched networks, which involve encapsulating data in fixed- or
variable-length packets and sending them across a shared network. Each packet contains headers encoded with a
destination address and is switched at each node in the network over the most appropriate and available physical
circuit. It bounces around in the network this way until it reaches the destination address.
That is the big difference between circuit-switched and packet-switched networks. Packets travel through the network
independent of each other, and in fact, packets addressed to the same destination may travel different physical paths,
depending on the availability of network segments and the level of congestion across each network segment. As the
route through the network is constantly changing, different packets may meet with varying levels of delay during
transmission through the network. As a result, packet switching does not guarantee a prescribed level of bandwidth
and packets are transmitted on a “best efforts” basis only; however, they are generally more efficient, as equipment
is shared across a greater number of transmissions and as less “dead air” is transmitted.
Network Segments, Speeds and Protocols

The wide area network is usually thought of in three segments: long-haul, used for city-to-city or country-to-country
transport; metro, used for intra-city transport; and access, used to connect individual enterprise and residential
customers to the network. The protocols used to traverse these networks vary somewhat, though there is a lot of
overlap. In each case, the traditional voice infrastructure has been overlaid with data networking equipment used to
switch, route and transport data such as E-mail, Web, VPN and other data traffic. In the case of the access network,
traditional cable video networks have been overlaid with data networking equipment in a similar fashion.
In general, the closer to the core (long-haul portion) of the network, the faster the transmission speed. This is
because fewer fiber connections are laid between cities than within them and thus the level of aggregation—which
translates into higher bandwidth requirements and faster speeds—is greater for networks that span longer distances.
Long haul networks typically employ transmission speeds of 2.5 Gbps (OC-48) or 10 Gbps (OC-192) and use the
SONET protocol for transport over optical fiber. Metro networks also use SONET for transport, usually at speeds that
range from 155 Mbps (OC-3) to 2.5 Gbps (OC-48). Some portions of the metro network use slower T3 (54 Mbps) or
even T1 (1.5 Mbps) lines running on copper wire or optical fiber. Carriers also use these lines to connect to wireless
basestations to reach cellular customers, and for large enterprise customers who want a direct connection to the
WAN. Running on top of these SONET and T1 transport networks might be other protocols such as ATM, which is
used for multi-service switching of data, voice, and video.
The access network is a bit different, as it casts a much wider net and is used to reach individual voice and data
customers, and therefore must interface with customer-owned equipment (which usually can’t be controlled by the
service provider). Speeds and protocols include 64 Kbps analog voice (over copper wire), 56 Kbps analog modems
(over the same copper wire), 384 Kbps-6 Mbps DSL (again over the same copper wire but using separate
frequencies), 1-10 Mbps cable modems (over coaxial cable), or newer 100-1000 Mbps PON/FTTH (over fiber).
Depending on the source, destination and access technology, information sent over the WAN may employ a number of
protocols in order to reach its destination. For example, an E-mail sent from our CIBC offices to a friend on the West
Coast will first exit our corporate LAN via an access router, travel over a T1/T3 line in Verizon’s (or another LEC’s)
network, be aggregated into an OC-3 or OC-12 SONET signal for transport to a larger network node where it will be
further aggregated (multiplexed) into a higher-speed OC-48 or OC-192 SONET signal for transport over MCI’s (or
some other IXC’s) long-distance network. Once it reaches the West Coast, the SONET signal will be disaggregated
(demultiplexed) into a lower-speed SONET signal in AT&T/SBC’s (or another LEC’s) network, and switched on an ATM
network into a DSL signal for transport to the recipient.
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Telecom/Datacom
Telecom/Datacom
The Voice Network
Digital
Cross
Connect
Enterprise PBX Telco (DXC)
Voice Switch Metropolitan
Metropolitan Long-Haul
Customers T1/T3 /
SONET/DWDM SONET/DWDM
E1/E3
Network Network
Network
Digital Loop
Home
Carrier (DLC) SONET Add/Drop
Voice
Customers Multiplexer (ADM)
Access Metro Long-Haul

The voice network was originally designed to provide circuit switched communication between telephone users
connected to a worldwide public network. It is designed for connection-oriented service, in which a user desiring
service initiates a call by dialing the intended number, establishes a connection once the recipient picks up and then
begins transmitting and receiving until one party hangs up, breaking the connection. As discussed above, this is a
circuit-switched network; when the caller inputs the number, the service provider determines where on the network
the recipient is located and allots the appropriate amount of bandwidth (usually 64 Kbps) over each segment of the
call path for the duration of the call. This ensures a consistent, uninterrupted connection.
Individual consumer telephones are connected to the public switched telephone network (PSTN) via copper twisted
pair wire run from telephone poles or underground conduits directly into the home or office. These POTS (plain old
telephone service) lines connect up to a line card within a telco switch housed in a carrier’s central office (CO) via a
dedicated line.
Sometimes, multiple telephone lines will be aggregated before transport to the central office. In residential networks,
a digital loop carrier somewhere in the neighborhood aggregates many lines and forwards them to the CO. In a
corporate environment, an enterprise PBX (private branch exchange) handles calls between extensions within the
corporate system and forwards external calls to the CO. These voice aggregation devices will usually contain POTS
line cards on the front end and a T1 network uplink on the back end, which will connect directly into the service
provider’s network.
213
Once the call reaches the central office, the telco switch (also called a class-5 switch or a CO switch) aggregates and
switches calls. Calls headed to a local-area recipient will be connected at this juncture. Calls bound for destinations
not connected to that central office are sent into the metro area network (MAN), which uses T1/T3 lines or low-speed
SONET for transport. Digital cross connects located on the MAN aggregate and switch this traffic, and calls headed to
recipients in the same city will be switched and sent to the recipient’s central office for call termination. These cross
connects also interface with the long haul network, which uses higher-speed SONET transport equipment. The SONET
ring will connect the call to other MANs around the country to enable long distance service.
Next-Generation Voice Network Technologies (Includes Transport)

Note that our network diagram shows a simplified representation of the traditional public voice network. A number of
new technologies are being implemented to make the network faster and more efficient. Note that many of these are
motivated by the desire to make voice networks more flexible when handling data and voice traffic, and thus are not
pure voice or transport technologies. Some examples include:
• Multi-Service Provisioning Platforms (MSPPs): MSPPs enable the evolution of the optical network to
support increasingly data- and voice-centric traffic streams. They combine SONET add/drop multiplexer,
digital cross connect, switching, and even routing functions in a single device, and are used throughout the
carrier metro and edge network.
• Optical Cross Connects (OCCs): Optical cross connects switch optical signals without performing the
optical-electrical-optical (OEO) conversion that is performed in SONET add/drop multiplexers or digital cross
connects. All switching is done in the optical realm. These switches tend to be used in the core of the
network, where little intelligence is required to move signals around the network.
• VoIP for Transport: Voice-over-IP (VoIP) brings the benefits of packet-switched networking to traditional
voice telephony. With VoIP technology, calls are digitized and translated into packets, and then are addressed
like data packets and sent out over the data network. Most VoIP implementations to date have been behind
the scenes within service provider networks for transport, especially for international calls. Service providers
simply convert standard TDM-based voice calls to IP once the call reaches their network. They then transport
the packets over the data network and switch them back to TDM somewhere near the destination for call
termination. This leverages the efficiency of the data network and is transparent to the customer.
• Residential VoIP: Carriers are looking to offer lower-cost residential voice service by implementing VoIP at
the customer premise, leveraging the installed base of analog phones and copper wire but moving call
transport over to lower cost IP networks. Under this model, traditional analog phones hook into a specialized
VoIP media gateway device (also called a VoIP terminal adapter or CPE device) that is connected to the
customer’s broadband modem (which we will discuss in the data network section on the next page). This
gateway translates voice into IP and sends it over the broadband connection. Back in the carrier’s network, a
softswitch in the carrier network enables call features. As in the pure-IP enterprise implementation, calls
placed over the IP network bound for a recipient not on the network must be terminated by the service
provider; if the recipient is on a TDM network, the call must be translated back to TDM using a media gateway
in the carrier’s network.
• Cable Voice: Cable MSOs are rapidly moving toward triple-play services, offering voice service in addition to
the video and data they provide today. The long-term topology for this functionality is VoIP, with a terminal
adapter or voice-enabled cable modem at the customer premise packetizing voice traffic and sending it out
over the DOCSIS network. Many MSOs are rolling out this service today. In the interim, however, many
MSOs have rolled out a bridge solution using circuit-switched voice; under this topology, a Network Interface
Device (NID) is installed at the customer premise, which feeds traditional telephony signals over the coax
network. The MSO then strips the voice signal out at the head end, and uses traditional class-5 switches and
digital cross connects to enable voice service. Sometimes branded “digital voice,” this service is rapidly giving
way to full cable VoIP.
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Telecom/Datacom
The Data Network

WAN/LAN
Switch Long-Haul
Web SONET/DWDM
Hosting Router Network
Companies 2
Metropolitan
Servers SONET/DWDM
Router Network
Core
Routers WAN
Enterprise T1/T3
Data Switches
Access
Customers Routers
Analog Modem RAC

WAN Switches
DSL Modem
SONET Add/Drop
DSLAM
Multiplexer (ADM)
CMTS
Cable Modem
Home PON
Data OLT
Customers PON ONT
Access Metro Long-Haul

The public data network uses the same physical network as voice does, but overlays data equipment both at the
customer and at service provider points-of-presence to enable data capability. Conceptually, data equipment sits
“behind” voice equipment at every point in the network, and uses the voice telecom equipment discussed in the
preceding section for transport between network nodes.
In the data network, the POTS and fiber infrastructure run by the RBOCs and the coaxial cable infrastructure run by
the MSOs are used by consumers to connect to the public data network. Consumers can use analog modems or DSL
to connect over the POTS infrastructure, cable modems to connect over the coaxial cable infrastructure, or PON ONTs
or ONUs (passive optical networking optical network terminals or units) to connect over new FTTH deployments by
telcos. These lines connect into remote access concentrator, DSL access multiplexer (DSLAMs), cable modem
termination system (CMTS), or PON OLT (optical line terminal) data traffic aggregators located at the central office or
cable headend.
On the enterprise side, corporate customers will usually bypass the access network, connecting directly to the public
network over a T1/T3 line or metro Ethernet. The more sophisticated data security, reliability, and bandwidth
requirements of corporate enterprises warrant these always-on connections. Note that these T1/T3 lines can carry
both voice calls and data traffic and are usually sold as a package by telco providers.
215
Once in the public data network, packets are routed and switched by access routers and carrier-class WAN switches
located at network POPs. These switches will typically use ATM, though newer designs use IP or MPLS (Multi-protocol
Label Switching). The transport protocol here would normally be T1/T3 or low-speed SONET, as switching protocols
like ATM, IP, and MPLS operate at layer 2 and therefore need to be encapsulated into a layer 1 technology like T/E,
SONET, or Ethernet WAN. If the destination address is in a distant part of the WAN, packets are forwarded to the
long haul network, where core routers and larger WAN switches perform similar functions. In the long haul network,
high-speed SONET is used for transport. Note that packets that are bound for World Wide Web addresses are
forwarded to web hosting companies or corporate web servers, which connect the public data network via enterprise-
class switches and routers the same way enterprise LANs are.
Data networks are packet-switched, meaning that rather than establishing a dedicated pathway between sender and
recipient, packets are addressed and sent out onto the network, where they are routed and switched until they reach
their destinations. In a pure data network like an Ethernet LAN, both the switching and transport technologies are
packet-switched. This makes for a very efficient network, since resources are only allocated when they are needed
(i.e., the network only “lights up” when there is data to send). In WAN networks, however, voice-centric technologies
like T/E and SONET are used for transport over long distances, and these are circuit-switched by design. This means
that data packets sent over the WAN will be switched with packet-based technologies at network points of presence,
but will actually be transported over a circuit-switched network. This is even clearer when we consider access
technologies, which by definition use dedicated lines between the user and the service provider.
Next-Generation Data Network Technologies

Note that our network diagram shows a simplified representation of the traditional public data network. A number of
new technologies are being implemented to make the network faster and more efficient, but did not make it into our
diagram or the discussion above. Some examples include:
• Ethernet Access: Service providers now offer Ethernet-based access lines to enterprise customers to replace
their T1/T3 lines.
• MSPPs: Discussed in the voice network discussion above, multi-service provisioning platforms are designed
to better handle data traffic over the voice network.
• Video Servers and IPTV Set-Top Boxes: Next-generation IPTV services will require video servers to be
installed in the metro network to deliver video content. IP set-top boxes are required at the customer
premise to turn the data packets into video signals.
• IMS (IP Multimedia Subsystem): IMS is an attempt at creating a telephony standard infrastructure for IP
services that is expected to evolve to a replacement to circuit switched voice. The goal of IMS is to provide
today's telephony services along with all the services, current and future, that can be found on the Internet.
IMS uses Internet Protocols (IP and SIP) to accomplish this goal. Service providers would like to use IMS
infrastructure to provide ubiquitous access to services via wireless, wireless, and cable.
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Telecom/Datacom
Types of WAN Equipment - Voice Networks

Digital Loop Carrier (DLC) - An aggregation device used in telecom
networks to combine multiple telephone lines and send them over a
single line to the central office. DLCs sit between the central office and
customers.
Private Branch Exchange (PBX) - An in-house telephone switching

system used in enterprise networks to interconnect telephone extensions
to each other and to the public switched telephone network.
Telco Switch - Also called a “class 5 switch,” or a “CO switch,” these are
the primary carrier access devices used in legacy voice networks. They
are large-scale network devices containing thousands of line cards used
to connect directly to voice customers.
Digital Cross Connect (DXC/DCC/DCS) - Network device used by

telecom carriers and large enterprises to switch and multiplex low-speed
signals onto high-speed lines and vice versa. Typically used to aggregate
several T1/T3 lines into higher speed optical SONET lines.
SONET Add/Drop Multiplexer (ADM) – Optical device used in fiber-

based networks to enable new SONET signals to come in and existing
signals to go out. ADMs are placed in intermediate positions on the SONET
ring and serve as on/off ramps to other rings. Note that SONET ADMs are
increasingly being replaced by Multi-Service Provisioning Platforms
(MSPPs), which add digital cross connect, switching, and routing functions.
Types of Voice Networking Equipment

Digital Loop Carrier (DLC): An aggregation device used in residential telecom access networks to combine multiple
telephone lines and send them to the central office. DLCs sit between the central office and customers.
Private Branch Exchange (PBX): An in-house telephone switching system used in enterprise networks to
interconnect telephone extensions to each other and to the public switched telephone network.
Telco Switch: Also called a “class 5 switch” or “CO switch,” these are the primary carrier access devices used in
legacy voice networks. These large-scale systems contain thousands of line cards that connect directly to customers.
Digital Cross Connect (DXC/DCC/DCS): Network device used by telecom carriers and large enterprises to switch
and multiplex low-speed signals onto high-speed lines and vice versa. They are often used to aggregate several
T1/T3 lines into higher speed optical SONET lines.
SONET Add/Drop Multiplexer (ADM): Optical device used in fiber-based telecom networks to enable new SONET
signals to come in and existing signals to go out. As signals pass through the device, some are "dropped" by splitting
them from the line, others can be "added" and directed to other destinations. ADMs are placed throughout the SONET
ring and serve as on/off ramps to other rings. Note that SONET ADMs are increasingly being replaced by multi-
service provisioning platforms (MSPPs), which add digital cross connect, switching, and routing functions.
217
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Telecom/Datacom
Types of WAN Equipment - Data Networks

Remote Access Concentrator (RAC) & Analog Modem CPE -
Equipment used to send data traffic over POTS twisted pair copper wire
in an analog format at speeds of up to 56Kbps. The RAC is housed at
the central office while the modem CPE resides at the customer.
Digital Subscriber Line (DSL) Access Multiplexer (DSLAM) and

DSL Modem CPE - Equipment used to send data traffic over POTS
twisted pair in a digital format at speeds of 1 Mbps or more.
Cable Modem Termination System (CMTS) and Cable Modem

CPE - Equipment used to send data traffic over coaxial cable in a
digital format at speeds of up to 10 Mbps.
Passive Optical Networking (PON) Optical Line Terminal (OLT)
and Optical Network Terminal (ONT) - Equipment used to send
data over fiber-to-the-home networks at speeds of 50-100 Mbps+.
The ONT resides at the customer with the OLT in the carrier network.
Access Router - Intermediate-speed router used at the edge of the
network, both for enterprise network access and within service provider
points-of-presence for routing in the metro network.
Core Router - High-speed router used in the core of the network.
WAN Switch - Network device that switches data, voice, and video
traffic, used in carrier and large enterprise network backbones. Most
WAN switches use the ATM protocol, which uses a circuit-oriented
connection and encapsulates information in fixed-length cells.
Types of Data Networking Equipment

Remote Access Concentrator (RAC) and Analog Modem Customer Premise Equipment (CPE): Access
equipment used to send data traffic over POTS twisted pair copper wire in an analog format at speeds up to 56Kbps.
Digital Subscriber Line (DSL) Access Multiplexer (DSLAM) and DSL Modem CPE: Access equipment used to
send DSL data traffic over the POTS copper twisted pair infrastructure in a digital format at speeds of 1 Mbps or more.
Cable Modem Termination System (CMTS) and Cable Modem CPE: Access equipment used to send DOCSIS
cable modem traffic over coaxial cable video networks in a digital format at speeds of up to 10 Mbps or more.
Passive Optical Networking (PON) Optical Line Terminal (OLT) and Optical Network Terminal (ONT):
Equipment used to send data over fiber-to-the-home networks at speeds of 50-100 Mbps or more. The ONT resides
at the customer with the OLT in the carrier network.
Access and Core Routers: Service provider routers move traffic around the wide area data network. Access
routers (1-10 Gbps) are used at the edge, both for enterprise network access and within service provider points-of-
presence for routing in the metro network. Core routers (10 Gbps+) are used in the core of the network.
WAN Switch: Sometimes called a “multi-service switch,” this device switches data, voice, and video traffic used in
carrier and large enterprise network backbones. They are multiprotocol devices, usually incorporating ATM.
218
Telecom/Datacom
Telecom/Datacom
Carrier Cap-ex – Digesting the Bubble

Spending on telecom/datacom is heavily tied to carrier
cap-ex, usually pegged as a percentage of revenue. In
the late 1990s, however, telecom deregulation and the
growth of the Internet sparked a sharp increase in
spending. As price competition heated up and revenue
growth stalled, carriers quickly pulled in spending plans,
and have been digesting those investments ever since.
Service Provider Revenue Service Provider Cap-ex
$1,400 40% $300 40%
Wireless Services Revenue Wireless Cap-Ex
Wireline Services Revenue Wireline Cap-Ex 35%
$1,200 30%
Wireless YoY Growth $250 Wireless Capital Intensity
Wireline YoY Growth Wireline Capital Intensity
Service Provider Cap-Ex Revenue in Billions
30%
Service Provider Revenue in Billions
$1,000 20%
Capital Intensity (Cap-ex / Sales)

$200
25%
YoY Growth
$800 10%
$150 20%
$600 0%
15%
$100
$400 -10%
10%
$50
$200 -20%
5%
$00 -30% $00 0%

2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005
Source: Company reports and CIBC World Markets Source: Company reports and CIBC World Markets
Spending on telecom and datacom equipment is heavily tied to service provider capital expenditures, which in turn is
typically pegged as a percentage of revenue—historically around 15%-20% of revenue. In the late 1990s, however,
telecom deregulation and the growth of the Internet sparked a sharp increase in carrier spending, as heavily funded
start-up telecom providers began to build competitive networks and incumbents increased their spending in order to
keep up. In 2000, spending by carriers worldwide peaked at over 28% of industry revenue—clearly an unsustainable
level of spending. Note that the cap-ex ramp was especially severe for U.S. service providers, which produced large
negative free cash results despite record revenue.
In 2001, carriers began to aggressively pull in capital spending plans as it became clear that revenue growth, despite
the array of new data and wireless services being provided, would not be sufficient to warrant the level of investment
of 2000. The situation worsened in 2002 as price competition increased, and the cuts in capital spending became
even more urgent. Also in 2002, the decline in wireline capital spending spread to wireless spending, which had been
strong through 2001. Both wireline and wireless spending took another step down in 2003, as carriers sought a long-
term sustainable level of capital spending as a percentage of sales. Cap-ex finally grew in 2004 and 2005 as carriers
re-entered investment mode to build next-generation networks to provide triple play services.
219
Telecom/Datacom
Telecom/Datacom
Service Providers – Major Issues

Technologies driving the industry
— Focus remains on consolidating voice/data/video onto one network
— Next generation access technologies – EPON in Asia; BPON/GPON in the
U.S.; ADSL2+, VDSL, and VDSL2 worldwide
— Moving intelligence from the core of the network to the edges
— IP networks with the customers controlling much features and functionality
— Wireless will continue to drive the industry
Cable remains the biggest threat

— MSOs preparing for broader rollouts of voice-over-cable
— The cable companies and telcos have much to lose from aggressive price
wars and both sides have some advantages
“Triple Play,” bundling and flat rate pricing are focuses
— Triple play includes voice, video, and data service
— Increases revenue per household
— Lowers cost
— Increases the TAM over time
Consolidation and Regulatory issues

— Heavy consolidation in the U.S.: Verizon-MCI, SBC-AT&T-Bellsouth, Sprint-
Nextel, Level 3-Wiltel-Broadwing & others
— Inter-carrier compensation – especially for VoIP
— Universal Service Funding
The telecom industry remains in a state of transition as carriers address increasingly data-centric connectivity
demands and attempt to fight off competition from cable and satellite. All service providers are moving toward triple
play services, looking to provide voice, video, and data. The major issues facing carriers include:
Technology issues: Service providers are squarely focused on consolidating voice/data/video onto one network in
order to lower the cost for existing services and branch into new services. This has required the adoption of next
generation access technologies, including EPON in Asia, BPON/GPON in the U.S., and next-generation DSL worldwide.
Behind the scenes, carriers continue to move their networks to more flexible IP-based equipment, and are moving
intelligence from the core of the network to the edges. Wireless is still viewed as the big growth area for the industry.
Threats: The biggest threat facing carriers is from cable voice, as cable MSOs prepare for broader rollouts of VoIP.
Note that the cable companies and RBOCs have much to lose from aggressive price wars and both sides have some
advantages, which should prevent more aggressive behavior. Non-traditional service providers like Vonage and
Skype present additional challenges; the effects will be less widespread but will hurt on the margins.
Market factors: Carriers remain focused on ARPU, in particular adding services to increase the TAM over time. On
the cost side, cap-ex frugality has eased but maintenance and other variable costs remain an important focus area.
Consolidation and regulatory issues: There has been massive consolidation in the U.S. market. On the regulatory
front, inter-carrier compensation and Universal Service Funding are still issues as carriers try to fend off VoIP.
220
Telecom/Datacom
Telecom/Datacom
Capital Spending Outlook

With competition still fierce and the revenue growth outlook
modest, carriers have trended spending down toward the
mid-teens as a percentage of revenue. However, providers
have moved beyond conserving cash and are looking to
position their business models and networks for long-term
competitiveness and profitability.
With triple-play clearly the Carrier Cap-ex Forecast
goal, we are seeing a shift $300
Wireless Cap-Ex
40%
within the budget toward

Wireline Cap-Ex
Wireless Capital Intensity 35%
$250 Wireline Capital Intensity
next-generation broadband,
Service Provider Cap-Ex Revenue in Billions
30%
Capital Intensity (Cap-ex / Sales)

VoIP and the early stages of
$200
25%
IPTV. 3G wireless rollouts $150 20%
are well under way in $100

15%
developed markets. Metro 10%
and core networks are also

$50
5%
being upgraded to support $00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0%
increased levels of traffic. Source: RHK, CIBC World Markets Corp.
Carriers have completely reworked their strategies in the post-bubble period, and have been trending capital spending
down toward the mid-teens as a percentage of revenue. The rush to ramp up network capacity has largely abated,
but so has the focus on cash conservation. At this point, carriers are focused on migrating their networks (and their
business models) to support more sustainable growth and margins over time.
Wireline carriers are challenged with balancing (1) declining voice revenues as a result of wireless substitution and
growth in VoIP alternatives with (2) the need to expand their networks’ capacity to handle the growing demand for
data and video (IPTV) services. These challenges are typically manifested with an internal shift in CapEx spending
from old legacy equipment to next generation IP networks. Net net, growing cash flow constraints and increasing
margin pressures cap spending beyond legacy substitution.
Wireless carriers in developed markets are challenged with lack of subscriber growth and are forced to manage a
transition to higher capacity 3G networks within increasingly constrained capital spending budgets. In emerging
markets, subscriber trends are still positive, but stiff OEM competition enables carriers to get more for less and
increase budgets slowly. We see upside to our estimates only if network traffic shows stronger than expected growth.
In terms of our forecast, we believe global carrier cap-ex will grow 7% in 2006, followed by a flat year in 2007 and
then declines of 2%-3% in 2008-1010. Overall, we forecast cap-ex spending to be flat over the forecast period,
hovering near $220 billion.
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Telecom/Datacom
Five Key Markets:

Central Office Line Cards
Line cards used in large telco switches to connect residential voice
customers to the public voice network.
Modems
Data access devices used to connect individual residential customers to the
Internet over POTS copper wire infrastructure or coaxial cable networks.
We also include faxes due to their similarity to analog modems.
PON
Fiber access technology used to connect residential customers to the
Internet using optical fiber.
A broad category of infrastructure equipment used for switching,
aggregation, routing, and transport in voice and data networks.
Voice-over-IP
Equipment used to send voice traffic over an IP-based data network.
We divide telecom and datacom equipment into five key segments. The first three are access technologies with
transparent applications: POTS for voice access and modems and PON for data access. The fourth is a broad category
we term communications infrastructure, which includes switching, aggregation, routing, and transport equipment used
in voice and data network infrastructure. The final category is VoIP, which includes equipment layered onto the other
categories to provide voice service over data-centric networking equipment.
• Central Office (POTS) Line Cards: The least common denominator in voice networks, POTS line cards sit in
telco switches at the central office and interface directly with customer phone lines.
• Modems (includes fax): Datacom access devices used to connect individual users to the Internet and data WANs.
Analog and DSL modems use the POTS telephone system; cable modems use coaxial cable networks.
• PON: Fiber access technology used to connect residential customers to the Internet using optical fiber.
• Communications Infrastructure: A broad category of equipment used for switching, aggregation, routing, and
transport in voice and data networks. Note that equipment included in this category is used both in service
provider networks and in enterprise networks for trunking, backhaul, and access to the public network. We chose
to include all infrastructure equipment here rather than in the networking section due to its similarity to service
provider equipment and the difficulty in distinguishing between multi-use equipment.
• Voice-over-IP: Specialized equipment used to send voice traffic over IP-based networking equipment.
222
Central
Central Office
Office Line
Line Cards
Cards
Central Office Line Card Central Office Switch

Unit Forecast Suppliers
•Central office line cards are a declining
business; normal churn and emerging Others
Alcatel
23 %
market growth are more than offset by 22 %
secular declines in developed regions.
•Wireless replacement of wireline,
broadband penetration replacing modem
lines, Internet replacing fax lines, and
VoIP all contribute to the secular decline.
Siemens
•In total, we expect central office line 12 % Lucent
cards to decline at a CAGR of 13%, from 16 %
29.4 million in 2005 to 15.0 million ports

in 2010. Nortel
100,000
12 %
Central Office Line Cards Ericsson
90,000
15 %
80,000
70,000 Source: Dataquest, CIBC World Markets Corp.

60,000
50,000
40,000
30,000
20,000
10,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Central Office Line Card Unit Forecast: The market for central office line cards, also called POTS (plain old
telephone system) line cards, is driven by the number of net new phone lines added plus replacement of depreciated
equipment (churn). In theory, this market should grow roughly at the rate of population, but certain trends
accelerated this growth leading up to 2000, such as emerging market growth, fax machines, analog modems and
installations by emerging competitive carriers following telecom deregulation. POTS line card unit shipments peaked
at 180 million units in 2000, but then declined to a fraction of this number as the telecom bubble burst.
Looking ahead, we believe the market will continue to decline and expect a negative five-year CAGR of 13%, with
shipments falling from 29.4 million units in 2005 to 15.0 million units in 2010. A number of factors are now driving
the decline. Residential users are canceling second phone lines as they install DSL or cable modem service, which
also offers voice in addition to data. Increased Internet usage is also reducing demand for separate fax lines. Cellular
phones have eliminated the need for additional phone lines in many households. More advanced enterprise phone
systems are also eliminating a huge constituency usually terminated at the central office. Residential VoIP services
are now widely available from telecom, cable, and third party providers and eliminate the need for a POTS line
altogether. Finally, multi-port solutions are reducing the units required to serve the same number of users.
Central Office Switch Suppliers: The largest supplier of central office switches in 2005 was Alcatel with 22%
revenue share. Lucent (acquired by Alcatel in 2006) was second with 16%, followed by Ericsson with 15%, Nortel
with 12%, and Siemens with 12%. Other vendors include NEC, Fujitsu, Hitachi, Huawei, Datang, and ZTE.
223
Central
Central Office
Office Line
Line Cards
Cards
The ringing IC generates the telephone

A microcontroller is used to
ring on the user telephone when an
control the line card
incoming call is received on that line
Ringing MCU
IC
Telephone PCM Switch

SLIC
Line Codec Backplane
This SLIC is a line driver that interfaces The codec performs the analog-to-digital
with the telephone line, sending and and digital-to-analog conversion to feed
receiving the analog signals to and from the call into and out of the PSTN (public
the telephone user switched telephone network)
POTS signals come off a telephone line and interface with a SLIC, which transmits and receives the voice signal to and
from the telephone user. A ringer IC also sits near the SLIC and generates the ringing of the telephone set. Once
received, a PCM codec converts the signal to a digital format to be sent to the switch backplane.
• SLIC: The SLIC performs the analog signal reception and transmission and interfaces with the telephone line.
POTS line card SLICs are specialized devices that support standard BORSCHT functions (battery feed, over-voltage
protection, ringing, signaling, coding, hybrid and testing), as well as key power management technologies,
including thermal management, battery switching and switching regulation.
• Ringing IC: The ringing IC generates the telephone ring on the user telephone when an incoming call is
received.
• Ringing SLIC (not pictured in our block diagram): A ringing SLIC combines the functions of a SLIC and a ringing
IC.
• Codec: The codec performs the analog to digital conversion of the telephone signals and sends them into the
PSTN.
• Microcontroller: A standard MCU is used to control the line card.
224
Central
Central Office
Office Line
Line Cards
Cards
Central Office Line Card Central Office Line Card

Semiconductor Forecast IC Competitors
Others
•We expect the market to decline at an
Winbond
3% 8%
11% CAGR, from $232 million in 2005 to NEC

3%
$131 million in 2010. Freescale
4%
•ICs should slightly outpace units, IDT Infineon
however, as the market moves to denser 6% 42 %
solutions which carry higher ASPs.

$400 STMicro
SLIC/Line Driver
11 %
$350 Codec
$300
$250
Legerity
$200 24 %
$150
Central Office Line Card IC

$100
Market Trends
$50
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010

•Discrete SLIC and ringing ICs are
being integrated as ringing SLICs.
•The codec remains separate, as the
SLIC requires high-voltage CMOS.
•Multi-port SLICs and codecs are
becoming industry standard.
Central Office Line Card Semiconductor Forecast: We expect central office line card semiconductors to decline
slightly less than units, as the market moves to denser solutions that carry higher ASPs. Still, we expect revenue to
decline at an 11% rate, from $232 million in 2005 to $131 million in 2010. This excludes MCU content.
Central Office Line Card Semiconductor Competitors: Only two major vendors remain in the CO line card IC
market. Infineon, with its strong ties to Siemens, was the top supplier with 42% market share in 2005. Legerity was
second with 24%. Other vendors include STMicroelectronics, IDT, Freescale, NEC, Winbond, Silicon Labs, Datang
Microelectronics, and Oki Electric.
Trends in Central Office Line Card Semiconductors

• Discrete SLIC and ringing ICs are increasingly being integrated as ringing SLICs. Integration is taking
place at the front end, with ringers increasingly being integrated into the SLIC. We note that most vendors are
leaving out the codec function, as the SLIC requires more expensive high-voltage CMOS while the codec does not.
• Multi-port SLICs and codecs are becoming industry standard. With per-port bill of materials cost and board
space in the central office switches being key issues for service providers, OEMs have turned to IC vendors to
supply multi-port devices.
225
Modems
Modems
Modems are used to connect individual PCs or small

consumer/SOHO networks to the Internet.
Modem CPE (consumer premise equipment) on the
client side connects via copper twisted pair that has
historically provided voice service or via coaxial cable
that has historically provided video service. On the
service provider side, a modem concentrator enables
the data service and interfaces with the public data
network.
Customer Service
Premise Provider
Uplink to
Copper Twisted Pair or Coaxial Cable
Public Data
Network/
Internet
Modem Modem
(Analog, DSL, Concentrator
Cable) (RAC, DSLAM,
CMTS)
Modems are the most common remote data access device, used to connect individual PCs or small consumer or SOHO
networks to the public data network and the Internet. Unlike pure data networking equipment like Ethernet, modems
are designed to send data traffic over networks that were originally intended for either voice or video.
Modem CPE (consumer premise equipment) on the client side connects via copper twisted pair (from the traditional
voice network) or coaxial cable (from the traditional cable video network) to a modem concentrator in the service
provider network, which interfaces with the public data network. The service provider can be a traditional telecom
carrier (Verizon, AT&T), a cable MSO (Comcast, Cablevision), or a specialized Internet service provider (America
Online, Microsoft Network, Juno).
226
Modems
Modems
Three key types of modems exist:

Analog Modems - Analog modems use a traditional telephone
line to place a call, which is received by the service provider
modem, and transmits data in an audible analog format (like a
fax machine). Transmission speed is typically 56 Kbps.
Cable Modems - Cable modems use the existing coaxial cable

network to transmit data in a digital format. Transmission
rates vary with user congestion, but can reach 10 Mbps
downstream and 1 Mbps upstream.
DSL - Digital Subscriber Line uses the existing POTS

infrastructure, but transmits data in a digital format using a
higher, inaudible frequency “on top” of the traditional analog
voice signal. Symmetric DSL (SDSL) transmits and receives
data at the same rate, while Asymmetric DSL (ADSL) carries
faster downstream rates than upstream rates. Newer, faster
asymmetric protocols are referred to as VDSL (very high bit
rate DSL). DSL speeds vary widely between a 1-10 Mbps for
SDSL and ADSL and 50+ Mbps for VDSL/VDSL2.
Three key types of modems exist:

• Analog Modems: Analog modems use a traditional POTS phone line to place a call, which is received by the
service provider modem housed in a remote access concentrator (RAC). Analog modems transmit data in an
audible analog format, which is why you can hear it if you pick up the phone line, similar to a fax machine. Top
transmission speed is typically 56 Kbps. Phone lines are designed to transmit 64 Kbps of voice (the 8 Kbps
difference accounts for overhead). Analog modem CPE is usually embedded on the motherboard within the PC.
• Cable Modems: Cable modems use the existing coaxial cable network to transmit data in a digital format using
the DOCSIS protocol, over the same infrastructure used to transmit video. Transmission rates vary with user
congestion (slower when more users are online), but can reach 10 Mbps downstream and 1 Mbps upstream.
• DSL: Digital subscriber line technology uses the existing POTS infrastructure, but transmits data using a digital
format in a higher, inaudible frequency “on top” of the traditional analog voice signal. On the service provider
side, lines connect to a DSL access multiplexer (DSLAM), which connects directly to the public data network,
usually using ATM or IP as a backhaul protocol. Two basic forms of DSL exist: symmetric, which transmits and
receives data at the same rate; and asymmetric, which carries faster downstream rates. Newer, faster
asymmetric protocols are referred to as VDSL (very high bit rate DSL). DSL speeds vary widely between 1-10
Mbps for SDSL and ADSL and 50+ Mbps for VDSL/VDSL2.
227
Modems
Modems
Broadband Growth
Broadband service is rapidly displacing analog modems.
Both DSL and cable modem service providers view data
service as strategic to their business models, and have
dropped prices to be extremely competitive vs. most
phone-based Internet plans. Consumers are attracted
by much higher data rates and always-on service.
Broadband Subscribers Internet Connections
200,000 100%
VDSL/FTTP/Ethernet
180,000 90%
ADSL / G.SHDSL
160,000 Cable Modem 80%
140,000 70%
Subscribers in 000s
120,000 60%
100,000 50%
80,000 40%
60,000 30%
VDSL/FTTP/Ethernet
40,000 20% ADSL / G.SHDSL

Cable Modem
10%
20,000 Analog Modem
0%
-
2000 2001 2002 2003 2004 2005
2000 2001 2002 2003 2004 2005
Source: Dell’Oro, CIBC World Markets Corp. Source: Dell’Oro, CIBC World Markets Corp.
The past few years have seen a rapid shift to broadband Internet service, which includes cable modem and DSL
service. In 2005, we estimate that broadband subscribers totaled 193 million worldwide, including 46 million cable
modem subscribers, 130 million ADSL/SDSL subscribers, and 17 million VDSL and other high bit rate subscribers
(includes FTTH/PON and metro Ethernet, though these are discussed in other sections). This was up over 35% from
2004 and represents a nearly fifteen-fold increase from the 13 million broadband subscribers in 2000.
Wide availability and falling prices have been a huge part of broadband growth. Both DSL and cable modem service
providers view data service as strategic to their business models and have dropped prices to be extremely competitive
with most phone-based Internet plans, while providing a service that is far superior and doesn’t occupy the user’s
telephone line. Consumers are attracted by much faster data rates and always-on service. Also note that several
government programs, especially in Asia, have subsidized broadband deployment, driving penetration higher in
certain countries.
In terms of penetration, in 2005 we estimate that broadband penetration was 63% on a worldwide basis, up from
53% in 2004 and 40% in 2003 (note that penetration back in 2000 was just 11%). Of the three largest geographies,
broadband penetration is highest in EMEA at 68%, followed by Asia/Pacific at 63%, and North America at 59%.
228
Modems
Modems
Analog Modem and Fax Analog Modem and Fax

•We expect analog modems and fax units Desktops Notebooks
to stay essentially flat; shipments should
peak in 2006 at 181 million units and Dell Dell
decline to 172 million units in 2010. HP HP
•PC modem penetration should decline as Lenovo Toshiba
broadband becomes more pervasive and Fujitsu/F-S Lenovo
as ISPs stop giving subsidies to PC OEMs. Lenovo Acer
•Multi-function peripherals should Gateway Fujitsu/F-S
generate some incremental growth to
offset declining PC penetration. MFPs Fax
250,000 HP HP
Remote Access Concentrators
Embedded Analog Modem Lexmark Brother
200,000
Fax and MFP
Notebook Analog Modem Epson Panasonic
Desktop Analog Modem
Dell Sharp
Canon Lexmark
150,000
Brother Canon
100,000 RAC
Lucent/Alcatel
50,000 Nortel
3Com
- Cisco
2002 2003 2004 2005 2006 2007 2008 2009 2010
UTStarcomm
Source: IDC, Dell’Oro, Dataquest, CIBC World Markets Corp.
Source: IDC, Dataquest, Dell’Oro, CIBC World Markets Corp.
Analog Modem and Fax Unit Forecast: We expect the market for analog modems to face pressure as PC
penetration rates continue to decline. Analog modem penetration in PCs has fallen steadily over the past few years,
and should continue to drop as broadband becomes more pervasive and as ISPs stop subsidies to PC OEMs (e.g., AOL
began scaling back its subsidies of analog modems in 2006).
Outside of PCs, analog modems and faxes should see modest growth, primarily from multi-function peripherals which
incorporate printer, scanner, copier, and fax functions in a single device. On the infrastructure side, port shipments
have come down dramatically, as few service providers install modem concentrators except for maintenance. We
estimate infrastructure ports will represent less than 1% of total in 2010.
In total, we expect the market to remain roughly flat, declining from 175 million units in 2005 to 172 million units in
2010. Shipments probably peaked in 2006 at 181 million.
Analog Modem and Fax Suppliers: Analog modems ship into a variety of applications including PCs, MFPs, faxes,
and RACs. From a unit perspective, PCs remain the largest end market for analog modems. Hence, the largest
modems “suppliers” are PC makers Dell, HP, Lenovo (Lenovo purchased IBM’s PC business in 2005), Acer,
Fujitsu/Fujitsu-Siemens, Toshiba, NEC, Apple, Gateway, and Sony. Outside of PCs, MFPs and faxes are also big
consumers of modems and top suppliers include HP, Lexmark, Epson, Dell, Canon, Brother, Panasonic, and Sharp. On
the infrastructure side, top suppliers of RACs include Lucent/Alcatel, Nortel, 3Com, Cisco, and UTStarcomm.
229
Modems
Modems
AFE / Codec
Analog RJ-11
Phone Line
PCI
Host
Driver System
Modem Line
MCU
Data
Pump
Performs the analog-to-digital and

Interfaces with the telephone line, digital-to-analog conversion to
sending the analog data signals feed the modem data into and out
between the modem and the RAC of the host system (in a modem)
over the telephone line or backplane (in a RAC)
RJ-11 AFE / Codec

Phone Line
Driver Data
Line MCU
Pump System Backplane:
Remote interface to switching,
routing, WAN trunking, and
Port 2
Access control/management cards
Port 3
Concentrator
Port N
Note: Our modem block diagrams, semiconductor forecast, and associated discussion include all
semiconductors included in modem CPE, in embedded modem/fax subsystems within MFPs, set-top
boxes, fax machines, and other embedded fax/modems, as well as those modem-specific ICs found on
remote access concentrator line cards. We do not include those devices used in switching, routing, WAN
trunking, and control/management cards, as these are not protocol dependent and can vary greatly
depending on the functionality of the system. We discuss these ICs separately in the communications
infrastructure section.
• Line Driver: This analog SLIC interfaces with the RJ-11 copper twisted pair (phone line), performing
transmission and reception functions.
• Analog Front End (AFE)/Codec: The AFE/codec performs the analog-to-digital conversion, interfacing between
the line driver and the host system (in a PC modem) or switch fabric (in a RAC). Modem codecs are specialized
processors and typically include a data pump, embedded microcontroller and PCI interface. Fax codecs are similar
but will often incorporate different software and features.
230
Modems
Modems
Analog Modem and Fax Analog Modem and Fax

•We expect analog modem and fax ICs to Others
Analog Devices
decline over the next 5 years as unit 2%
4%
Austria
growth slows and IC price declines chip Microsystems
away at market revenue. 4%
•PCs have already adopted softmodems;

as embedded applications slowly follow Agere
suit codec/DSP revenue should suffer. 16 %
Conexant
•Overall, we expect IC revenue to decline 50 %
from $552 million in 2005 to $403 million
in 2010, a -6% CAGR.
$700
Analog Modem and Fax ICs

$600
Silicon
Laboratories
$500
24 %
$400 Source: Dataquest, CIBC World Markets Corp.
$300
$200
$100
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, Dell’Oro, Dataquest, CIBC World Markets Corp.
Analog Modem and Fax Semiconductor Forecast: We expect analog modem and fax ICs to decline over the next
five years as unit growth stagnates and semiconductor price declines chip away at market revenue. The move to
softmodems in some embedded applications (we saw this happen in 2006 in set-top boxes) should further depress
codec/DSP revenue; this transition is already behind us in the PC market. Overall, we expect IC revenue to decline at
a 6% rate, from $557 million to $403 million in 2010.
Analog Modem and Fax Semiconductor Competitors: The market for analog modem and fax ICs is highly
mature and consolidated. Conexant remains the market leader with 50% share in 2005, followed by Silicon Labs with
24% and Agere with 16%. Other analog modem vendors include Austria Microsystems, Analog Devices,
STMicroelectronics, Winbond Electronics, Freescale, and Oki Electric.
231
Modems
Modems
Cable Modem Unit Cable Modem Suppliers

Forecast Cable Modems
•We expect cable modem unit shipments Others
16 %
to grow 3%, from 22.3 million ports in
2005 to 26.5 million ports in 2010. D-Link
1%
•Growth is slowing as penetration rates Cisco
2%
plateau; competing technologies such as Motorola
43 %
VDSL and FTTX may also play a factor. Thomson
10 %
•Cable modems incorporating WLAN and
VoIP will drive some incremental churn.
Arris
•DOCSIS 3.0 is still in development and 12 %
will be more of a factor on the CMTS side Scientific

when service rollouts begin towards the Atlanta/Cisco
16 %
end of the decade.
30,000 CMTS (Ports)
CMTS Others
BigBand
Cable Modems 4% 0%
25,000
Motorola
19 %
20,000
15,000
10,000
Cisco
54 %
5,000
Arris
21 %
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Dell’Oro, IDC, Dataquest, CIBC World Markets Corp. Source: Dell’Oro, CIBC World Markets Corp.
Cable Modem Unit Forecast: Cable modem demand has surged in the past few years as cable MSOs added
broadband data to their video service offerings. From under one million units shipped in 1998, the market reached
22.3 million units in 2005 (up 29% from 2004). Going forward, we expect more moderate growth through 2010 as
cable modem service penetration peaks (note that cable is primarily a U.S. phenomenon). Competing technologies
such as VDSL and FTTX may also play a factor in muting growth prospects as U.S. telecom providers bolster the
performance of their broadband offerings, which have consistently lagged cable to date in terms of bandwidth. In
total, we expect modems to grow at a 3% CAGR, from 22.3 million units in 2005 to 26.5 million units in 2010.
On the infrastructure side, we measure CMTS ports in terms of upstream ports, with each port able to support 100 or
more individual subscribers depending on how the CMTS is configured. We expect a more robust growth on the CMTS
side as opposed to CPE, largely driven by churn to support DOCSIS 3.0 scheduled for rollouts toward the end of the
forecast period. In total, we expect ports to rise from 293,000 ports in 2005 to 530,000 ports in 2010, a 13% CAGR.
Cable Modem and Infrastructure Suppliers: In 2005, Motorola led the cable modem market with 43% unit share.
Scientific Atlanta (now Cisco) followed with 16% and Arris and Thomson held 12% and 10%, respectively. Other
major suppliers include Cisco and D-Link, each with less than 5% of the market.
On the infrastructure side, Cisco was the top vendor with 54% of CMTS ports shipped in 2005. Arris and Motorola
followed with 21% and 19%, respectively. BigBand held 4% share.
232
Modems
Modems
Integrated Ethernet Ethernet

Cable Modem Controller Cable
Cable USB USB
QPSK/QAM
Modem Cable Modulator DOCSIS
Controller
Cable
Tuner MAC
QAM VoIP
Processor
Receiver
Block
Interfaces with the coaxial Flash
cable and tunes the incoming
and outgoing signals DRAM SRAM WLAN
Performs all cable modem front end, protocol, and
interface processing, including transmission and Block
reception, MAC (protocol) functions, control plane
functions, and Ethernet and USB protocol processing
DRAM, SRAM and flash In VoCable modems, a
memory are used by the cable VoIP DSP and SLICs
modem chip’s embedded enable voice functionality In Wi-Fi enabled cable
MAC and MIPS processor modems, an 802.11
chipset enables wireless
LAN functionality
Transmits downstream data
traffic in the cable signal,
interfacing with the head end
QPSK/QAM
Modulator
Cable CMTS Traffic System Backplane:
CMTS Head End/
Combiner
DOCSIS
MAC
Provisioning
ASIC
interface to switching,
routing, WAN trunking, and
QAM control/management cards
Receiver
DRAM SRAM
Receives upstream data
traffic in the cable signal from
cable modem subscribers (by This block, usually a set of ASIC
way of the head end) Performs cable modem protocol and FPGAs, performs traffic
processing, applying and removing DRAM and SRAM provisioning before sending
cable modem DOCSIS overhead memory are used by the packets to the system backplane
CMTS MAC and Traffic
Source: Broadcom, Texas Instruments, RHK, IDC, CIBC World Markets Corp. provisioning ASIC
Note: As in the analog modem section, our cable modem block diagrams, semiconductor forecast, and
associated discussion include all application-specific semiconductors found in cable modem CPE and on
CMTS line cards. We do not include those devices used in switching, routing, WAN trunking, and
control/management cards, as these are not protocol dependent and can vary greatly depending on the
functionality of the system. We discuss these ICs separately in the communications infrastructure
section.
Also note that in most block diagrams in this report, we separate out IC functionality as if there were no
integration to better illustrate what functions designers need in order to implement a specific application.
Cable modems, however, are almost entirely based on integrated cable modem chip designs. Therefore,
we picture the modem as such above.
Cable Modem CPE

• Cable Tuner: The tuner tunes the cable RF frequency for transmission and reception to and from the cable
system. Older models use a can tuner, while newer designs use silicon tuners or a tuner block integrated into the
cable modem chip.
233
• Integrated Cable Modem: The integrated cable modem includes front end processing (QPSK/QAM modulation
for transmission and QAM demodulation for reception), the DOCSIS MAC (media access controller), an embedded
processor and interface controllers (usually an Ethernet MAC/PHY and a USB controller). Newer cable modem
chips sometimes include an integrated tuner.
• SRAM, DRAM, flash: Memory used by the embedded processor and DOCSIS MAC within the cable modem chip.
• Ethernet PHY (not shown in diagram): Some older cable modem SoC designs incorporate only the Ethernet
MAC, requiring an external PHY IC to interface between the cable modem system and the Ethernet cable.
• Ethernet Switch (not shown in diagram): Though the basic cable modem needs only one Ethernet port to
interface with the PC or wired network, newer residential gateways that include voice and wireless LAN
functionality alongside the modem often include multiple Ethernet ports. These are usually implemented with a
single-chip Ethernet switch, which includes Ethernet PHY, MAC, and switch functions; sometimes these functions
are included in the cable modem SoC. Most gateways have 4-5 ports of 10/100 Ethernet, though this can vary.
VoIP Block (VoCable Modem Only)

• VoIP DSP (not shown in diagram): A VoIP packet processor DSP performs the TDM-to-IP conversion on IP-based
phone calls. Integrated codecs perform the analog-to-digital and digital-to-analog conversion. Note that newer
cable modem SoC designs often include a VoIP DSP.
• Line driver/SLIC (not shown in diagram): This SLIC is a line driver that interfaces with the telephone line,
sending and receiving the analog signals to and from analog telephones.
Wireless LAN Block (Wi-Fi Enabled Cable Modem Only)

• Power Amp (not shown in diagram): The power amp sits in front of the antenna and boosts signal strength.
• RF/IF Converter (RF) (not shown in diagram): The RF front end controls the radio wave generation on the
transmit side and receives the radio wave signal on the receive side, translating between low-frequency analog
signals used by the system (specifically by the IF transceiver) to high-frequency RF signals used in radio
communications. In newer implementations, the RF converter and IF are integrated in a single direct conversion
transceiver, as shown in the block diagram above.
• I/Q Modem (IF) (not shown in diagram): The IF performs all quadrature modulation of “I” and “Q” baseband
signals, converting the analog radio signal to a digital stream to be processed by the baseband and vice versa. In
most implementations, the IF is integrated with the RF in a single direct conversion transceiver, as shown in the
block diagram.
Cable Modem Termination System (CMTS)

• QAM Receiver/Demodulator: The QAM demodulator receives upstream data traffic in the cable signal from
cable modem subscribers.
• QPSK/QAM Modulator: The QPSK/QAM modulator transmits downstream data traffic in the cable signal.
• CMTS DOCSIS MAC: The MAC performs protocol processing, assigning and removing DOCSIS overhead on the
data packet.
• Traffic Provisioning ASIC: This block, usually a series of ASICs and FPGAs, performs traffic provisioning before
forwarding packets to the system backplane.
• DRAM and SRAM: DRAM and SRAM memory is used both by the DOCSIS MAC and the traffic provisioning ASIC.
234
Modems
Modems
Cable Modem Cable Modem

•We expect cable modem ICs to grow at a Conexant Others
healthy rate as more functionality is 2% 5%
integrated into the cable modem chipset. Microtune

•VoIP and WLAN will drive growth, though
6%
integration will limit the opportunity for

discrete ICs while benefiting the SoC.
•Infrastructure ICs should grow nicely, Texas
Instruments
but will remain <20% of total. 25 %
•In total, we expect cable IC revenue to
grow at a 7% CAGR, from $433 million in Broadcom
62 %
2005 to $613 million in 2010.
$700
Discrete VoIP ICs

Discrete Wireless LAN ICs
$600
CMTS ICs
Cable Modem ICs
$500 Note: Market share data excludes discrete WLAN and VoIP
components as well as ICs for the CMTS.

$400 Source: Dataquest, IDC, Linley, CIBC World Markets Corp.
$300
$200
$100
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: WLAN and VoIP ICs used in cable modems are also captured
in our semiconductor forecasts for those categories.
Source: IDC, Dataquest, Dell’Oro, RHK, CIBC World Markets Corp.
Note: We have included wireless LAN and VoIP ICs that sell into cable modems in our forecast, even
though these are discussed in their own respective sections of this report. We believe these functions will
be integrated into the cable modem SoC over time, and we wanted to show the effect on our forecast—
specifically that the cable modem SoC will benefit even while the system BOM declines.
Cable Modem Semiconductor Forecast: We expect cable modem ICs to grow at a healthy rate over the next few
years as IC suppliers integrate more functionality into cable modem chipsets, increasing the total semiconductor BOM.
Increasing VoIP and WLAN penetration should be the primary growth drivers (VoIP going from 28% of units in 2005
to 100% in 2010 and WLAN from just 3% in 2005 to 80% in 2010); note that integration trends will limit growth
prospects for discrete components while benefiting the cable modem SoC. Infrastructure ICs should also grow nicely
(an 8% CAGR), but will remain less than 20% of total semiconductor revenue. In total, we expect the market for
cable modem semiconductors to grow at a 7% rate, from $433 million in 2005 to $613 million in 2010.
Cable Modem CPE Semiconductor Competitors: The market for cable modem semiconductors has remained very
concentrated, with Broadcom commanding a 62% share of cable modem IC revenue (excludes WLAN, VoIP, and
CMTS) as of 2005. Broadcom’s flagship customer is Motorola, though the company also supplies Scientific Atlanta
(now Cisco), Thompson and Samsung as well as several ODMs. TI held the No. 2 position with 25% share; TI has
strong positioning in VoCable products. Microtune followed with 6% share due to its position in tuners, and Conexant
held 2% share. Other cable modem IC players include Terayon, Toshiba, Sharp, and ALPS Electronics.
235
Modems
Modems
DSL Modem Unit/Port DSL Modem Suppliers

Forecast DSL Modems
•We expect DSL modem units/ports to Thomson
grow at a 1% CAGR through 2010, from 15 %
120 million in 2005 to 127 million in 2010. Others
•We expect shipments peaked in 2006 but

33 %
should remain much larger than cable due Siemens

12 %
to the availability of copper infrastructure
worldwide.
•VDSL started to ramp in 2005 and should NEC Zyxel
grow nicely through 2010, driving a new 3%
Huawei
10 %
leg of growth beyond the forecast period. 3%

2Wire D-Link
5 % Westell 10 %
140,000
9%
VDSL
DSLAM (Ports)
120,000 SDSL
ADSL
100,000
Others
17 %
80,000
Zyxel Alcatel
60,000 3% 31 %
Ericsson
40,000 3%
UTStarcomm
3%
20,000
Marconi
3%
-
NEC
2002 2003 2004 2005 2006 2007 2008 2009 2010
6%
Source: Dell’Oro, IDC, Dataquest, CIBC World Markets Corp. Huawei
ECI Telecom
12 %
6%
Lucent Siemens
8% 8%
Source: Dell’Oro CIBC World Markets Corp.
DSL Modem Unit/Port Forecast: DSL demand has surged as voice telephony providers worldwide have embraced
residential broadband service and now position data at the center of their service offerings. From less than half a
million units/ports shipped in 1998, the market reached 120 million ports in 2005, up 24% from 2004. Looking
ahead, we expect an intermediate-term peak in 2006 after which shipments should begin to decline, particularly on
the DSLAM side. Still, DSL should enjoy a larger long-term unit opportunity than cable due to the availability of
copper infrastructure worldwide, and could see another wave of growth beyond the forecast period as VDSL ramps up.
In total, we expect DSL ports to grow at a 1% CAGR, from 120 million in 2005 to 127 million in 2010.
In terms of DSL standard, we expect ADSL to peak in 2006, showing a negative 5% CAGR 2005-2010, though it
should still represent more than 65% of all DSL shipments in 2010. SDSL should peak in 2007 and flatten thereafter,
showing a 9% CAGR 2005-2010, still small at less than 2% of DSL connections. VDSL should grow through the end of
the forecast period at a 37% rate, reaching 32% of connections in 2010.
DSL Modem CPE and Infrastructure Suppliers: The DSL modem market is highly fragmented. The largest
suppliers in 2005 were Thompson with 15% unit share and Siemens with 12%. Zyxel and D-Link each held 10% and
Westell held 9%. Other major suppliers included 2Wire with 5% and Huawei and NEC, each with 3%.
On the infrastructure side, Alcatel was the top DSLAM supplier with 31% share on a port basis, followed by Huawei
with 12%, and Siemens with 8%. Other suppliers include Lucent, ECI, NEC, Marconi, UTStarcomm, and Ericsson.
236
Modems
Modems
In Wi-Fi enabled DSL WLAN VoIP In VoDSL modems, a VoIP Ethernet interface driver
DSP and SLICs enable (PHY) and protocol
modems, an 802.11 Block Block voice functionality processor (MAC)
chipset enables wireless
LAN functionality
DSL Controller Ethernet RJ-45

RJ-11 Ethernet
Line Controller
DSL Phone
Line
Driver
AFE DSP
Data
Cable
USB
CPE MCU Pump
Host
USB
Cable
SRAM Flash Interfaces with the

USB cable to
This DSL Controller performs DSL connect up to the PC
Interfaces with the telephone line, protocol processing, adding DSL
sending the analog data signals SRAM, Flash - overhead on the transmit side and
between the modem and the RAC memory used by removing it on the receive side.
over the telephone line the DSL controller Usually incorporates DSP data
pump, AFE and microcontroller
RJ-11 Line DSLAM

Phone AFE
Driver Controller
Line System Backplane:
AFE DSP interface to switching,
Line
Port 2 Driver Data routing, WAN trunking, and
Pump
DSLAM AFE MCU
control/management cards
Line
Port N Flash SRAM
Driver
SRAM, Flash - memory used by

the DSLAM controller processor
Note: As in the other modem sections, our DSL block diagrams, semiconductor forecast, and associated
discussion include all semiconductors included in DSL modem CPE, as well as those on DSLAM line cards.
We do not include those devices used in switching, routing, WAN trunking, and control/management
cards, as these are not protocol dependent and can vary greatly depending on the functionality of the
system. We discuss these ICs separately in the communications infrastructure section.
• Line Driver: The line driver interfaces with the RJ-11 phone line.
• DSL/DSLAM Controller: This controller includes a DSP data pump and analog front end. It also typically
includes an embedded microcontroller or microprocessor for system control. DSLAM controllers include the same
functions but can include multiple AFEs and a more robust DSP.
• SRAM and Flash: SRAM and flash memory are used by the DSL/DSLAM controller.
• Ethernet Controller: An Ethernet controller provides the interface between the modem and the PC or network.
• USB Host: Found in USB-enabled modems, the USB host interfaces between the modem and the host PC.
• WLAN and VoIP block: See the cable modem diagram on page 233 for a description of the devices found in
these blocks.
237
Modems
Modems
DSL Semiconductor DSL Semiconductor

•We expect DSL IC revenue to remain Others
roughly flat through 2010 at $1.1 billion. STMicro 7%
5%
•A shift to higher-ASP VDSL should help Conexant
offset some of the normal ASP erosion in Centillium
6%
26 %
this cost-sensitive market.

•Increasing VoIP and WLAN penetration
will also help mitigate pricing pressure, Ikanos
9%
though integration trends will limit the
opportunity for discrete components.
$1,500
VoIP ICs
Wireless LAN ICs Infineon
Total VDSL ASSPs
13 % Texas
Total SDSL ASSPs
$1,200
Total ADSL ASSPs
Instruments
17 %
$900 Broadcom
17 %
Note: Market share excludes discrete WLAN and VoIP ICs.

$600
Source: IDC, Linley, CIBC World Markets Corp.
$300
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: WLAN and VoIP ICs used in DSL modems are also
captured in our semiconductor forecasts for those categories.
Source: IDC, Dataquest, Dell’Oro, CIBC World Markets Corp.
Note: As in the cable modem section, we have included wireless LAN and VoIP ICs that sell into DSL
modems in our forecast, even though these are discussed in their own respective sections of this report.
We believe these functions will be integrated into the DSL modem SoC over time, and we wanted to show
the effect on our forecast—specifically that the SoC will benefit even while the system BOM declines.
DSL Modem Semiconductor Forecast: We expect DSL IC revenue to remain roughly flat at $1.1 billion through
2010. A steady decline in ADSL (negative 6% CAGR through 2010) should be offset by a shift to higher-ASP VDSL,
which should grow at a 23% CAGR to represent just over 25% of the market in 2010. Similar to cable, increasing
wireless LAN and VoIP penetration should help mitigate pricing pressure, though integration trends will limit the
DSL Semiconductor Competitors: The top DSL semiconductor vendor in 2005 was Conexant with 26% share,
followed by Texas Instruments with 17% of the market. Broadcom gained roughly eight percentage points of share in
2005 as it ramped new ADSL2+ products with infrastructure leader Alcatel and a number of key CPE OEMs. Infineon
also picked up share and was the No. 4 vendor in 2005 with 13% share. Rounding out the top five was start-up
Ikanos, which dominated VDSL in Japan and branched into ADSL with the acquisition of Analog Devices’ DSL business
in 2006. Other major suppliers include Centillium, which held 6% share, and STMicroelectronics with 5%
(STMicroelectronics’ share in DSL fell six percentage points in 2005 as it lost share at Alcatel to Broadcom).
238
Modems
Modems
Modem Semiconductor Market Trends

•Pure play broadband semiconductor vendors are all but squeezed out.
•Wireless LAN and VoIP integration are becoming more important.
Analog Modem and Fax Semiconductors

•PC analog modem penetration continues to decline.
•Embedded modems are increasingly being implemented in software.
•Silicon DAAs are gaining share vs. transformer-based DAAs.
•Multi-function peripherals are a standout area for growth.
Cable Modem Semiconductors

•DOCSIS 2.0 is standard in modems and is driving churn in CMTS.
•Development continues on wideband cable modems for DOCSIS 3.0.
•VoCable has reached critical mass and is driving integration; wireless
LAN is also starting to gain traction.
DSL Modem Semiconductors

•ADSL has transitioned to ADSL2+; VDSL is accelerating worldwide after
a successful rollout in Japan.
•VDSL2 and ADSL2+ CPE solutions are likely to converge in the future.
•SDSL has consolidated around g.shdsl, but deployments remain limited.
•Multi-port data pumps are enabling higher density DSLAM line cards.
•DSLAMs are moving away from ATM backhaul toward IP.
•VoIP got a faster start in cable, and is only now showing up in DSL.
• Pure-play broadband semiconductor vendors are all but squeezed out. The major modem vendors are
adopting a diversified approach that includes DSL, cable, wireless LAN, and VoIP. There are many examples:
DSL market leader Globespan first bought Intersil’s wireless LAN business and then merged with Conexant, which
was itself a DSL and cable modem IC supplier. TI moved from DSL to cable modem to wireless LAN and
dominates VoIP silicon. Broadcom moved from cable modems to wireless LAN and DSL and also supplies VoIP
ICs. Centillium, which struggled as a pure-play DSL vendor, has branched out into VoIP. The only real pure-plays
left are either analog modem vendors in harvest mode (e.g., Agere, Silicon Labs) or start-ups focusing on next-
generation standards (e.g., Ikanos).
• VoIP integration is becoming more important. Voice-over-IP has started to gain steam as a residential
service, particularly as cable MSOs look to voice to drive additional revenue. Most implementations to date have
required that the modem (or home router) be connected to a VoIP terminal adapter, which interfaces with
traditional analog telephones and provides voice service. Newer modem designs, however, incorporate VoIP
functionality directly into the modem. Most modem IC vendors have therefore aligned their chipset offerings to
include an easy interface to VoIP ICs or integrated VoIP capability.
• Wireless LAN is increasingly found in modems and will see some integration over time. Wireless LAN
technology has proven enormously popular for home networking, as consumers seek to share their broadband
connection among multiple PCs. Most implementations today require that the modem be connected to a wireless
239
router, which distributes the signal to the PC. Newer modem designs, however, are incorporating wireless LAN
functionality directly into the modem. Most modem IC vendors have therefore aligned their chipset offerings to
include an easy interface to wireless LAN chipsets. Some newer designs are sucking wireless LAN functionality
directly into the modem IC.
Trends in Analog Modem and Fax Semiconductors

• PC analog modem penetration continues to decline. Broadband has taken a big bite out of analog
modems—accelerated by aggressive pricing from service providers. Still, the majority of units are tied to PCs and
penetration should decline as broadband becomes even more pervasive and as ISPs stop subsidies to PC OEMs.
• Modems are increasingly being implemented in software. While some analog modem implementations
(primarily in the embedded market) still include a discrete codec or controller IC, many new designs mimic the PC
softmodem model, perform processing in software, leaving only the line driver/DAA external.
• Silicon direct access arrangements (DAAs) are gaining share vs. transformer-based DAAs. DAAs
perform signal isolation, reducing signal voltage from the high voltage current used on the telephone line to the
low voltage used in a PC. Newer silicon DAAs perform this function with fewer components than traditional
transformer-based DAAs and also reduce bill-of-materials cost for modems.
• Multi-function peripherals are a standout area for growth. One area where modem IC vendors are seeing
unit growth is MFPs, which combine printer, copier, scanner, and fax functions in a single piece of equipment.
Trends in Cable Modem Semiconductors

• DOCSIS 2.0 is standard in modems and is driving churn in CMTS. DOCSIS 2.0 has been a standard feature
in modems for some time, as the cost of future-proofing has been minimal. On the infrastructure side, however,
MSOs have been slow to install the equipment. The faster upstream performance of DOCSIS 2.0 is less of a
priority for MSOs than video and voice, and we therefore expect moderate churn of CMTS ports for DOCSIS 2.0.
• Development continues on wideband cable modems, which will be included in DOCSIS 3.0. Wideband
cable modems will use a bonded approach to boost cable modem data rates to match (or exceed) those of VDSL
and PON. Products are unlikely to hit the market until 2008, and will probably be focused on the business market,
as MSOs do not need a faster data pipe to offer video like telecom providers.
• VoCable has reached critical mass and is driving integration; wireless LAN is also starting to gain
traction. As discussed above, cable MSOs have been rolling out VoIP to increase their revenue base from video
and data. The cost of implementation has come down as new VoCable modems have come to market using
single-chip solutions from Broadcom or TI. Wireless LAN is less of a priority (as MSOs can’t really charge for this),
but we are seeing uptake accelerate to drive churn.
Trends in DSL Semiconductors
• ADSL has transitioned to ADSL2+. DSL has consistently lagged cable modem in terms of bandwidth, and
service providers were quick to upgrade their pipes to support the faster ADSL2+ (though in most cases they are
charging extra for more bandwidth). ADSL2+ is now the worldwide standard for ADSL equipment.
• VDSL is accelerating worldwide after a successful rollout in Japan. Japan and Korea were first to bump
their broadband speeds with ADSL2/2+, and have been early adopters of VDSL as well. We expect carriers in the
U.S. and Europe to follow, with notable deployments by AT&T, Deutsche Telekom, and Telecom Italia in 2007.
• VDSL2 and ADSL2+ CPE solutions are likely to converge in the future. Given the similarities in the
standards and common base of service provider deploying these services, we expect mainstream VDSL modems
to converge on SoC solutions that support both ADSL2+ and VDSL over time.
• SDSL has consolidated on the g.shdsl standard, but service deployments will be limited. SDSL has been
less than successful in winning customers away from T1, and faces competition from metro Ethernet as well.
Though we forecast some growth, SDSL is unlikely to grow beyond a niche service for the small business market.
• Multi-port data pumps and DSL PHYs are enabling higher density DSLAM line cards. These high-density
cards are enabling lower-cost DSLAMs.
• DSLAMs are moving away from ATM backhaul toward IP. This trend is discussed in the communications
infrastructure section.
• VoIP got a faster start in cable, and is only now showing up in DSL. Since most DSL service providers are
telco carriers, there has been less of a rush to add VoIP. We are seeing this trend accelerate in emerging
countries where POTS service has a smaller footprint.
240
PON
PON
Passive Optical Networking (PON) is a fiber-based

access technology that allows service providers to
deploy super-fast broadband access over optical fiber,
usually referred to as Fiber-To-The-Home (FTTH).
Passive splitters can be used in the field to split the
optical signal into 16, 32, or even 64 channels without
active switching components, dramatically lowering the
cost vs. traditional metro Ethernet services.
FTTH Service Using PON
Customer
Premise
Service
POTS Provider
O
pt
Ethernet ic
al
Fi
be Uplink to
r
ONT Optical Fiber Public
IPTV Network/
RF Overlay
Splitter Internet
(passive) OLT
Passive optical networking (PON) is a high-speed access technology that enables broadband access over optical fiber,
sometimes called fiber-to-the-home (FTTH). The optical signals used in fiber-based networks are capable of achieving
much higher data rates than the electrical signals that use the copper network (both the traditional POTS and coaxial
cable networks). This allows for super-fast data access with a roadmap for IP-based video down the road.
In a PON system, access units called OLTs (optical light terminals) are installed in the service provider network,
usually at the central office. Fiber runs from the OLT to a passive splitter out in the field, which splits the optical
signal into 16, 32, or even 64 channels. Each channel is meant for an individual subscriber. Individual strands of
fiber run from the splitter to customer premise units called ONTs (optical network terminals), which are installed on
the exterior of the customer’s homes or apartment building. The ONT extracts the data (as well as TDM phone calls)
from the PON signal and distributes it to the home PC or LAN over Ethernet (and POTS for the voice signals).
The key to PON technology is the use of passive splitters. These allow service providers to split off signals to
individual subscribers without active switches, dramatically lowering the cost vs. traditional switched metro Ethernet
services. It does, however, mean that bandwidth must be shared between all subscribers connected to the OLT.
A major driver for FTTH is the ability to provide video over the telecom network. This ideally is accomplished via
IPTV, which would require an IP set-top box that is connected to the ONT. A less revolutionary option is an RF
overlay; traditional RF cable signals are transmitted over the PON, and cable set-top boxes are connected to the ONT.
241
PON
PON
Some service providers are hesitant to roll out full FTTH,

but still want to bring fiber closer to their customers to
boost data rates. In these Fiber-To-The-Curb (FTTC) or
Fiber-To-The-Node (FTTN) networks, PONs extend the
fiber network to within a few hundred feet of the
customer, and high-speed DSL makes the final connection.
FTTC/FTTN Service Using PON
Curb/
Building
Service
Customer Provider
Premise O
pt
ic
al
L Fi
DS be
r
Uplink to
DSLAM ONU Optical Fiber Public
Ethernet
Network/
Splitter Internet
DSL
(passive) OLT
IPTV Modem
Some service providers are hesitant to roll out full FTTH because of the high cost of ONTs and laying fiber around the
neighborhood. They still want to bring fiber closer to their customers to boost data rates, however, and are able to
leverage PON technology using a slightly different topology.
In these fiber-to-the-curb (FTTC) or fiber-to-the-node (FTTN) networks, PONs extend the fiber network to within a few
hundred feet of the customer, and high-speed DSL makes the final connection. Instead of ONTs at individual
subscriber premises, the service provider installs ONUs (optical network units) in the neighborhood, at the curb, or
even in the basement of a multiple dwelling unit. These ONUs interface with a small DSLAM, which distributes the
signal to individual customers. Service providers are currently looking at VDSL2, ADSL2+, and bonded ADSL to
provide this final connection, and OEMs are coming to market with equipment that merges the ONU and the DSLAM in
a robust, flexible platform.
Note that FTTC/FTTN networks are capable of supporting IPTV video service. They cannot, however, support the RF
video overlay like in an FTTH network, since the RF overlay needs to be extracted at the customer premise.
242
PON
PON
There Are Three Main PON Standards:

EPON/GE-PON – Ethernet/Gigabit Ethernet PON is based on
Ethernet LAN technology. Upstream and downstream speeds
can reach 1.25 Gpbs and can be split into 16 channels. EPON is
now being deployed aggressively in Japan; Korea, Taiwan, and
China are also likely to deploy EPON.
BPON – Broadband PON is the most common ATM-based PON

technology in place today and is set by the ITU. BPON supports
upstream and downstream speeds of 155 Mbps or 622 Mbps,
and can be split into 32 channels. BPON can also support an RF
overlay for video. BPON is seeing deployment in the U.S.;
Japan had BPON service but has since moved to EPON.
GPON – Gigabit PON is the successor to BPON. GPON supports

downstream speeds of 1.24 Gbps and 2.5 Gbps and upstream
speeds of 155 Mbps, 622 Mbps, 1.2 Gbps, and 2.5 Gbps. GPON
can be split into 64 channels, and also supports an RF overlay.
There are three main standards of PON being deployed or developed:

EPON/GE-PON – Ethernet/Gigabit Ethernet PON is based on Ethernet LAN technology and is controlled by the IEEE,
the same standards body that controls Ethernet and wireless LAN. Downstream speeds can reach 1.25 Gps and use
the 1500-nm wavelength. Upstream speeds can also reach 1.25 Gps and use the 1310-nm wavelength. An EPON
signal can be split into 16 channels with a maximum range of around 12 miles; it does not support an RF overlay.
EPON is now being deployed aggressively in Japan; Korea, Taiwan, and China are also likely to deploy EPON.
BPON – Broadband PON is the most common ATM-based PON technology in place today and is set by the ITU. BPON
supports downstream speeds of 155 Mbps or 622 Mbps, and use wavelengths of 1480-1500-nm. Upstream speeds
are 155 Mbps or 622 Mbps, and use wavelengths of 1260-1360-nm. BPON can be split into 32 channels with a range
of about 12 miles; it can also support an RF overlay for video using the 1550-nm wavelength. BPON is seeing
deployment in the U.S.; Japan had BPON service but has since moved to EPON.
GPON – Gigabit PON is the successor to BPON. GPON supports downstream speeds of 1.24 Gbps or 2.5 Gbps, and
like BPON uses wavelengths of 1480-1500-nm. Upstream speeds are 155 Mbps, 622 Mbps, 1.24 Gbps or 2.5 Gbps,
and use wavelengths of 1260-1360-nm. GPON can be split into 64 channels with a range of about 37 miles; like
BPON it can support an RF overlay for video using the 1550-nm wavelength. GPON will likely be deployed in the U.S.
once the equipment is ready for commercial production.
243
PON
PON
PON Port Forecast PON Equipment Suppliers

•We expect total port shipments to grow
at a 30% CAGR, rising from 2.7 million in BPON/GPON
2005 to 9.9 million ports in 2010. Tellabs
•The most aggressive rollouts have taken Alcatel
place in Japan with EPON; Japan has Motorola
abandoned its initial BPON effort. Calix
•Korea, China, and Taiwan are conducting Terawave
trials now with EPON and are set to ramp
Wave7
in 2007.
Entrisphere
•The U.S. is ramping BPON now and will
move to GPON once equipment becomes
Flexlight
available in volume. Hitachi
12,000
EPON
EPON
GPON
Mitsubishi
10,000
BPON
8,000 Sumitomo
UTStarcomm
Port Shipments (000s)
6,000
Fujitsu
4,000
NEC
Oki
2,000 Melco
Alloptic
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, Ovum-RHK, CIBC World Markets Corp.
PON Port Forecast: The market for PON equipment has strong growth prospects as carriers have become more
aggressive with fiber deployments. The technology should enable telecom carriers to offer triple play services (voice,
data, video), with IPTV being the killer application. Most growth to date has come from Japan, as NTT, Softbank, and
KDDI have been aggressive with PON rollouts; these service providers originally deployed BPON but quickly switched
to EPON in 2004. Note that PON deployments in Japan began to decelerate in 2006 and future growth will likely be
driven from other regions. EPON trials are currently well underway in Korea, China, and Taiwan and deployments are
expected to ramp in 2007. In the U.S., Verizon and SBC/BellSouth are working with BPON today, though
deployments are likely to accelerate once GPON becomes available in volume in 2007 and beyond.
In total, we expect PON port shipments to grow at a 30% CAGR, from 2.7 million units in 2005 to 9.9 million units in
2010. EPON should decline as a percentage, from 85% in 2005 to 62% in 2010, with GPON representing the bulk of
the rest. From an equipment perspective, we expect the ONT/OLT ratio to rise from 6.9:1 in 2005 to 10.1:1 in 2010.
PON Equipment Suppliers: There are currently two PON standards being deployed today, EPON for the Asian
market and BPON/GPON for U.S. deployments; with a discrete set of suppliers for each. The top suppliers of EPON
equipment are Mitsubishi, Sumitomo, UTStarcom, Fujitsu, NEC, Oki, Melco, and Alloptic. The top suppliers of
BPON/GPON equipment are Tellabs, Alcatel, and Motorola, as well as several start-ups including Calix, Terawave,
Wave7, Entrisphere, and Flexlight. Hitachi also supplied BPON equipment to Japan, though these networks have
switched to EPON.
244
PON
PON
SRAM, Flash -
A SerDes provides SRAM is used by Ethernet interface driver (PHY)
memory used by the
the interface between the PON MAC and protocol processor (MAC)
comm processor
the optical module provide the interface between
and the PON MAC the ONT and the PC/LAN
SRAM Flash
SRAM
ONT Ethernet Ethernet
PC or
Ethernet
PON MAC PHY
Optical Comm LAN
Optical Fiber SerDes ONT
Module Processor
MAC SLIC
Analog
phone
SLIC lines
Coax/Video
(BPON/GPON)
Standard linear ICs
The communications provide the interface
This PON MAC performs protocol processor controls overall
processing, adding PON overhead for standard analog
system functioning and also telephones
on the transmit side and removing performs data path functions
it on the receive side
OLT ATM Backplane

PON (BPON/GPON)
Optical Comm
Optical Fiber SerDes OLT
Module Processor Ethernet
MAC Ethernet Ethernet
MAC PHY Backplane
(EPON)
SRAM
SRAM Flash
A SerDes provides
Ethernet interface driver (PHY)
the interface between
SRAM, Flash - memory used and protocol processor (MAC);
the optical module SRAM is used by
by the comm processor EPON OLTs use Ethernet as
and the PON MAC the PON MAC the interface to the network
Source: Ovum-RHK, CIBC World Markets Corp.
The devices found in PON equipment are not dissimilar from those in traditional broadband modems. The big
exception is the optical module, which interfaces with the optical fiber.
• PMD ICs (inside optical module, not shown in diagram): Physical Medium Dependent (PMD) ICs like laser drivers,
limiting amps, and transimpedence amps are found inside the optical module and control the interface.
• SerDes: The SerDes provides the interface between the optical module and the PON MAC. In newer ONT designs
the SerDes is integrated with the MAC.
• PON MAC: The PON MAC performs basic protocol processing, adding PON overhead on the transmit side and
removing it on the receive side.
• Comm. Processor: The comm. processor controls overall system functioning and some data path functions.
• SRAM and Flash: Memory used by the communications processor; the PON MAC also uses some SRAM.
• Ethernet MAC and PHY: In an ONT, the Ethernet MAC and PHY provide the interface between the ONT and the
host PC or Ethernet LAN. The Ethernet MAC is sometimes integrated with the PON MAC/processor. In an OLT,
the Ethernet MAC and PHY feed traffic into the WAN (they are only used in EPON systems).
• SLIC (ONT only): Standard linear ICs interface with analog telephone lines, allowing traditional telephones to be
used over the PON.
245
PON
PON
PON Semiconductor PON Semiconductor

•We expect the market to grow at a 16%
Others
CAGR, from $76 million in 2005 to $161 9%
million in 2010. Freescale
•EPON ICs represented most of the 6%
growth in 2005 and 2006 as PON ramped

in the Japanese market. BroadLight
•BPON is just starting to ramp in the U.S. 10 %
as carriers begin FTTH deployments; it
PMC/Passave
will eventually give way to GPON starting 55 %
in 2007.
•In 2010, we expect the split to be 52%
EPON, 47% GPON, and 1% BPON. Teknovus
19 %
$180
EPON ICs
$160
GPON ICs
BPON ICs
Source: Linley, CIBC World Markets Corp.
$140
$120
$100
$80
$60
$40
$20
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, Ovum-RHK, CIBC World Markets Corp.
PON Semiconductor Forecast: PON semiconductor revenue growth nearly tripled in 2004 and grew 23% in 2005,
driven primarily by aggressive PON deployments in Japan. Note that market revenue was expected to be down
slightly in 2006 as deployments in Japan decelerate, but should pick back up in 2007 as PON ramps in the U.S. and in
other parts of Asia. Overall, we forecast a CAGR of 16%, from $76 million in 2005 to $161 million in 2010. Note that
semiconductor revenue growth significantly trails port shipment growth as OEMs put pressure on their suppliers to
drive costs down to help drive PON CPE equipment into the mainstream.
By standard, we expect GPON to start to ramp meaningfully in 2007 and grow to 47% of revenue in 2010; EPON
should grow more modestly (6% CAGR through 2010) to 52% of total. BPON should represent the balance.
PON Semiconductor Suppliers: The top supplier of PON semiconductors in 2005 was Passave (acquired by PMC-
Sierra), which held 55% share, primarily attributed to EPON with NTT DoCoMo in Japan. Passave also serves other
EPON carriers in Asia and is targeting GPON as well. Teknovus was second with 19% share; the company focuses
exclusively on EPON and serves carriers in Japan (besides NTT) and Asia. Broadlight and Freescale followed with 10%
and 6% share, respectively; both supply BPON and are moving to GPON. Other suppliers include Centillium for EPON
and Conexant and AMCC for GPON.
PMD suppliers for PON optical modules include Mindspeed, Maxim, and Vitesse. Passave/PMC recently indicated that
it intends to compete in this area as well.
246
PON
PON
PON Semiconductor Market Trends

•IC vendors are racing to market with GPON solutions for the U.S.
•MAC solutions are evolving into PON SoCs with integrated
SerDes, communications processors, and memory.
•Service providers deploying BPON and GPON will be quicker to
market with video by using an RF overlay; IPTV will come later.
•FTTC networks will use “cabinet” solutions that integrate a PON
ONU with a DSLAM.
• IC vendors are racing to market with GPON solutions for the U.S. This includes those coming from the
BPON world (e.g., Broadlight and Freescale), the EPON world (e.g., PMC/Passave), and new players like Conexant
and AMCC. It is still unclear who will win designs for GPON; many of these decisions will be made in 2007.
• MAC solutions are evolving into PON SoCs with integrated SerDes, communications processors, and
memory. Though earlier designs were built with discrete MAC, SerDes, and processor ICs, the major PON IC
vendors are now in the market with SoC solutions that include these functions on a single chip.
• Service providers deploying BPON and GPON will be quicker to market with video by using an RF
overlay; IPTV will come later. BPON and GPON support an RF overlay, which allows a video stream to be sent
over fiber in its native format (i.e., without a conversion to IP). Verizon in the U.S. is currently installing
traditional cable video equipment in its network to offer video service over PON, which will leverage existing set-
top box designs. This will allow the company to get video to market quicker than if it went with an IP-TV solution.
Down the road, we expect service providers to look to IPTV once the equipment and service offerings mature.
• FTTC networks will use “cabinet” solutions that integrate a PON ONU with a DSLAM. OEMs targeting
service providers that are adopting a FTTC approach (e.g., BellSouth) are developing “cabinet” systems that
integrate a PON ONU with a DSLAM (ADSL2+ or VDSL/VDSL2). This will leverage the speed of PON without
requiring a fiber connection all the way to the home.
247
Communications
Infrastructure
This section covers communications infrastructure

equipment, a broad category that includes equipment
used to switch, route, and manage voice and data traffic
in both service provider and enterprise networks.
Included are a wide variety of dedicated infrastructure
equipment, such as routers, digital cross connects,
add/drop multiplexers, and multi-service switches.
We also include here the switching, routing, traffic
management, and control plane functions (and their
semiconductors) that are embedded in data networking,
access, and wireless infrastructure devices that are also
discussed in other sections of this report. Key examples
include routing functions in layer 3+ switches,
aggregation, routing, and WAN interface functions in
modem concentrators, PON OLTs, and central office
switches, and backhaul for wireless basestations.
This section covers communications infrastructure equipment, a broad category that includes equipment used to
switch, aggregate, route, and manage voice and data traffic in both service provider and large enterprise networks.
Included are a wide variety of dedicated infrastructure equipment, such as routers, digital cross connects, ATM
switches, multi-service provisioning platforms, and optical transport equipment.
We also include here the switching, aggregation, routing, traffic management, and control plane functions that are
embedded in data networking, access, and wireless infrastructure devices that are also discussed in other sections of
this report. Key examples of this include routing functions in layer 3+ switches, backhaul for wireless basestations,
and WAN interface functions in modem concentrators, PON OLTs, central office switches, and PBXs. One notable
exception is the switching function used in Ethernet LAN equipment; we include those ICs in the Ethernet section
instead of here, as LAN switching is highly specialized for that application.
Note that a unit forecast is somewhat irrelevant; we therefore display our forecast for infrastructure equipment (both
for carrier and enterprise) in revenue terms. On the semiconductor side, we forecast revenue for specific ICs, e.g.,
SONET framers and PHYs, ATM UNIs and SARs, NPUs, and switch fabrics. Note that in all cases, the forecast excludes
all protocol-dependent ICs that are discussed in other sections (e.g., DSLAM PHYs, POTS line card SLICs, PON OLT
MACs, baseband ASICs); while the other sections exclude all ICs used in switching, routing, traffic management, and
system control (e.g., framers, network processors, control plane processors). Again, the one notable exception is
Ethernet LAN switching, where we include switch fabric ICs in the Ethernet section instead of here.
248
Communications
Infrastructure
The Primary Functions of Infrastructure Equipment

Though communications infrastructure equipment
vary widely in application and capability, the functions
they can perform are common across device types:
•Transport – moving traffic between network nodes, over
network links external to the device.
•Switching – forwarding traffic between ports within a given
piece of equipment.
•Aggregation – combining multiple smaller, slower streams
into larger, faster streams.
•Routing – forwarding traffic by first determining the optimal
path through the network.
•Traffic Management – prioritizing the movement of traffic
based on content type, service level agreements, or other
rules/algorithms.
•Control Plane – management of the overall system including
sub-systems listed above.
Communications infrastructure equipment can vary widely in terms of capability and application. The functions they
can perform, however, are pretty common across device types. These include:
• Transport –moving traffic between network nodes, over network links external to the device. Most of the
equipment discussed in this section use optical fiber for transport, though copper can be used at lower speeds.
• Switching – forwarding traffic between ports within a given piece of equipment. This can be done either over a
backplane or within a separate switching sub-system.
• Aggregation (also called multiplexing) – combining multiple smaller, slower streams into larger, faster streams.
• Routing – determining the optimal path through the network, and directing traffic accordingly.
• Traffic Management – prioritizing the movement of traffic based on content type, service level agreements, or
other rules/algorithms. Traffic management is related to “QoS” (quality of service); infrastructure equipment can
only insure a certain level of quality of service by intelligently managing the flow of traffic based on what is
present in the data stream.
• Control Plane – management of the overall system, including sub-systems that perform the above-mentioned
transport, switching, aggregation, routing, and traffic management.
249
Communications
Infrastructure
Line Card and Chassis Systems

Infrastructure equipment is often implemented in a
chassis/line card configuration. Individual cards can
be added to support transport links, switching,
routing, traffic management, and system control.
Telecom and datacom equipment OEMs design their carrier and large enterprise offerings to be robust, redundant,
and extremely flexible. Carriers need to adjust the voice and data capabilities of their network nodes depending on
local factors, and need to be able to change these capabilities as those factors change. On the enterprise side, IT
managers need to have a great deal of control over the allocation of network resource among users; they also need a
network that is scalable, secure, and easy to upgrade and manage. In either case, system flexibility, scalability, and
upgradeability can be just as important as performance and general robustness of the system.
This has prompted OEMs to design their large enterprise carrier grade systems in a chassis/line card configuration
instead of enclosed discrete devices like modems or access routers. Using this architecture, carriers install a chassis,
which is essentially an empty metal box equipped with a backplane, power supply, and cooling system; and populate
the system with line cards to suit the needs of the network node. Cards can be installed and removed at will,
protecting the initial investment in the platform while allowing for future upgradeability.
Line Cards
There are four main types of line cards found in infrastructure equipment. Each line card contains a backplane
interface used to communicate with the other cards within the overall system and to pass traffic back and forth.
• I/O Line Cards: These cards include one or more ports used to send traffic back and forth over the broader
network. These can include fiber or copper ports for POTS, DSL, DOCSIS, T/E, SONET, Ethernet, or PON.
250
Some I/O line cards support shorter-range technologies like ATM UNI or Infiniband for communication with
other equipment within the network node.
• Switching Cards: These cards include switch fabric arrays, and are used to switch traffic between the I/O
cards in the chassis.
• WAN trunking Cards: For systems that interface with individual users (like modem aggregators or class 5
switches), a WAN trunking card provides the high-speed uplink into the larger network. The WAN trunking
card can contain routing functionality on it, though sometimes routing functions are integrated on individual
line cards.
• Management/Control Cards: These cards are used to control the overall system. They can also perform
special functions on the data path when there are exceptional packets.
Besides I/O, switching, trunking, and management, other line cards or modules can be added to perform periphery
functions. Examples include security line cards, monitoring cards, LAN interface cards, and modules with optical
drives embedded in them.
The type of line cards used in each system will depend on the functionality of the system and its location in the
network. An add/drop multiplexer will likely have several high-speed line cards and a switch card, along with the
management card. A digital cross connect will likely have a variety of line cards of varying speeds along with a set of
robust switch cards, and the management card. A class 5 switch will have hundreds of individual line cards for POTS
access, a switch card, a WAN trunking card for interface to the PSTN, and the management card. A DSLAM will have
several multi-port DSL I/O cards, a switch card, a WAN trunking card, and the management card. A wireless base
station will have several transceiver cards (essentially I/O line cards, but wireless), a WAN uplink card, a management
card, and several cards that are specific to wireless (like baseband processing and power amplifier cards). A core
router will have several high-speed I/O cards, several switch cards, and a robust set of management/control cards.
In terms of our forecast, we include all the content on switching cards, WAN trunking cards, and management cards.
We also include the content on line cards for SONET, T/E, and ATM. We exclude, however, content on line cards for
DSL, DOCSIS (cable modem), PON, Ethernet LAN, and wireless basestations, as these are all included in other
sections of this report.
Note that in some cases, our forecast includes communications infrastructure ICs sold into applications other than
communications infrastructure equipment. Examples would include discrete communications processors sold into
wireless LAN access points and switching ICs sold into blade servers. The impact to our forecast is small but relevant.
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Communications
Infrastructure
T/E Carrier
T-carrier is the first level of aggregation calls go
through when being transported over the PSTN
DS-0 DS-1 DS-2 DS-3 DS-4
1 44.736 274.176
1.544 Mbps 6.312 Mbps Mbps
2 Mbps
3 1
M01 2 M12
M UX 3 MUX 3
4 4 M23 2
5 MUX 3
24 M34
6 4
64 kbps MUX
DS-1C 7 5
6
3152 Kbps 7
Number of Transmission
Signal Level DS-0 Channels Rate Geography
DS-0 1 64 kbps North America, Europe and Japan
DS-1/T1/J1 24 1.544 Mbps North America and Japan
E1 30 2.048 Mbps Europe
DS-1C 48 3.152 Mbps North America and Japan
DS-2/T2/J2 96 6.312 Mbps North America and Japan
J3 480 32.064 Mbps Japan
DS-3/T3 672 44.736 Mbps North America
DS-3C 1,344 91.053 Mbps North America
DS-3C 1,440 97.728 Mbps Japan
E4/DS-4E 1,920 139.264 Mbps Europe
DS-4/T4 4,032 274.176 Mbps North America
J4 5,760 397.200 Mbps Japan
E5 7,680 565.148 Mbps Europe
Note: Each DS-0 channel represents a single 64 Kbps phone line
T-carrier is the first level of aggregation that telephone calls or data traffic go through when being transported over
the PSTN. A basic DS-1/T1 signal multiplexes 24 DS-0 (each DS-0 is a single phone call, which is a 64 Kbps signal)
channels into a single 1.544 Mbps signal, called a DS-1 or T1. The next level up is DS-2/T2, which multiplexes 4 DS-
1s together in a 6.312 Mbps stream (in practice, DS-2 is rarely used), followed by DS-3/T3, which multiplexes 28 DS-
1 signals into a 44.736 Mbps DS-3 or T3 signal.
DS-1 and DS-3 signals are used by service providers when sending voice traffic around the metro or wide area
network. Businesses also typically lease T1 (or T3) lines from the service provider that can provide a constant 1.544
Mbps (or 44.736 Mbps) channel, enough for 24 (or 672) simultaneous phone calls, which will be aggregated at the
customer premise and sent as a digital signal (the “DS” in DS-1 and DS-3) to the PSTN. The bandwidth can also be
used for the corporate data network in its interaction with the public WAN and the Internet.
Note: Although we mostly focus on signal rates found in North America, it is important to note that the European
digital hierarchy, represented with an “E” rather than a “DS” or “T,” multiplexes a different number of DS-0 signals at
each level of the hierarchy. For example, an E1 signal multiplexes 30 DS-0s instead of 24. From the E1 signal rate
and higher, each subsequently higher signal is formed by multiplexing four signals from the preceding digital signal
level; an E2 signal consists of four multiplexed E1 signals and an E3 signal consists of four multiplexed E2 signals.
252
Communications
Infrastructure
SONET/SDH
SONET/SDH is the primary optical transport protocol
used in telecommunications throughout the world
OC - 1 OC - 3 OC - 12 OC - 48 OC - 192 OC - 768
OC - 1
SONET
OC - 1 MUX
OC - 1 2 SONET
MUX
3
4
2 SONET
MUX
3
4 SONET
2
MUX
3
4 SONET
2 MUX
3
4
Optical Carrier SONET STS SDH STM Transmission Equivalent Channels

Level (OC-N) Level (STS-N) Level (STM-N) Rate DS-3 DS-1 DS-0
OC-1 STS-1 N/A 51.84 Mbps 1 28 672
OC-3 STS-3 STM-1 155.52 Mbps 3 84 2,016
OC-12 STS-12 STM-4 622.08 Mbps 12 336 8,064
OC-48 STS-48 STM-16 2488.32 Mbps 48 1,344 32,256
OC-192 STS-192 STM-64 9.953 Gbps 192 5,376 129,024
OC-768 STS-768 STM-256 39.812 Gbps 768 21,504 516,096
Note: Each DS-0 channel represents a single 64 Kbps phone line
Synchronous optical networking (SONET) and synchronous digital hierarchy (SDH) are the primary protocols used by
carriers for optical transport (SONET is in North America, SDH in Europe). SONET can reach much higher
transmission rates than T/E-carrier, as it is specifically designed to run over optical fiber. SONET equipment can
handle a wide range of speeds and therefore is used throughout the service provider network. Lower-speed SONET is
used to send traffic within the metropolitan area between central offices, while higher-speeds are used to send traffic
between metro areas or even countries. Voice calls and data traffic are aggregated into SONET frames that travel
around the network, picking up and dropping signals as calls are placed, all at high speeds.
The basic building block in SONET networks is the STS-1 frame, also called an OC-1. The frame has 51.84 Mbps of
bandwidth, enough to hold an entire DS-3 signal plus the SONET overhead. When STS-1s are aggregated, they are
transmitted at faster rates, such as 155 Mbps (OC-3), 622 Mbps (OC-12), 2.5 Gbps (OC-48), 10 Gbps (OC-192), or
40 Gbps (OC-768). Most metro area SONET equipment uses OC-3 or OC-12, while long-haul uses OC-48 or OC-192.
Optical networking is fast, reliable and scalable, but it is also very expensive. In order to leverage the installed fiber
and equipment infrastructure, OEMs and service providers have developed DWDM (dense wave division multiplexing)
equipment, which can put multiple lambdas (wavelengths of light; each lambda can carry a SONET signal) on each
fiber. This is strictly an optical technology, and does not affect the electrical properties of the signal. DWDM
equipment is slowly replacing standard SONET equipment in most long-haul and metro networks. Although some
equipment must be replaced to use DWDM, compatibility with legacy SONET is retained for the most part.
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Infrastructure
ATM (Asynchronous Transfer Mode)

ATM is a switching protocol used primarily in service
provider data and multi-service networks. The topology
uses switches that establish a logical circuit from end-to-
end, guaranteeing quality of service (QoS), but unused
bandwidth can be appropriated when needed.
ATM uses fixed-length 53-byte cells, and can switch voice,

video, or data traffic at high speeds. Routers and modems
feed traffic into the carrier network, which uses a series of
ATM switches to handle the traffic and send it back out.
ATM is a layer 2 protocol. Cells can travel between line

cards or even between switches in a single network node
using point-to-point links, but need to sit inside a layer 1
protocol such as SONET or T-carrier to travel over the WAN.
T/E and SONET area both efficient transport protocols for the WAN, but they cannot perform the important switching
functions that direct traffic around the network. Most service providers employ the switching technology ATM
(asynchronous transfer mode) in the core and edge of the network in order to switch voice, data, and even video
traffic. Based on a cell-switching and multiplexing technology, ATM is a connection-oriented protocol for the transfer
of fixed length cells, which can carry many different types of traffic. ATM equipment can specify different levels of
quality of service for different cells; this is a key feature in making it the preferred choice for multi-service networks.
It is highly scalable and supports transmission speeds equivalent to those of SONET.
Unlike other data link layer protocols, ATM units are not variable in length, but consist of fixed 53-byte cells. ATM
switches establish a logical circuit from end to end, which guarantees quality of service. However, unlike true circuit-
switched protocols that dedicate circuits end to end, unused bandwidth in ATM's logical circuits can be appropriated
when needed. In this way, ATM combines the benefits of circuit switching, including constant network latency/delay
and guaranteed bandwidth, with those of packet-switching, including flexibility and better network utilization. The
small, fixed cell size is ideal for the transfer of voice, video and other real-time traffic, as these types of traffic are not
tolerant of the long download delays associated with long, variable length packets.
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Communications
Infrastructure
Carrier Infrastructure Enterprise IT
Equipment Infrastructure Equipment
•The carrier infrastructure market should •The IT infrastructure market should
be relatively stable with pockets of outpace the carrier market, driven by
strength reflecting the continued evolution strong growth in IT security, IP PBXs,
of carrier networks. Fibre Channel storage, and increasing
•IP-based switches and routers should penetration of enterprise WLAN.
displace legacy gear; broadband and video •The market should remain highly
infrastructure should also grow nicely. diversified with only switching and IT
•Wireless infrastructure—more than half security representing >10% of 2010
total market revenue—should peak in revenue.
2006 as 3G deployments slow. •In total, we expect the market to grow
•In total, we forecast a 2% CAGR, from at a 5% CAGR, from $33 billion in 2005
$94 billion in 2005 to $102 billion in 2010. to $44 billion in 2010.
140,000 60,000
Wireless Equipment
Other Infrastructure Equipment
Video Infrastructure
Broadband Infrastructure IT Security
120,000 Carrier and Managed Voice Fibre Channel Switches
50,000 IP and Hybrid PBX
Optical Transport
ATM Switching Traditional PBX/Key System
IP/Ethernet Switching WLAN Switch/Server/Appliances
100,000 IP Routing Switches
40,000 Routers
80,000
Revenue ($M)
Revenue ($M)
30,000
60,000
20,000
40,000
10,000
20,000
- -
2003 2004 2005 2006 2007 2008 2009 2010 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, Dell’Oro, RHK, Infonetics, In-Stat, IDC, CIBC Source: IDC, Dataquest, CIBC World Markets Corp.
World Markets Corp.
Carrier Infrastructure Equipment Revenue Forecast: After several years of sluggish spending following the
telecom bubble, the carrier infrastructure equipment market grew 13% in 2004 and another 13% in 2005 as service
providers began spending again, with a focus on migrating their wireless networks to 2.5G and 3G, building out their
broadband footprints, preparing for triple play services, and removing network bottleknecks. Wireless infrastructure
far outpaced wireline over the past few years, and has grown to well over half of total equipment spending.
Going forward, we expect mixed trends as wireless infrastructure peaks in 2006 as global 3G deployments slow. On
the wireline side, IP switching and routing will likely see healthy growth as they replace legacy gear, and broadband
and video infrastructure will grow nicely to support next-generation access and telco TV services. In total, we expect
carrier infrastructure equipment to grow at a 2% CAGR, from $94 billion in 2005 to $102 billion in 2006.
Enterprise IT Infrastructure Equipment Revenue Forecast: We expect the enterprise IT infrastructure market
to outpace the carrier market, driven by strong growth in IT security (16% CAGR), IP PBXs (9% CAGR), Fibre Channel
storage (7% CAGR), and increasing penetration of enterprise WLAN (31% CAGR). Note that strength in switches and
IP PBX will be slightly offset by declines in basic enterprise routers and traditional PBXs (routing functionality is being
incorporated into layer 3+ switches and VoIP is replacing traditional PBXs). The market should remain highly
diversified with only switching and IT security representing greater than 10% of revenue in 2010. In total, we expect
the market to grow at a 5% CAGR, from $33 billion in 2005 to $44 billion in 2010.
255
Communications
Infrastructure
Carrier Infrastructure Equipment Suppliers
DWDM & Optical Cross Connect MSPP & ADM
Others
7% Alcatel
Others Nortel NEC 15 %
20 % 16 % 6%
Cisco
6%
Ericsson/ Huawei
Tellabs
Alcatel Marconi 13 %
5%
14 % 7%
NEC
6% Nortel
8%
Cisco Tellabs
6% Huawei 12 %
11 %
Lucent
Siemens
8%
6% Ciena Lucent Fujitsu Siemens
7% 10 % 8% 10 %
Multi-Service WAN Switch Service Provider Routers

Others Redback Others
Ciena 5% 3% 4%
Alcatel
2%
Marconi 3%
Huawei
5%
4%
Cisco
8%
Nortel
38 %
Cisco
Juniper 57 %
Lucent
16 % 29 %
Alcatel
25 %
This chart above (and the two following it) include market share figures for several classes of communications
infrastructure equipment. Though not an exhaustive list of equipment included in this category, it gives a good sense
of the key OEM players. Note that all market share figures are in revenue terms as opposed to ports, lines, or units.
DWDM & Optical Cross Connect Suppliers: The top DWDM and OCC suppliers in 2005 were Nortel with 16%
revenue share, Alcatel with 14%, Huawei with 11%, and Lucent with 10%. Other major suppliers include Ciena,
Siemens, Cisco, NEC, and Tellabs.
Multi-Service Provisioning Platform & Add/Drop Multiplexer Suppliers: The major suppliers of MSPP and ADM
equipment in 2005 were Alcatel with 15% market share, Huawei with 13%, Tellabs with 12%, and Siemens with 10%.
Fujitsu, Lucent and Siemens each held 8% and Ericsson/Marconi held 7%. Cisco and NEC followed, each with 6%.
Multi-Service WAN Switch Suppliers: The top suppliers of multi-service WAN switches (includes ATM switches) in
2005 were Nortel with 38% revenue share, Alcatel with 25%, Lucent with 16%, and Cisco with 8%. Other major
suppliers include Marconi, Ciena, and Tellabs.
Service Provider Router Suppliers: Cisco was the No. 1 supplier of service provider routers in 2005 with 57%
share, though its share is far lower than its overall router share (closer to 72%). Juniper was a strong No. 2 with
29% share (17% of total routers). Huawei held 4%, while Alcatel and Redback each held 3%.
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Communications
Infrastructure
Wireless and Wireline Access Equipment Suppliers
Wireless Infrastructure Central Office Switch
Others
9% Others
23 % Alcatel
Lucent 22 %
7% Ericsson
30 %
Alcatel
8%
Siemens
12 % Lucent
Nortel 16 %
9%
Nortel
Motorola Nokia 12 %
10 % 14 %
Siemens Ericsson
12 % 15 %
DSLAM CMTS
BigBand Others
Others 4% 1%
18 %
Arris
Alcatel 20 %
UTStarcomm 33 %
3%
Zyxel
3%
Sumitomo
3%
Cisco
Marconi 54 %
4%
ECI Telecom
5% Siemens Motorola
9% 21 %
Lucent
7% Huawei
NEC 8%
7%
Source: Dell’Oro, Dataquest, CIBC World Markets Corp.
Wireless Infrastructure Suppliers: Ericsson was the top supplier of wireless infrastructure in 2005, with 30%
revenue share. Ericsson remains the incumbent in GSM/GPRS, where it holds nearly 40% share overall; the company
has a slightly lower share in W-CDMA. Nokia and Siemens followed with 14% and 12%, respectively, also mostly
from GSM; note that in 2006 Nokia and Siemens announced that they would combine their wireless infrastructure
equipment divisions. Motorola was fourth with 10% share and is strong in CDMA, though it does have a significant
presence in GSM as well. Rounding out the top five was Nortel with 9% share from both CDMA and GSM. Alcatel was
next with 8% share (mostly GSM/GPRS and W-CDMA), followed by Lucent with 7% share (almost entirely CDMA); in
2006 Alcatel and Lucent agreed to merge. Other vendors include Samsung, Huawei, ZTE, UTStarcomm, and Datang.
Central Office Switch Suppliers: The top suppliers of central office switching equipment in 2005 were Alcatel with
22% revenue share, Lucent with 16%, Ericsson with 15%, and Nortel and Siemens, each with 12%.
DSLAM Suppliers: Alcatel was the dominant supplier of DSLAMs in 2005 with 33% revenue share, followed by
Siemens with 9% share and Huawei with 8%. NEC and Lucent each held 7% share, followed by ECI Telecom at 5%
and Marconi at 4%. Other significant suppliers include Sumitomo, Zyxel, UTStarcomm, and Ericsson. Note that the
market share data listed here differs from the modem section of this report, which deals in port shipments.
CMTS Suppliers: The top CMTS supplier in 2005 was Cisco with 54% revenue share. Motorola and Arris followed
with 21% and 20%, respectively. BigBand held 4%. Market share is for revenue and differs from the modem section.
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Communications
Infrastructure
Enterprise IT Infrastructure Equipment Suppliers
Enterprise Routers Ethernet Switches
Nortel Others Others
4%
Juniper 1 % 11 %
Enterasys F5
3% 1%
Huawei 1%
3% Extreme
2%
Foundry
2%
3Com
3%
HP
4%
Nortel
5%
Cisco
Cisco
71 %
89 %
Fibre Channel Switches PBX

QLogic Others
8% 1% Avaya
19 %
Others
31 %
Cisco
20 %
Brocade
40 %
Siemens
15 %
Cisco
7%
NEC Nortel
McData 7% Alcatel 13 %
32 % 8%
Enterprise Router Suppliers: The enterprise router market is dominated by Cisco with 89% revenue share.
Huawei, with its footprint in emerging markets, was next with 3%. Juniper, which has struggled to move into the
enterprise, was next, also with 3%. Other vendors include Nortel, Adtran, Allied Telesyn, 3Com, and Lucent.
Ethernet Switches: Cisco was the dominant supplier of Ethernet switches in 2005 with 71% revenue share; note
that Cisco’s revenue share far exceeds its port share of 53% reflecting its positioning at the high end and the price
premium it commands over competitive offerings. Nortel was a distant second at 5% share, followed by HP at 4%
and 3Com at 3%. Other vendors include Foundry, Extreme, Enterasys, F5 Networks, Alcatel, and Allied Telesyn.
Note that the share data listed here differs from the Ethernet section of this report, which deals in port shipments.
Fibre Channel Switches: Brocade is the top supplier of Fibre Channel switches with 40% revenue share in 2005.
McData was No. 2 with 32% share; McData’s revenue share exceeds its port share of 25% due to its positioning at
the high end. Note that in 2006 Brocade announced that it would acquire McData. Cisco was the No. 3 player in 2005
with 20% share, almost entirely from chassis solutions. QLogic was next with 8%; most of its share was derived from
fixed-port solutions. Market share is for revenue and differs from the storage section which deals in port shipments.
PBX Suppliers (includes traditional, IP, and converged PBX): The top supplier of PBX equipment in 2005 was
Avaya with 19% revenue share. Siemens held 15%, followed by Nortel at 13%. Alcatel was next with 8%, followed
by NEC and Cisco, each with 7% share. Other vendors include Mitel, Aastra/EADS, and Inter-Tel.
258
Communications
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Comm Infrastructure Semiconductor Forecast

•We expect communications infrastructure Line Card ICs
semiconductor revenue to grow at a 5% •T/E-carrier growing 2%, from $311
CAGR, from $3.1 billion in 2005 to $4.1 million in 2005 to $348 million in 2010.
billion in 2010. •SONET/SDH growing 6%, from $451
•Line card ICs should grow at a 3% CAGR, million in 2005 to $594 million in 2009
led by growth in SONET; T/E should grow •ATM ICs declining 8%, from $146
more modestly and ATM should decline million in 2005 to $96 million in 2010.
through 2010.
•Higher-layer and system-level ICs should Higher-Layer and System-Level ICs
grow 7%, led by communications •Comm processors growing 7%, from
processors; switching and network $857 million in 2005 to $1.2 billion in
processing ICs should each grow 6%. 2010.
$4,500
Switch Fabric and SerDes •Network processing ICs growing 6%,
Network Processing IC
$4,000 Communication Processor
ATM
from $822 million in 2005 to $1.1 billion
$3,500 SONET/SDH
T/E
in 2010.
$3,000 •Switching ICs also growing 6%, from
$520 million in 2005 to $682 million in
$2,500
$2,000
2010.
$1,500
Note: each of the six sub-segments above is
$1,000 discussed separately in the cahrts that follow.
$500
$-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Communications Infrastructure Semiconductor Forecast: We estimate that the market for communications
infrastructure semiconductors totaled $3.1 billion in 2005. Nearly 30% of this total was derived from line card ICs,
which we define as protocol-dependent ICs usually found on individual line cards and, to a lesser extent, WAN
trunking cards. The remaining 70%+ was derived from higher-layer and system-level ICs, which we define as all
processing and switching ICs that are not protocol dependent. This segment includes communications processors,
network processing ICs, and switch fabrics, which are found on switch, control/management, and WAN trunking cards
and to a lesser extent on individual line cards.
Looking ahead, we expect the market to grow at a 5% CAGR, rising from $3.1 billion in 2005 to $4.1 billion in 2010.
Line card ICs should grow at a 3% CAGR, led by SONET. T/E should grow more modestly as carriers continue to focus
on optical, and ATM should decline through 2010 as IP makes a push into access and metro networks.
Higher-layer and system-level ICs should grow 7%, benefiting from the additional intelligence OEMs are seeking to
pack into their product offerings at each node in the network. Growth should be led by communications processors at
a 7% CAGR, though network processors and switching ICs should also grow nicely, each with 6% CAGRs.
Note: each of the six IC sub-segments is discussed separately in the pages that follow. The slide above is meant as a
summary to size the opportunity for communications infrastructure ICs. In practice, the design competencies
required to address each sub-segment of the market are highly specialized and thus require separate attention.
259
Communications
Infrastructure
T/E Carrier Line Card

High-speed SRAM is the primary
memory used in telecom and
networking applications
SRAM
Line HDLC
Copper/ Interface Framer Backplane
Controller
Coaxial Cable Unit (LIU) (optional)
Performs protocol processing, removing An HDLC controller is sometimes used to

Interfaces with the copper or coaxial cable
T/E overhead on the receive side and aggregate user data and manage
and performs the analog-to digital conversion
applying it on the transmit side transmission over multiple T/E links, and
to send signals up to the service provider
encapsulates user data in an HDLC frame
network, and vice versa
T-carrier semiconductors transmit and receive T/E-based signals over the PSTN and implement the T-carrier protocol.
The LIU receives data from the transmission medium—usually copper twisted pair or coaxial cable—and converts it to
a digital format for processing. The framer removes or applies T-carrier overhead (recall that overhead is the
additional bits of data attached to the signal payload that helps transport the data, but is not part of the original
signal). The system can also run the data through an HDLC controller for further channel management.
• Line Interface Unit (LIU): The LIU interfaces with the transmission medium and converts it to and from the
digital format for processing.
• Framer: The framer applies and removes T-carrier overhead, preparing the payload data for transmission over
the network and extracting it from an encoded form on the receive side.
• HDLC Controller: An HDLC controller is sometimes used to aggregate user data and manage transmission over
multiple T1/E1 or T3/E3 links. It encapsulates user data into HDLC (high-level data link control) frames and
prepends header information that is used to manage network connections. Note that an HDLC controller is usually
implemented as a communications processor; though we show it in the diagram above, the revenue associated
with it is included in the forecast for communications processors.
• SRAM: High speed SRAM is the most commonly used memory in wireline applications.
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Communications
Infrastructure
T/E Carrier T/E Carrier Semiconductor

•The market for T/E carrier ICs is Others
expected to grow at a modest 2% CAGR, 10 %
from $311 million in 2005 to $348 Exar
5%
million in 2010. Infineon
•The market enjoys consistent demand Freescale 33 %
6%
from wireless basestations, corporate
data access, and metro/access
aggregation and transport, but will see Mindspeed
9%
some displacement by optical links.
•By device, framers should grow to
nearly 80% of revenue by 2010; PHYs
should represent the balance.
Maxim/Dallas
10 %
$400 PMC-Sierra
14 %
$350
LIU Framer Agere
13 %
$300
$250
$200
$150
$100
$50
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
T/E carrier Semiconductor Forecast: T/E carrier semiconductors, as the basic building block of service provider
metro and access networks, enjoy consistent demand from applications such as wireless basestations, corporate data
access, and aggregation/transport links around carrier access and metro networks. Over time, however, we expect to
see increased displacement of lower-speed copper T/E links with higher-speed optical SONET links, limiting growth in
this market. We also expect to see continued ASP declines, as IC vendors provide denser multi-port solutions and
higher levels of integration.
Overall we expect T/E semiconductors to grow at a five-year CAGR of 2%, from $311 million in 2005 to $348 million
in 2010. In terms of individual devices, we expect framers (already 75% of the content) to slightly outgrow LIUs, as
some newer designs migrate to integrated solutions which suck the LIU into the framer.
T/E carrier Semiconductor Competitors: The top supplier of T-carrier semiconductors in 2005 was Infineon with
33% market share. PMC-Sierra was second with 14% share, followed by Agere with 13%. Maxim and Mindspeed
followed with 10% and 9%, respectively. Freescale held 6% and T3/E3 specialist Exar held 5%. Other T/E suppliers
include Cortina/Intel (Cortina purchased Intel’s T/E and SONET business in 2006), TDK, and IDT.
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Communications
Infrastructure
SONET/SDH Line Card
Laser
Mux
Optical Driver
Fiber FEC Framer Backplane
Limiting
TIA CDR Demux
Amp
Physical Medium Physical Layer Framer/Pointer

Dependent (PMD) (PHY) Processor
The framers applies and removes

The PMD layer interfaces with The physical layer performs transmit
SONET overhead
the optical fiber and receive functions
Framer - terminates and removes
Laser Driver - drives the optical CDR - retimes the incoming signal
SONET overhead on the receive side,
laser to transmit the signal Demux - receives the incoming signal and
applies it on the transmit side
TIA and Limiting Amp - receives converts it to a digital parallel stream
FEC - a specialized framer optimized to
Mux - transmits the outgoing signal and
the signal from the optical receiver reduce errors over long distances
converts it to a serial analog stream
SONET line cards are found in high-speed optical transport and switching systems used in metro, edge, and core
networks. In a typical line card implementation, the optical signal comes off the fiber and interfaces an optical
module containing a block of ICs known as the physical medium dependent (PMD) block, which controls the optical
receptor and sends the analog signal into the system. Physical layer (PHY) devices sitting behind the optical module
then convert the signal to a digital bit stream for processing. The framer removes SONET overhead and sends the
signal to the network processing block, which classifies, modifies and manages the packet before switching. On the
transmit side, the process is reversed, with the framer applying overhead, the PHY converting the signal to analog and
transmitting it through the PMD devices in the optical module over the fiber.
Physical Medium Dependent (PMD)

• Transimpedence Amplifier (TIA) and Limiting Amp: The transimpedence amp and limiting amp receive the
signal from the optical receiver.
• Laser Driver: On the transmit side, the laser driver controls the optical laser that sends the SONET signal across
the fiber.
262
Physical Layer (PHY)

• Clock and Data Recovery (CDR): On the receive side, the CDR retimes the signal from the PMD layer and
prepares it for analog processing by the transceiver.
• Demultiplexer (Demux): The demultiplexer acts as the receiver and converts an incoming signal from an
analog serial bit stream to a digital parallel stream for processing by the system.
• Multiplexer (Mux): The multiplexer acts as the transmitter and converts the signal from the digital parallel
stream used by the system to the analog serial stream used by the optical components.
• Transceiver (not shown in diagram): A transceiver is an integrated physical layer device that performs clock and
data recovery, mux, and demux functions on a single chip. Integrated transceivers are typically found supporting
the slower, more mature speeds (OC-3 and OC-12), while faster next-generation speeds (OC-48, OC-192, OC-
768) require discrete components to perform physical layer functions.
Framer Layer
• Framer: The framer terminates and removes SONET overhead on the receive side and applies it on the transmit
side. The framer also breaks out the SONET stream into smaller bandwidth signals for more granularity in
processing (e.g., it can break an OC-48 into four OC-12s or twelve OC-3s, etc.).
• Mapper (not shown in diagram): A mapper is similar to a framer but includes the capability to translate between
speeds or protocols. Mappers are often used in systems which provide transport for other protocols, such as ATM
or Ethernet, over a SONET link.
• Forward Error Correction (FEC): Also called a digital wrapper, the FEC is a specialized framing device that
uses the g.709 protocol to encapsulate the packet in an additional FEC frame for more reliable transmission over
longer distances. FEC devices are only found in those systems designed to support g.709, generally higher speed
long-haul equipment.
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Communications
Infrastructure
SONET/SDH SONET/SDH Semiconductor

•We expect SONET ICs to grow at a 6% Others
TranSwitch 5 %
CAGR, rising from $451 million in 2005 to 5% Agere
$594 million in 2010. Cortina/Intel 24 %
6%
•Framers should remain about 55% of IC
content, while FEC devices should quickly Broadcom
grow to greater than 10% of IC revenue 7%
by 2010.
•The remaining 30%-35% is split roughly Infineon
7%
evenly between PMDs and PHYs.
•Though a small percentage of ports, OC-
PMC-Sierra
48 is the largest IC revenue segment; it 19 %
should be surpassed by OC-192 by 2010. AMCC
13 %
$700
Framer
Vitesse
FEC
$600 14 %
PHY
$500
PMD Source: IDC, Dataquest, CIBC World Markets Corp.
$400
$300
$200
$100
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, RHK, CIBC World Markets Corp.
SONET Semiconductor Forecast: We expect SONET semiconductor revenue to grow at a 6% CAGR, from $451
million in 2005 to $594 million in 2010. The market should continue to benefit from the incremental shift from copper
to optical in the metro network, as well as a renewed focus on the core and edge of the network where bottlenecks
have appeared. A shift to higher speed devices should also boost growth and help to offset ASP erosion.
In terms of the device split, we expect framers to continue to represent about 55% of IC content, while FEC devices
should quickly grow to more than 10% of IC revenue by 2010. The remaining 30%-35% is split roughly evenly
between PMDs and PHYs. Note that SONET line cards will often have network processing, control plane, and even
switching ICs; these are excluded from this forecast and discussed later in this section.
SONET Semiconductor Competitors: The top SONET IC vendor in 2005 was Agere with 24% market share,
followed closely by PMC-Sierra with 19%. Vitesse was third with 14% and was followed closely by AMCC with 13%;
both vendors are positioned at the core and edge of the network. Infineon and Broadcom followed, each with 7%
share; neither of these vendors puts much focus on SONET any longer, having refocused on broadband access and
wireless technologies. Other significant vendors include Cortina/Intel (Cortina purchased Intel’s optical networking
business in 2006), which held 6% share in 2005, and Transwitch, with 5% share—Transwitch is heavily focused on
Ethernet-over-SONET. Other smaller suppliers include LSI Logic, Mindspeed, and Exar (through its 2006 acquisition of
an OC-768 product line from Infineon and some internally developed products).
264
Communications
Infrastructure
ATM (Asynchronous Transfer Mode) Line Card
Optical Fiber/ ATM

ATM
Copper Transceiver Layer SAR AAL Backplane
UNI
Twisted Pair Device(s)
Physical Layer ATM Layer ATM Adaptation Layer

ATM adaptation devices encapsulate

The physical layer performs transmit The ATM layer manages ATM traffic
packets in ATM cells
and receive functions ATM layer devices can have a variety of
SAR - converts data packets into ATM
Transceiver - interfaces with the functions performed on the cell stream,
cells, and vice versa
transmission mediumdevice type varies including address translation, cell
AAL - deals with different types
appending, policing, cell counting, and
based on the transport protocol used (i.e. (classes) of traffic that can be captured
SONET, T/E etc.) OAM requirements for virtual
in ATM cells, such as voice, video,
ATM UNI - converts traffic from the concatenation
audio, e-mail, FTP, web, IP, etc.
transport protocol to ATM, and vice versa
ATM-based equipment is a bit different than other types of carrier network equipment in that it applies the ATM
protocol inside of another transport protocol (such as T/E or SONET). The transceiver can therefore be a variety of
devices: a SONET transceiver, a T/E LIU, etc. On the receive side, the signal is passed from the transceiver to an
ATM UNI (User Network Interface), which takes the digital signal from the transceiver and implements the ATM
physical layer interface. It then goes to the ATM layer, where traffic management functions are performed, and then
to the ATM adaptation layer, where traffic is translated from ATM cells into data packets and sent to the backplane for
switching. The data packets are then sent back to a switching card, where they are switched, transformed back into
ATM cells and sent out to another port.
Physical Layer
• Transceiver: The transceiver is the primary interface between the ATM line card and the transmission medium.
The transceiver in an ATM system can be any number of devices depending on the transport protocol, including
SONET/SDH transceivers, T1/E1 or T3/E3 LIUs. Alternatively, pure ATM traffic can be sent over point-to-point
links between switches using standard ATM PHYs, though these links are usually used for intra-switch or switch-
to-switch signaling.
265
• ATM UNI (User Network Interface): The ATM UNI converts traffic from the transport protocol (T/E, SONET,
etc.) to the ATM protocol and vice versa.
ATM Layer
• ATM Layer Device(s): ATM systems can have a variety of functions performed on the cell stream performed at
the ATM layer. This can include VPI/VCI address translation, cell appending, policing, cell counting and OAM
requirements for virtual connections.
• IMA: (Inverse Multiplexer for ATM) (not shown in diagram): IMAs are used in ATM uplinks to manage ATM
traffic over multiple lower-speed T/E and DSL physical links.
ATM Adaptation Layer (AAL)

• SAR (Segmentation and Reassembly): The SAR converts data packets into ATM cells and vice versa.
• AAL (ATM Adaptation Layer): The AAL device deals with the different types of data traffic that can be captured
in ATM cells, also called Classes-of-Service (CoS). Classes of service can include compressed and uncompressed
voice, video, audio, e-mail, FTP, World Wide Web, IP, etc.
266
Communications
Infrastructure
ATM Semiconductor ATM Semiconductor

•We expect ATM semiconductors to TranSwitch
Others
decline at an 8% CAGR, from $146 million 4%
5%
in 2005 to $96 million in 2010. Mindspeed

5%
•ATM is actively being displaced by IP in Zarlink PMC-Sierra
broadband access equipment, and should 6% 38 %
be displaced by IP in basestations in the
near future. NEC
•ATM will retain a steady but limited role 7%
in multi-service WAN switches.

•PHY and UNI ICs should remain roughly Fujitsu
25% of revenue, the balance should be 11 %
SAR and other ICs.
$250
SAR/Others
PHY/ATM UNI
Agere
$200
24 %

$150
$100
$50
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
ATM Semiconductor Forecast: We expect the market for ATM semiconductors to decline from $146 million in 2005
to $96 million in 2010, a negative 8% CAGR. Though data traffic growth continues, ATM is being challenged by
Ethernet and pure-IP switching, which is far cheaper to implement (though less robust and therefore not appropriate
for all applications). A key example of this is DSLAMs, which are transitioning from ATM backhaul to IP. Next-
generation basestations are also likely to exhibit this trend, though the transition is in just the early stages today. We
expect to see ATM retain a steady but limited role in multi-service WAN switches, where legacy compatibility is a
necessary factor.
Within our ATM semiconductor forecast, we expect PHY/ATM UNI devices to remain roughly 25% of revenue, with the
balance in SAR and ATM layer devices. Note that ATM line cards will often have network processing, traffic
management, control plane, and even switching ICs; these are excluded from this forecast and discussed later.
ATM Semiconductor Competitors: The two dominant vendors of ATM semiconductors are PMC-Sierra and Agere.
PMC-Sierra continued to lead the category in 2005 with 38% overall share; PMC is strong in WAN switches, wireless
backhaul and broadband infrastructure, especially DSLAMs. Agere, with its strength in multi-protocol processing in
edge and metro applications, was second with 24%. Fujitsu and NEC followed with 11% and 7% share, respectively.
Other major suppliers include Zarlink with 6% share, Mindspeed with 5%, and TranSwitch with 4%.
267
Communications
Infrastructure
Communications Processors
Equipment used in communications infrastructure
usually includes specialized microprocessors which
perform control plane functions, both on individual line
cards and on “management” or “supervisor” cards.
Usually an x86-, PowerPC-, or MIPS-based device, a
communications processor sits outside the data path
and performs control plane functions, managing the
functionality of the line card or the entire system.
Note that in addition to their function as the control
plane processor, communications processors are often
used to perform functions within the data path.
Sometimes referred to as Integrated Communications
Processors (ICPs), these devices are essentially fully-
programmable network processors and are generally
found on lower speed line cards.
Communications infrastructure equipment usually includes specialized microprocessors which perform control plane
functions, both on individual line cards and on “management” or “supervisor” cards. Usually an x86-, PowerPC-, or
MIPS-based device, a communications processor sits outside the data path and performs control plane functions,
managing the functionality of the line card or the entire system. As they are fully programmable, communications
processors are ideal for overall system control, which needs to be extremely flexible to support a constantly evolving
set of features as well as individual customer preferences.
In addition to their function as the control plane processor, communications processors are often used to perform
functions within the data path. Sometimes referred to as Integrated Communications Processors (ICPs), these
devices are essentially fully-programmable network processors (discussed in the following section) and are generally
used on lower speed line cards. These ICPs often include specialty network processing logic around the processor
core, and tend to look like SoCs.
Note that this section includes standalone microprocessors used in large telecom and enterprise systems. It does not
address processors used in modem CPE, wireless LAN access points, and other consumer networking devices, though
the processors used in those applications are very similar to those found in infrastructure equipment. The market for
standalone processors sold into CPE devices is quite small anyway, as processor cores are usually embedded into
SoCs designed specifically for those markets.
268
Communications
Infrastructure
Communication Communication
Processor Forecast Processor Competitors
•We expect communications processors Others
IDT
to grow at a 7% CAGR from $857 million NEC 3 %
5%
in 2005 to $1.2 billion in 2010. IBM 3 %

3%
•X86-, MIPS-, and PowerPC-based Toshiba
processors should all continue to see 3%
Renesas
wide adoption in telecom and enterprise 3%
infrastructure equipment. PMC-Sierra

3%
Freescale
49 %
•Processors continue to perform many
critical data path functions, and have not Broadcom
6%
lost much ground to NPUs or other
dedicated ASSPs. AMCC
$1,400 7%
Communication Processor
$1,200
Intel
14 %
$1,000
Note: Excludes processors sold into networking CPE as

$800
well as into enterprise storage equipment.
$600
$400
$200
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Communications Processor Forecast: Communications processors are pervasive in infrastructure equipment,

included both on line cards and management cards that run the overall system. In 2005, we estimate that the market
totaled $857 million. Looking ahead, we expect OEMs to continue to pack additional functionality into their high-end
offerings—much of which gets implemented in software—driving demand for increased processing. Comm processors
continue to perform many critical data path functions, and have not lost much ground to NPUs or other dedicated
ASSPs. In total we expect a 7% CAGR through 2010, with the market growing to $1.2 billion.
Communications Processor Competitors: The market for communications processors is served by vendors of
x86-, PowerPC- and MIPS-based processors. Freescale dominates the category with its PowerQUICC family of
PowerPC-based processors, and held 49% market share in 2005. Intel, which supplies both x86 as well as ARM-based
processors, followed with 14% share. AMCC entered the market in 2004 after its acquisition of IBM’s PowerPC 405
and 440 processor families, and held 7% share in 2005. Broadcom was fourth with 6% share; the company has been
successful in ramping its MIPS-based SiByte family in routers. PMC-Sierra, with its MIPS-based offering for routers,
was next with 3%; note that PMC significantly pared back its R&D efforts in MIPS router business in order to focus on
printers, but is still achieving revenue as legacy products ramp down. Other vendors include Renesas, Toshiba, IBM,
NEC, IDT, Fujitsu, Samsung, and Wintegra.
Note that our forecast and market share figures include core logic and memory interface ICs associated with
communications processors. These ICs are supplied by Marvell, IBM, and Tundra.
269
Communications
Infrastructure
Network Processing ICs

Communications infrastructure equipment incorporates
ASICs and specialized network processing devices to
perform data path processing functions. These devices
primarily relate to routing and traffic management and
can be included on line cards, management cards,
switch cards, or WAN trunking cards.
Network Processor (NPU) - A standard programmable processor
optimized for packet classification, modification, and traffic management.
Packet Classifier - A co-processor designed to classify packets based on
content, usually helping to implement routing tables and QoS.
CAM - A specialized SRAM-like co-processor designed to quickly look up
routing addresses.
Traffic Manager - A co-processor designed to manage traffic flow and
implement QoS.
Security Co-processor - A co-processor designed to accelerate
networking security protocols, such as IPSec.
ASICs – Custom ASICs can perform one or all of the above functions.
Communications infrastructure equipment incorporates specialized network processing devices to perform data path
processing functions. These devices primarily relate to routing and traffic management and show up on control cards,
switch cards, WAN trunking cards, or individual line cards, depending on the system. Key types of devices include:
• Network Processor (NPU): A network processor is a standard programmable processor designed specifically to
perform packet classification, modification and traffic management. Software is still a major component.
• Packet Classifier: A packet classifier is a co-processor designed to classify packets based on content, usually
helping implement routing tables and QoS.
• CAM: A CAM is a specialized SRAM-like device designed to quickly look up routing addresses. CAMs are
sometimes referred to as “network search engines” or “IP co-processors.”
• Traffic Manager: A traffic manager is a co-processor designed to manage traffic flow and implement QoS. First
used in ATM-based equipment, traffic management is now a common feature in most network devices.
• Security Co-processor: A security co-processor accelerates networking security protocols such as IPSec. These
processors often occupy their own line cards within larger systems or servers to implement security protocols.
• Network Processing ASICs: Custom ASICs can perform one or all of the above functions.
270
Communications
Infrastructure
Network Processor and Network Processor and

Co-processor Forecast Co-processor Competitors
•Network processors are expected to IBM
grow at a 6% CAGR, from $822 million in Others 21 %
2005 to to $1.1 billion in 2010. 24 %
•ASICs should decline at a 3% CAGR as

they are slowly displaced by NPUs, co-
processors, and comm processors/ICPs,
shrinking from 42% of IC revenue today Intel Netlogic
to 26% in 2010. 4% 10 %
•NPUs, CAMs, and other co-processors AMCC

4%
should each grow double-digits.
Hifn Fujitsu
$1,200
Other co-processor 4% 10 %
CAM Cypress
$1,000 NPU 6%
Network Processing ASIC LSI Logic IDT
7% 9%
$800
Note: Includes ASICs, NPUs, and co-processors.

Source: IDC, Linley Group, CIBC World Markets Corp.
$600
$400
ASICs NPUs Co-processors
IBM AMCC NetLogic
Fujitsu Intel IDT
$200
LSI Logic Agere Cypress
NEC Wintegra Hifn
Mindspeed Cavium
$-
2002 2003 2004 2005 2006 2007 2008 2009 2010 Texas Instruments
Source: IDC, RHK, Linley Group, CIBC World Markets Corp. Agere Hifn Broadcom
Toshiba Vitesse SafeNet
Bay Micro Freescale
Renesas
Network Processor and Co-processor Forecast: The market for data path network processing ICs is driven not
only by port/unit shipments of wireline equipment, but also by the level of “intelligence” required in these devices.
Simple transport or switching equipment do not require much outside of physical layer and protocol processing; the
addition of routing, QoS, traffic management, security, or other higher layer functionality, however, requires
significant incremental silicon content. With most OEMs moving toward more intelligent edge and access designs, we
expect the market for network processors to see healthy growth, with double-digit growth in next-generation ASSP
segments. In total, we expected the market to grow at a 6% CAGR, from $821 million in 2005 to $1.1 billion in 2010.
Note that a significant portion of the network processing IC market is still ASIC-based. In 2005, we estimate that
42% of network processing revenue was derived from ASICs. The remainder was split between standard network
processors (21% of total), CAMs (26% of total), and other co-processors (11% of total). Going forward, we expect a
continued migration from ASIC solutions to ASSPs, with ASICs shrinking to 26% of the overall market in 2010.
Network Processor and Co-Processor Key Competitors: The largest suppliers of network processing silicon in
2005 were ASIC and CAM suppliers. IBM, the market leader in ASICs, held the top position with 21% share followed
by CAM leader Netlogic with 10% share. Fujitsu, also strong in ASICs, was third with 10% share, followed by IDT, the
No. 2 supplier of CAMs, with 9% share. LSI, the third largest ASIC supplier, was next with 7% share, and was
followed by Cypress, the third largest CAM supplier, with 6%; note that Cypress exited the CAM market in 2006,
selling the majority of the business to Netlogic. Leading security co-processor vendor Hifn and standard NPU vendors
271
AMCC and Intel rounded out the major vendors, each with 4% share. A myriad of other players also participate,
including ASIC suppliers NEC, Texas Instruments, Agere, and Toshiba; NPU vendors Agere, Wintegra, Mindspeed,
Vitesse, and Bay Microsystems; and co-processor vendors Cavium, Broadcom, SafeNet, Freescale, and Renesas.
Looking at the segments individually, we estimate that IBM held 49% of the network processing ASIC market in 2005.
Fujitsu followed with 23% and LSI Logic held 14%. Other vendors include Texas Instruments, Agere, and Toshiba.
Note that PLD vendors Altera and Xilinx also participate in this market with structured ASICs based on their PLDs.
On the ASSP side, the market for standard programmable NPUs was originally dominated by a handful of start-ups.
Most of these have been acquired, while others sold their assets after becoming insolvent. Today, most of these
products are produced by the larger comm IC vendors. In 2005, AMCC was the market leader with 20% market
share followed by Intel and Agere with 18% and 13%, respectively. Other significant NPU vendors include Wintegra,
Mindspeed, Hifn, Vitesse, and Bay Microsystems. Note that Vitesse and Mindspeed have significantly pared back their
R&D efforts in NPUs, but are still achieving revenue as legacy products ramp down.
In the co-processor market, we segment the market between CAMs and all other co-processors (note that the latter
category is mostly security co-processors, as most packet classifier and traffic manager ICs have been folded into the
larger network processing units or chipsets which are included in the NPU segment). In CAMs, two vendors were
about even in 2005: Netlogic was the market leader with 39% share, followed by IDT with 36%. Cypress was the
third largest supplier of CAMS with 23% share. Note that Cypress exited the CAM market in 2006, selling the majority
of the business to Netlogic. In the security segment, Hifn, Cavium, Broadcom and SafeNet were each significant
players in 2005. Other co-processor vendors include Vitesse, Tarari, AMCC, and Renesas.
The exhibits below display market shares for network processing ASICs, NPUs, and co-processors in 2005.
2005 Network Processing ASIC Market Share 2005 Network Processor (NPU) Market Share
Others
Others 10 %
14 % AMCC
Bay Micro
20 %
5%
LSI Logic Vitesse

14 % 7%
IBM
49 % Hifn
8% Intel
18 %
Mindspeed
9%
Fujitsu
23 % Wintegra Agere
11 % 13 %
2005 CAM Market Share 2005 Other Co-processor Market Share
Others Others
3% 9%
Hifn
Tarari
Cypress 24 %
7%
23 %
Netlogic
39 % Vitesse
9%
Safenet
14 % Cavium
22 %
IDT
36 % Broadcom
15 %
272
Communications
Infrastructure
Switching ICs
Communications infrastructure equipment requires
specialized switching components to direct traffic
between line cards, usually over a backplane. Some
platforms also include dedicated switching cards.
TDM Switches – Time division switches divide the bandwidth of a shared
transmission path into time slots, one time slot per input port. Data is
addressed and sent over the bus or backplane in that time slot.
Crosspoint Switches – Crosspoint switches provide a unique
transmission path from each input to each output by using a rectangular
matrix of crosspoints.
Packet and Cell Switches Fabrics – These switches are used to switch
individual packets or cells rather than complete streams.
ASICs – Switching is often implemented with custom ASICs.
Backplane SerDes – Backplane interface ICs are used on each card in
the system to interface with the backplane.
Standard Interconnect – Newer advanced switching systems leverage
standard interconnects like PCI-Express, RapidIO, and HT.
Note: Ethernet LAN switches are specifically excluded from this discussion, as they are protocol
specific devices and are included in our discussion of Ethernet in the networking section.
Communications infrastructure equipment often includes a switching component to direct traffic between line cards.
This function is usually implemented with a series of switch fabric devices, with some element on each individual line
card and a central fabric located on the backplane or on a separate switch card. Key switching IC types include:
• TDM Switches – Time division switches divide the bandwidth of a shared transmission path into time slots, one
time slot per input port. Data is addressed and sent over the bus or backplane in that time slot.
• Crosspoint Switches – Crosspoint switches provide a unique transmission path from each input to each output
by using a rectangular matrix of crosspoints. Crosspoints are used in smaller fabrics than TDM switches.
• Packet and Cell Switches Fabrics – These switches are used for packets or cells rather than complete streams.
• ASICs – Switching is often implemented with custom ASICs.
• Backplane SerDes – Backplane interface ICs are used on each card in to interface with the backplane.
• Standard Interconnect – Newer advanced switching systems leverage standard interconnects like PCI-Express,
RapidIO, and Hypertransport.
Note that Ethernet LAN switches are specifically excluded from this discussion, as they are protocol specific devices
and are included in our discussion of Ethernet in the networking section.
273
Communications
Infrastructure
Switch Fabric Switch Fabric

•We expect switch fabric and related IBM
ICs to grow at 6% CAGR through 2010, Others 14 %
20 %
from $520 million in 2005 to $682
million in 2010.
•ASICs will continue to be heavily used, Fujitsu
limiting growth prospects for ASSPs;
12 %
Agere
both segment will grow low single digit 6%
through 2010.
•Standard interconnect should outgrow LSI Logic
the market as OEMs leverage open 7% PLX
11 %
standards like PCI-Express, RapidIO,
and Hypertransport. Zarlink
7%
$800 Tundra
Backplane ICs Vitesse AMCC 9%
Standard Interconnect
$700
Switch Fabric ASSPs
7% 8%
Switch ASICs
$600
Source: IDC, Dataquest, Linley, CIBC World Markets Corp.
$500
$400 Switching Switching

$300
ASICs ASSPs
IBM AMCC
$200 Fujitsu Vitesse
LSI Logic Zarlink
Agere Agere
$100
$0 NEC PMC-Sierra
2002 2003 2004 2005 2006 2007 2008 2009 2010
Toshiba Dune
Source: IDC, RHK, CIBC World Markets Corp. TI TranSwitch
Switching IC Forecast: We estimate that the market for switch ICs totaled $520 million in 2005, split roughly 36%
switching ASICs, 27% switching ASSPs, 28% standard interconnect, and 9% backplane ICs.
We expect the market to grow at a 6% CAGR, from $520 million in 2005 to $682 million in 2010. Unlike in the
network processing market, OEMs continue to favor ASICs for switching; we forecast a 4% CAGR through 2010. This
will limit growth prospects for switch ASSPs, which we expect to grow only 3%. Backplane ICs should experience
healthy growth with a 7% CAGR, driven more by line card shipments than any factor relating to switching capacity.
Standard interconnect ICs (PCI, PCI Express, RapidIO, HyperTransport, ASI, etc.) are expected to outperform the
market with a 9% CAGR. These products leverage open standards and over time should breed low cost, high-
performance solutions that will also simplify system design, displacing proprietary solutions that dominate the market
today. For this reason, we also include standard interconnect ICs for backplanes in the emerging technologies section
of this report. Note that in addition to communications infrastructure, these products find heavy usage in server
(especially blade server) and storage applications.
Switching IC Key Competitors: The top two vendors of switch fabric ICs are ASIC suppliers IBM and Fujitsu. In
2005 IBM held 14% market share; note that IBM’s market share excluded the PRS product line that it sold to AMCC,
who holds the No. 1 spot on the switching ASSP side. Fujitsu was second with 12% share. Standard interconnect
leaders PLX and Tundra followed with 11% and 9% share, respectively. Next were switch ASSP vendors AMCC,
274
Vitesse, and Zarlink, followed by LSI Logic and Agere (note that in 2006 LSI Logic and Agere agreed to merge). A
number of players have smaller positions, including PMC-Sierra, NEC, Mindspeed, Broadcom/Sandburst, Intel,
Cypress, TranSwitch, IDT (through its Zettacom acquisition), NEC, Toshiba, Texas Instruments, and Samsung, along
with start-ups Dune, StarGen and Erlang.
Looking at the individual segments, switch ASICs are supplied by the same three major vendors that supply network
processing ASICS: IBM (39% share), Fujitsu (32% share), and LSI Logic (12%).
On the merchant ASSP side, AMCC was the No. 1 vendor
2005 Switch Fabric ASIC Market Share
in 2005 with 23% share, but in 2006 the company
announced its intention to halt future product
development in this area. Vitesse was the No. 2 vendor Others
with 21% share, with a portfolio of crosspoint switches, 12 %
backplane interface ICs, and other fabrics. TDM switch
leaders Zarlink and Agere were next with 20% and 14%
share, respectively. Other vendors include PMC-Sierra, LSI Logic
IBM
Dune, TranSwitch, Mindspeed, Broadcom/Sandburst, 16 %
39 %
Stargen, IDT, and Erlang.
Standard interconnect ICs are dominated today by PLX
Technology and Tundra, with 36% and 31% share,
respectively. Intel also participates, as does start-up
Stargen. IDT has also made some major product
announcements in this area and expects revenue in 2007.
The exhibits to the right and below display market share
data for the major segments of the switching market. Fujitsu
32 %
2005 Switch Fabric ASSP Market Share 2005 Standard Interconnect IC Market Share
Others Others
TranSwitch 5% 9%
4% AMCC Stargen
Dune
23 % 4%
5%
PMC-Sierra PLX
9% 36 %
Intel
20 %
Agere
14 %
Vitesse
21 %
Zarlink Tundra
20 % 31 %
Source: IDC, Dataquest, Linley, CIBC World Markets Corp.
275
Communications
Infrastructure
Comm Infrastructure IC Market Trends

Line Card ICs
•OEMs are flocking to multi-port T/E devices at the lower speeds.
•IC vendors are increasingly integrating the T/E LIU with the framer.
•Integrated SONET transceivers are becoming industry standard.
•Framers are offering increasing granularity and aggregation support.
•Intelligent mappers enabling Ethernet-over-SONET (EoS).
•SONET FEC devices are gaining increasing adoption.
•ATM has replaced Frame Relay in most carrier switching networks, but is
starting to be challenged by IP-based solutions.
•DSLAMs are moving from ATM to IP, basestations should follow soon.
Higher-Layer and System-Level ICs

•Communications processors are integrating advanced networking logic.
•NPUs are gaining traction, especially in access and metro applications.
•CAMs continue to penetrate the LAN backbone and are being used in
service provider networks as well.
•Security processors are gaining traction in routers and LAN backbones.
•IPv6 is driving the need for more advanced network processing ICs.
•Switch fabric vendors are focusing on granularity and switching capacity.
•Standard interconnects are gaining traction as OEMs leverage open
standards like PCI-Express, RapidIO, and Hypertransport.
•AdvancedTCA is starting to gain momentum.
T/E-Carrier Semiconductor Market Trends

• OEMs are flocking to multi-port devices at the lower speeds. Over the past few years, OEMs have
increasingly chosen multi-port LIUs and framers for their T1/E1 line cards, with configurations of up to 8 or 12
ports per device. T3/E3 designs are also going this direction but the design is more challenging.
• IC vendors are increasingly integrating the PHY with the framer. Several vendors offer integrated
PHY/framers for T1/E1 and T3/E3, reducing bill-of-material costs and saving board space. SONET designs will be
more challenging and will likely be relegated to the lower speeds.
SONET Semiconductor Market Trends

• SONET PHY and framer ASICs continue to get squeezed out; the trend toward outsourcing is moving
steadily up the layer stack. Optical networking OEMs traditionally competed on performance and have
therefore chosen to do much of their silicon as custom-designed ASICs. As the market has matured and cost and
time-to-market have become more important, however, OEMs have steadily moved to standard products. Today,
the majority of PHY devices and framers are implemented as standard products. Higher layer devices such as
network processors and switch fabrics continue to remain primarily ASIC-based, though even this is starting to
change. The availability of larger, faster and more extensively libraried FPGAs is also cannibalizing ASICs.
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• Integrated SONET transceivers are becoming industry standard. With each new speed deployment, IC
vendors enter the market with discrete CDR, mux and demux chips, which they then follow up with integrated
transceivers that perform all physical layer functions. At present, integrated OC-192 transceivers are standard in
most new designs.
• Framers are becoming more advanced, offering increasing granularity and aggregation support. Most
framers sold today as merchant products provide basic SONET overhead framing, with the ability to “step down”
one speed grade, e.g., from an OC-48 to four OC-12s, etc. Recent product introductions have seen a greater
focus on granularity, i.e., the ability to step down even further. Several vendors offer framers that provide
granularity from OC-48 all the way down to DS-3 or even further.
• Intelligent mappers are enabling Ethernet-over-SONET (EoS). Recognizing that carriers would like to offer
Ethernet-based data services but still use SONET for transport, OEMs and IC vendors are trying to make it easier
to translate between these protocols. Ethernet-over-SONET products are now available from a number of
incumbent and start-up IC vendors supporting speeds of OC-3, OC-12, and OC-48. Platforms designed around
these products are now ramping to significant volume.
• SONET FEC devices are gaining increasing adoption. FEC digital wrappers ensure a more reliable signal
transmission, especially over long distances. OEMs have been quick to adopt these devices since the g.709
standard was ratified, and systems utilizing these FECs are now ramping to significant volume. Note that for the
next generation, IC vendors are offering integrated framer/FEC devices, especially at higher speeds where FEC is
more likely to be implemented.
ATM Semiconductor Market Trends

• ATM has replaced Frame Relay in most carrier switching networks, but is starting to be challenged by
IP-based solutions. Frame Relay is a legacy protocol originally designed to interconnect LANs and to be a high-
speed WAN protocol. As data networks have scaled, however, Frame Relay has been replaced by Ethernet in the
LAN and by ATM in the WAN. Though ATM will remain the mainstream WAN switching choice for some time,
Ethernet WAN is beginning to eat into ATM especially for access and metro equipment.
• DSLAMs are moving from ATM to IP for backhaul. ATM has been a natural fit for DSL backhaul, as it was
fast, scalable, and able to handle both the voice and data traffic sent over the copper wire. ATM equipment also
operates at the same speeds as SONET, making for an easy interface to the public WAN. With the growth of IP in
the WAN, however, the major DSLAM vendors are migrating to IP for backhaul, eliminating ATM from the DSLAM.
As with all technology shifts in carrier networks, this trend is taking several years time to play out, but it is a
major driver behind the negative CAGR in our ATM forecast.
• 2.5G and 3G basestations are using ATM for backhaul; IP will come later. As in the DSLAM market, ATM
has been an effective solution for backhaul in wireless basestations, especially to support 2.5G and 3G services
which mix voice and data. The increased focus on data services at wireless carriers should provide some
incremental demand for ATM ICs for several years, helping to buffer the effects of the transition away from ATM in
DSLAMs, which is currently in progress. We do expect IP to begin to replace ATM in basestations as well
sometime in the next few years, however, which will eventually contribute to the decline of ATM.
Communications Processor, Network Processor and Switching Market Trends

• Communications processors are beginning to integrate more advanced networking logic, blurring the
line between comm processors and NPUs. Freescale has been very aggressive on this front, evolving its
PowerQUICC comm processor line to include Integrated Communications Processors (a term it coined when it was
part of Motorola). AMCC, which acquired two PowerPC processor lines from IBM in 2004, is evolving its product
line to include IP from the company’s network processors (AMCC is actually still No. 1 in NPUs and has very
mature IP blocks). Wintegra, the most successful NPU start-up the market has seen in the past few years, has
been very successful with an architecture that combines a MIPS core with network processing engines driven by
software.
• NPUs are gaining traction, especially in access and metro applications. Merchant solutions for network
processing have not lived up to original rosy expectations, especially at the high-end where they were originally
targeted. In recent years, however, IC vendors have refocused on the lower speeds, and have been successful in
displacing ASICs in access and metro applications. AMCC, Intel, Agere, and others all have mature product lines
with design wins at tier-1 OEMs, and start-up Wintegra has built a very successful and profitable business in
DSLAMs, basestations, and other applications which require bandwidth below 1 Gbps. Note that the momentum
behind AdvancedTCA (discussed below) should help accelerate the trend towards standard network processors, as
the greater modularity of those systems works well with standard components offered by NPU vendors.
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• CAMs continue to penetrate the LAN backbone and are being used in service provider networks as
well. Cisco has been aggressive in its use of CAMs in its routing platforms, and has increasingly proliferated
routing intelligence across its product line. This has led to a strong growth rate for CAM products over the past
few years, a trend that is expected to continue through the forecast period. Vendors outside of Cisco, including
ALAXALA, Alcatel, Huawei, Fujitsu, and others are also beginning to use CAMs in their devices. Besides additional
customer traction, we are seeing increasing CAMs move from their home in the enterprise into service provider
networks, riding the trend towards IP in the carrier space.
• Security processors are gaining traction in routers and backbone equipment. IT security is a clear
priority in enterprise networks today, and historically has been implemented with a variety of dedicated hardware
and software solutions. More recently, we have seen networking OEMs move to implement security as a feature
within other network building blocks, which dramatically increases the SAM for security processors. Cisco has
been particularly aggressive on this front, particularly with its mainstream ISR enterprise router launched, which
can be fitted with a security module.
• IPv6 is driving the need for more advanced network processing ICs. IPv6 (Internet Protocol version 6) is
the next generation IP addressing scheme, which increases the size of IP addresses from 4 octants to 16 (which
increases the total number of available addresses from 4.3 billion [or 4.3 x 109] with IPv4 to 340 billion billion
billion billion [or 2.4 x 1038]. IPv6 will take a long time to implement, as it requires that a massive upgrade cycle
of routers to support it. Still, OEMs are beginning to design IPv6 into their product offerings. Note that on the IC
side, more robust network processing ICs will be required to implement IPv6; this is especially true for the
compute-intensive classification and CAM ICs.
• Switch fabric IC vendors are focusing on offering more granularity. This reflects the trend of network
intelligence moving toward the edge and access, where a greater number of lower speed signals need to be
switched and routed as opposed to the core. Vendors have announced switch fabric ICs that can look all the way
down to the DS-0 level.
• Switch fabric IC vendors are focusing on higher capacity fabrics. On another front, IC vendors are
designing switch fabrics with greater capacity as well as the ability to scale more efficiently. The largest capacity
fabrics are predominantly ASICs today; as merchant vendors ramp the capacity of their offerings we could see
them encroach on the high-end of the market.
• Standard interconnects are gaining traction as OEMs leverage open standards like PCI-Express,
RapidIO, and Hypertransport. Over time the use of open standards should breed low cost, high-performance
solutions that will also simplify system design. Note that in addition to communications infrastructure, these
products find heavy usage in server (especially blade server) and storage applications.
• AdvancedTCA is starting to gain momentum. The AdvancedTCA (Advanced Telecom Computing Architecture)
architecture seeks to standardize the designs of communications infrastructure equipment by segmenting out the
most common functions used in these systems and providing for interconnect standards between subsystems.
Modularity, through the use of mezzanine cards, is a big feature of AdvancedTCA, and it has therefore been
endorsed by merchant component suppliers (most prominently Intel) looking to displace ASIC content in OEM
systems. Though there will always be a hefty amount of customization done by OEMs and chip designers in this
market, where it is used, AdvancedTCA can lower the cost of system design and speed time to market.
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Voice -over-IP
Voice-over-IP
Voice-over-IP (VoIP) brings the benefits of packet-

switched networking to traditional voice telephony.
Instead of opening a dedicated circuit through the PSTN
to transmit voice, calls are translated into packets,
addressed, and sent out over the data network.
VoIP for Call Transport

VoIP is already used in carrier networks for transport,
most commonly for international calls. Service providers
simply convert TDM-based voice calls to IP once the call
reaches their network. They then transport the packets
over the data network, and switch them back to TDM for
call termination. This leverages the efficiency of the
data network and is transparent to the customer.
VoIP for transport requires the installation of carrier-
class media gateways at strategic points in the network.
These gateways convert TDM-based calls to VoIP and
interface with the data network for packet transport.
Voice-over-IP (VoIP) brings the benefits of packet-switched networking to traditional voice telephony. Instead of
opening a dedicated circuit through the PSTN to transmit voice, calls are digitized and translated into packets, and
then are addressed like data packets and sent out over the data network. Unlike traditional telephony, call signaling
is handled separately from transport and is performed by separate network elements, mostly in software.
Since most traffic worldwide today is data, reworking voice to travel over data networks seemed an obvious evolution
of the growth of data networks. Although the backbone of the telephone network has been converted to digital for
some time, the circuit-switched nature of the PSTN is still wasteful. In traditional voice networks, both the to and
from channels are always dedicated, even though in most conversations only one person talks while the other listens.
In addition, newer voice codecs cut the digital requirement from the traditional 64 Kbps (PCM) down to 8 Kbps and
below with respectable quality. Thus, the bandwidth for VoIP can be less than 1/16th that of the PSTN.
Most VoIP implementations to date have been behind the scenes within service provider networks for transport.
Service providers convert standard TDM-based voice calls to IP once the call reaches their network, then transport the
packets over the data network and switch them back to TDM near the destination for call termination. This leverages
the efficiency of the data network and is transparent to the customer. This topology has required the installation of
carrier-class media gateways at strategic points within the public network, which convert TDM-based calls to VoIP and
interface with the data network for packet transport. Similar gateways installed on the other end perform the
reciprocal function, retranslating the packets back into TDM for transport over the recipient carrier’s network.
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Voice -over-IP
Voice-over-IP
Pure IP Telephony Networks For The Enterprise

VoIP can also be used as a complete replacement for
TDM-based telephony in the enterprise. Specialized IP
phones hook into the LAN, and voice packets are routed
alongside data packets. A converged PBX or softswitch
connects to the LAN and enables call features.
Converged PBX
(with softswitch
Co nne c tio n to analo g
p ho ne s , als o c o ntro lle d b y functionality) IP Phones
the c o nve rg ed PBX
IP Phones Fast/Gigabit
Ethernet
PCs with NIC or LoM

LAN Switch
Gigabit
Server
Ethernet
Router or Co nne c tio n to the WAN

Layer 3 Switch
Though it’s used today alongside analog phones, VoIP has the potential to completely replace TDM-based telephony.
The purest form of VoIP uses IP phones, which are specialized phones that perform traditional telephone functions
(and usually much, much more) but operate completely in IP. These sets hook into the LAN and voice packets are
routed alongside data packets. A converged PBX or softswitch connects to the LAN and enables call features.
This topology will likely be used primarily in the enterprise. Large enterprises are already wired for Ethernet
connectivity and also can utilize all the advanced features of VoIP phones, like text messaging, intelligent voice mail,
call scheduling, and contact databases. They also typically have dedicated data pipes to the public Internet, required
for routing VoIP packets.
Note that calls placed on an IP network bound for a recipient not on the network must be terminated at some point—
this actually represents the bulk of VoIP calls today since penetration is still quite low worldwide. If the recipient uses
a traditional analog phone (which would be on the PSTN), the service provider has to translate that call back to TDM
using a media gateway. This process and the carrier-class gateways that enable it are not pictured in the diagram
above, as it takes place entirely on the service provider’s end.
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Voice -over-IP
Voice-over-IP
IP Telephony For Residential Service

Service providers are looking to offer lower-cost
residential voice service by implementing VoIP at the
customer premise. Under this model, traditional analog
phones hook into a VoIP gateway connected to the
customer’s broadband modem. This gateway translates
voice into IP and sends it over the broadband connection.
A softswitch in the carrier network enables call features.
Softswitch
VoIP CPE
Analog Phone
(Gateway)
POTS
copper wire
Ethernet
Uplink to
Copper Twisted Pair or Coaxial Cable Public Data
Network/
Internet
Modem Modem
(DSL, Cable) Concentrator
(DSLAM, CMTS)
Customer Service
Premise Provider
Carriers are looking to offer lower-cost residential voice service by implementing VoIP at the customer premise,
leveraging the installed base of analog phones and copper wire but moving call transport over to lower cost IP
networks. Under this model, traditional analog phones hook into a specialized VoIP media gateway device (also called
a VoIP terminal adapter or CPE device) that is connected to the customer’s broadband modem. This gateway
translates voice into IP and sends it over the broadband connection. Note that newer implementations are integrating
VoIP functionality directly into modems or home routers, eliminating the need for a discrete terminal adapter.
Back in the carrier’s network, a softswitch in the carrier network enables call features. As in the pure-IP enterprise
implementation, calls placed over the IP network bound for a recipient not on the network must be terminated by the
service provider; if the recipient is on a TDM network, the call must be translated back to TDM using a media gateway
in the carrier’s network (again, this is not pictured in the diagram above).
Note that probably the most disruptive aspect of VoIP vis-à-vis residential telephony service is that it allows cable
MSOs to enter the voice telephony market without requiring them to build a circuit switched TDM network. MSOs
already have a large footprint of cable modem customers; a terminal adapter or the quick swap of a modem for a
voice-enabled modem is all that’s needed on the customer end.
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Voice -over-IP
Voice-over-IP
Types of VoIP Equipment

Carrier-Class Media Gateway – TDM-to-IP conversion device used in
carrier networks to translate traditional TDM-based calls to IP for
transport over the IP network. Also used to translate IP calls back to
TDM for call termination where the recipient is not on an IP network.
IP Phone – IP phones perform traditional telephone functions (and

more) but operate completely in IP. IP phones are targeted for the
enterprise market, and usually hook into a LAN switch using Ethernet
cable. Call packets are handled by the data network.
Softswitch – A series of servers and software that enable call features in

VoIP networks. In an enterprise IP phone network, a softswitch
interfaces with the LAN to control all phones on the network (it can also
be integrated in a converged PBX). In residential service, softswitches in
the carrier’s network control CPE gateways at residential customers.
VoIP CPE Gateway – Low density TDM-to-IP conversion device used to

translate traditional TDM-based calls to IP for transport over the IP
network. These are installed at the customer premise in order to allow
traditional analog phones to be connected to an IP network. Voice-
enabled modems can also perform this function.
Converged PBX (Private Branch Exchange) – Replaces (or upgrades)

the traditional PBX to handle both TDM calls and softswitch functions for
the VoIP network. Essentially a traditional PBX with integrated softswitch
capability to handle VoIP phones alongside traditional business phones.
Types of VoIP Equipment

Carrier-Class Media Gateway: TDM-to-IP conversion device used in carrier networks to translate traditional TDM-
based calls to IP for transport over the IP network. Also used to translate IP calls back to TDM for call termination
where the recipient is not on an IP network.
IP Phone: IP phones perform traditional telephone functions but operate completely in IP. IP phones are targeted
for the enterprise market and generally incorporate a variety of high-end features. Sets usually hook into a LAN
switch using Ethernet cable and call packets are handled by the data network.
Softswitch: A series of servers and software that enable call features in VoIP networks; they also control all VoIP
signaling functions. In a pure-IP phone network, a softswitch interfaces with the LAN to control all phones on the
network (softswitch functionality can also be integrated in a converged PBX). In a residential implementation,
softswitches in the carrier’s network control CPE gateways at residential customers.
VoIP CPE Gateway: Low density TDM-to-IP conversion device used to translate traditional TDM-based calls to IP for
transport over the IP network. Typically installed at the customer premise to allow traditional analog phones to be
connected to an IP network. These can be standalone devices or integrated into a voice-enabled modem.
Converged PBX (private branch exchange): Replaces (or upgrades) the traditional PBX to handle both TDM calls
and softswitch functions for the VoIP network.
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Voice -over-IP
Voice-over-IP
VoIP Port Forecast VoIP Equipment

•We expect VoIP port shipments to grow Suppliers
at a 24% CAGR, from 87 million ports in Softswitches Media Gateway & Hybrid SS/MG
2005 to 254 million ports in 2010. 100% 100%
•Media gateway channels should grow 90% Others 90%

Others
25% as carriers support VoIP subscriber 80%

Cirpack
Cisco
80%
call termination. 70% 70% Lucent

Alcatel
Siemens
Ericsson
•IP phones should grow 36%, driven by

60%
60% Italtel Tekelec
Lucent
50% UTStarcomm
increased corporate adoption.
50% Sonus
Siemens Ericsson
40%
•VoIP gateway CPE ports should grow

40%
Cisco
30%
29% as broadband service providers

30%
Nortel Sonus
20%
deploy VoIP to their data customers.

20%
10%
UTStarcomm Nortel
•IP PBX lines will grow more modestly.
10%
0%
0% VoIP Media Gatew ay
300,000 VoIP Softsw itch Channels
VoIP Gateway
IP PBX
250,000 IP Phone IP and Converged PBXs (lines) IP Phones
Media Gateway Channels 100% 100%
Others
200,000 90% 90%
Others
Port Shipments (000s)
EADS
80% Mitel 80%
NEC 3Com
150,000
70% 70% Siemens
NEC
Cisco
60% 60% Polycom
100,000 Mitel
50% Avaya 50% Alcatel
Avaya
40% Alcatel 40%
50,000 Nortel
30% 30%
Siemens
20% 20%
-
Cisco
2002 2003 2004 2005 2006 2007 2008 2009 2010
10% Nortel 10%
Source: IDC, Dell’Oro, CIBC World Markets Corp.
0% 0%
IP & Converged PBX Lines IP Phones
Source: Dell’Oro, CIBC World Markets Corp.
VoIP Port Forecast: The VoIP equipment market was hot in 1999 and 2000 as carriers raced to install equipment to
push their voice traffic over new IP-based data networks, especially for long distance international calls. Spending
budgets constricted significantly in the telecom downturn, however, and carriers have restricted spending in all areas,
especially in overbuilt long-haul networks where early VoIP investments were made for transport. Throughout that
time, though, the value proposition for VoIP has remained a compelling one, as IP-based voice transport offers lower
cost. VoIP therefore continued to see good development work as carriers still recognized it as the long-term direction
for their networks.
Over the past several years, voice-over-IP has received renewed attention for applications beyond long-distance
transport and the market has experienced very strong port/channel growth (>120% in 2003 and >50% in 2004 and
2005). Carriers have made significant investments to offer large-scale VoIP services to both enterprises and
residential voice customers. On the enterprise side, IP phones and softswitch equipment have come down in price
significantly, as has data network bandwidth, presenting a clear value proposition for enterprises looking at VoIP. On
the residential side, competition from cable voice as well as insurgent carriers like Vonage and Skype are forcing
telecom service providers to offer their own VoIP services to compete.
In terms of VoIP equipment, we estimate that the market for VoIP ports totaled 87 million in 2005. This included
34.5 million media gateway channels (40% of total), 9.7 million IP phones (11% of total ports), 13.0 million VoIP CPE
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gateways (15% of total), and 29.6 million IP PBX channels (34% of total). Note that total port shipments were up
55% year over year, reflecting the high interest in deploying the technology.
Looking ahead, we expect carriers to deploy broad managed and unmanaged VoIP services for both enterprise and
residential voice customers. We expect this to translate into market growth of 24% through 2010, when the market
will total 254 million ports. Growth should be led by IP phones and CPE—the two equipment classes sitting at the
VoIP client, reflecting penetration of the technology on top of infrastructure that has been and continues to be
installed.
IP phones should lead growth, with ports growing at a 36% CAGR driven by strong increased corporate adoption.
VoIP gateway CPE should follow with 29% port growth as broadband service providers deploy VoIP to their data
customers—our penetration assumptions for 2010 are 28% for DSL and 100% for cable modem, with an additional 3
million discrete terminal adapters.
On the infrastructure side, media gateway channels should grow 25% as carriers support VoIP subscriber call
termination, while IP PBX channels should grow 14% as enterprises install next generation VoIP backbone equipment.
Note that the market for enterprise VoIP has been limited to new installations as major enterprises have shown little
willingness to swap out old equipment for VoIP. That being said, the VoIP penetration rate for new office buildouts is
very high.
VoIP Equipment Suppliers: The VoIP equipment market has five key segments: softswitches, media gateways,
IP/converged PBXs, IP phones, and VoIP terminal adapters.
The top supplier of softswitches in 2005 was UTStarcomm with a 19% unit share. Nortel was second with 16% share,
followed by Siemens with 14%. Sonus held 5% and Lucent, Italtel, Ericsson each held 4%. Other major suppliers
include Alcatel, Cisco, and Cirpack, each with 3%.
The top supplier of VoIP media gateways in 2005 were Nortel, Sonus, and Cisco. Nortel held 20% share of channel
shipments, Sonus held 10%, and Cisco held 8%. Ericsson was fourth with 8% share, followed by UTStarcomm,
Tekelec, and Siemens with 7% each and Lucent with 4%.
The top supplier of IP and converged PBXs in 2005 was Nortel with 17% share of line shipments. Siemens and Alcatel
were next with 14% share each, followed by Avaya, Cisco, and NEC, each at 11%. Other vendors include Mitel and
Aastra/EADS Telecom.
The top supplier of IP phones in 2005 was Cisco with a 27% unit share. Nortel was second with 14% share, followed
by Avaya with 10%. Other vendors include Alcatel, Mitel, Polycom, NEC, Siemens, and 3Com.
We do not display market share data for VoIP CPE in the slide above; however, the vendors are similar to those in the
cable and DSL modem markets, as most of these devices are being integrated into broadband modems. On the cable
side, Arris leads the voice-over-cable market with 39% share in 2005, followed by Motorola with 26% and Scientific
Atlanta with 23% (acquired by Cisco in 2006). Other significant vendors include Thomson with 2%. On the DSL side,
Thomson leads the voice-over-DSL market with 29% share in 2005, followed by NEC with 23% and Sumitomo with
10%. Other significant vendors include Fujitsu, Siemens, and Zyxel.
2005 Voice-Over-Cable Unit Share 2005 Voice-Over-DSL Unit Share
Others
10 %
Thomson Others
2% 24 %
Thomson
29 %
Arris
39 %
Scientific
Atlanta Zyxel
23 % 3%
Siemens
4%
Fujitsu
6%
NEC
Motorola Sumitomo 23 %
26 % 10 %
Source: Dell’Oro, CIBC World Markets Corp.
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Voice -over-IP
Voice-over-IP
IP Phone/VoIP Terminal Adapter
This line driver interfaces with the telephone

line, sending and receiving the analog signals Performs the analog-to-digital and digital-
to and from the telephone set to-analog conversion of voice calls
SRAM is used by the
packer processor
VoIP Terminal Only
SRAM
RJ-11 Line Ethernet Switch
Codec
Phone Line Driver VoIP MAC PHY Ethernet Cable
Ethernet
VoIP Packet Switch MAC PHY Ethernet Cable
SOC Processor
IP Phone Only DSP
Telephony Audio A small Ethernet switch SoC
Interface Codec Embedded DRAM includes switch, MAC, and

LCD PHY functionality for interface
Processor with the Ethernet IP network
Controller Flash
LCD Display
DRAM, and flash are used by
Screen Driver the embedded MIPS processor
The SoC includes a packet processor
DSP engine which performs the IP-
Generates the image Processes the voice
to-TDM conversion; includes an
on the LCD screen signal into audio
embedded processor
IP phones and VoIP terminal adapters are used in different applications—IP phones in the enterprise and terminal
adapters in residential applications. They are both, however, VoIP terminal devices (as opposed to infrastructure),
and perform a critical translation between IP and analog. They therefore have somewhat similar structures and use a
similar set of semiconductor devices.
In the case of an IP phone, an Ethernet switch/MAC/PHY provides the interface to the LAN, and feeds IP traffic into a
VoIP SoC/DSP. An audio codec interfaces with the handset, and display drivers produce the image on the LCD screen.
Terminal adapters also use an Ethernet switch/MAC/PHY to interface with the network—in this case a home network.
An SoC and embedded DSP perform signal conversion as in the IP phone. The main difference is that the terminal
adapter includes an RJ-11 interface for a standard analog phone line (including a codec and line driver SLIC), as
opposed to the telephony interface found on an IP phone. The VoIP SoC will also contain less logic devoted to the
operation of the IP phone terminal; i.e., there is no LCD controller, the processor is smaller and less powerful, etc.
IP Phone
• VoIP SoC: This SoC includes a packet processor DSP, which performs the TDM-to-IP conversion, an embedded
processor to control the system software, and other logic blocks. It will also usually include an LCD controller.
Newer SoC designs are now including Ethernet switch and codec devices as well.
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• SRAM, DRAM, Flash: SRAM memory is used by the embedded DSP to perform the IP-TDM conversion; DRAM
and flash are used by the embedded processor to run the overall phone system.
• Ethernet Switch: A low-density Ethernet switch, usually with one, two, or three ports, provides the interface to
the LAN. This device will usually include switch, MAC and PHY functionality and is sometimes integrated into the
IP phone SoC. Note that an IP phone just needs a single port to connect to the LAN, but most phones have at
least one other port to connect to a PC; this allows an IT manager to connect an IP phone and PC in a single office
without running a second cable to the switch or using up another switch port.
• Audio Codec: As in a standard telephone, an audio codec processes the voice signals into audio and drives the
phone speaker and microphone.
• Display Drivers: Display drivers produce the image on the IP phone’s LCD screen.
VoIP CPE/Terminal Adapter

Note: The block diagram displays a discrete VoIP terminal adapter. In practice, most VoIP gateways will
likely be integrated with broadband modems, and in some cases with both a broadband gateway and a
wireless LAN access point. In these cases, the modem would include most of the ICs displayed in the
block diagram in addition to the modem front end, data pump/SoC, and wireless LAN chipset.
• VoIP SoC: This SoC includes a packet processor DSP, which performs the TDM-to-IP conversion, an embedded
processor to control the system software, and other logic blocks. Newer SoC designs are now including Ethernet
switch and codec devices as well. Note that the embedded processor on a terminal adapter will be less robust
than that of an IP phone, which has to run more complex software. Also note that newer modem SoC designs are
including a VoIP processor, removing the need for a discrete VoIP SoC in these gateways.
• SRAM, DRAM, Flash: SRAM memory is used by the embedded DSP to perform the IP-TDM conversion; DRAM
and flash are used by the embedded processor to run the overall phone system.
• Ethernet Switch: A low-density Ethernet switch, usually with one, two, or three ports, provides the interface to
the LAN. This device will usually include switch, MAC and PHY functionality and is sometimes integrated into the
VoIP SoC.
• Codec: The codec performs the analog-to-digital and digital-to-analog conversion of voice calls.
• Line Driver/SLIC: This SLIC is a line driver that interfaces with the telephone line, sending and receiving the
analog signals to and from analog telephones.
286
Voice -over-IP
Voice-over-IP
Control plane
Processor - controls overall Flash
Interfaces with the
system functioning Microprocessor
VoIP Flash, DRAM - memory used
by the processor DRAM
Ethernet network
Media
Carrier
Gateway VoIP Packet
Ethernet Ethernet
Ethernet
VoIP Packet MAC PHY
VoIP Packet
Processor IP Network
Carrier T/E T/E Processor
LIU Framer Processor
DSPs OR
TDM Network DSPs ATM
DSPs
Backplane
SRAM
Interfaces with the
TDM network
The DSPs uses SRAM memory
A series of DSPs perform the
TDM-to-IP conversion
Control plane
Processor - controls overall Flash
system functioning Microprocessor Packages IP traffic in Ethernet
Flash, DRAM - memory used
by the processor
DRAM packets for transmission to IP
phones over the LAN
Converged Ethernet LAN

PBX T/E T/E
VoIP Packet
VoIP
VoIPPacket
Packet
Ethernet
MAC
Ethernet
PHY
(connects to
Processor IP phones)
PSTN LIU Framer Processor
Processor
DSPs
DSPs Interfaces with analog phones
DSPs connected to the PBX
Interfaces with Analog Phone

the TDM network Analog Phone
Performs TDM TSI Codecs SLICs
switching for
voice calls Switch
Source: Broadcom, Texas Instruments, Centillium, CIBC World Markets Corp. Analog Phone
As in the previous slide, VoIP media gateways and converged PBXs are also used in totally different applications, but
as they are both types of VoIP infrastructure equipment performing a similar function (bulk translation of calls
between IP and TDM), the structures and semiconductor devices used within are quite similar.
In the case of media gateways, a T/E LIU and framer provide the interface to the traditional circuit switched PSTN,
and feed traffic in and out of VoIP DSPs. Packet voice is then dropped into the data network via carrier-grade
Ethernet or over ATM. A communications processor performs system control as well.
Converged PBXs also use T/E ICs to interface with the PSTN, usually over a line leased from a local carrier. Again,
VoIP DSPs perform TDM-to-packet conversion. Ethernet MAC and PHY devices provide the connection to the LAN,
which connects to individual IP phones. A set of traditional TDM telephony devices is also included to connect to
analog phones.
Media Gateway
• T/E Framer and LIU (Line Interface Unit): These T/E devices provide the interface to the circuit-switched
TDM network. The framer applies and removes T/E overhead and the LIU interfaces with the copper wire. Note
that these T/E ICs are the same devices discussed in greater detail in the communications infrastructure section.
287
• VoIP Packet Processor DSPs: A series of programmable DSPs perform the compute-intensive TDM-to-IP
conversion.
• SRAM: The VoIP DSPs will typically use SRAM memory.
• Microprocessor, DRAM, and Flash: An embedded microprocessor, usually x86-, PowerPC, or MIPS-based,
performs system control functions. DRAM and flash memory are used by the embedded processor.
• Ethernet MAC and PHY: Sitting on the IP side of the gateway, an Ethernet MAC and PHY provide the interface
to the carrier’s Ethernet/IP network.
• ATM Interface (not shown): In some carrier gateway applications, an ATM backplane is used to interface with
the data network. Note that these ICs are included in our discussion on ATM semiconductors in the
communications infrastructure section.
Converged PBX
• T/E Framer and LIU (Line Interface Unit): These T/E devices provide the interface to the PSTN. The framer
applies and removes T/E overhead and the LIU interfaces with the copper wire.
• VoIP Packet Processor DSPs: A series of programmable DSPs perform the compute-intensive TDM-to-IP
conversion.
• SRAM: The VoIP DSPs will typically use SRAM memory.
• Microprocessor, DRAM, and Flash: An embedded microprocessor, usually x86-, PowerPC, or MIPS-based,
performs system control functions. DRAM and flash memory are used by the embedded processor.
• Ethernet MAC and PHY: Sitting on the IP side of the PBX, an Ethernet MAC and PHY provide the interface to the
LAN. VoIP traffic from individual IP phones is fed through the LAN into the IP PBX for forwarding to the PSTN.
• TSI/TDM Switch: Sitting on the TDM side of the gateway, a TSI switch provides TDM switching functionality,
aggregating and switching TDM calls.
• SLICs and Codecs: SLICs and codecs interface with traditional analog telephones connected to the PBX. The
SLIC is a line driver that interfaces with the telephone line, sending and receiving the analog signals to and from
analog telephones. The codec performs the analog-to-digital and digital-to-analog conversion of voice calls.
288
Voice -over-IP
Voice-over-IP
VoIP Semiconductor VoIP Semiconductor

•We expect the VoIP IC market to grow Others
at an 11% CAGR, from $630 million in Freescale
6%
2005 to $1.1 billion in 2010. 7%
•Infrastructure ICs should grow at an Agere

11% CAGR and remain the largest 7%
revenue opportunity in 2010.
•IP phone SoCs should grow the fastest
to represent >20% of the 2010 market. Mindspeed
Texas
•Despite tremendous unit growth, VoIP 9%
Instruments
gateway CPE will provide little revenue 57 %
opportunity for discrete VoIP ICs as
modem SoCs integrate this functionality. Broadcom
$1,200 13 %
VoIP Broadband Gateway
IP PBX
$1,000 IP Phone SoC
Softswitch (processors) Source: Linley, CIBC World Markets Corp.
Media Gateway
IP Phones, Media
$800
$600 CPE, Modems PBXs Gateways

TI TI TI
$400
Broadcom Freescale Mindspeed
$200
Agere Agere Freescale
Infineon Mindspeed Centillium
$0 Conexant Centillium
2003 2004 2005 2006 2007 2008 2009 2010
Infineon
Source: IDC, Dell’Oro, CIBC World Markets Corp.
VoIP Semiconductor Forecast: With the rapid growth of VoIP port shipments, we expect a double-digit CAGR for
VoIP semiconductor revenue. In total, we expect market growth of 11% through 2010, with the market increasing
from $630 million in 2005 to $1.1 billion in 2010. Note that our forecast includes only dedicated VoIP ICs; VoIP
equipment also includes content like embedded processors, Ethernet switches, T/E framers and LIUs, TSI/TDM
switches, ATM ICs, POTS ICs and FPGAs. Each of these are included in their respective forecasts in this document.
In terms of the product mix, VoIP infrastructure (media gateways and IP PBXs) represented 58% of revenue in 2005,
IP phones 14%, VoIP broadband gateways (CPE gateways) 19%, and softswitches ICs 9%. Infrastructure ICs should
grow at an 11% CAGR (13% for media gateway ICs, 5% for IP PBX ICs) and remain the largest revenue opportunity
through 2010 (>55% of total). IP phone SoCs should be the fastest growing segment with a 24% CAGR to represent
23% of the market in 2010. IP softwitch ICs (processors) should also see a healthy CAGR of 20% to represent 13%
of the market. Broadband gateways VoIP ICs should decline at a 10% CAGR as integration trends limit the
Also note that the 11% total market CAGR we predict for VoIP semiconductors is significantly lower than port
shipment growth at 24%. This cost decline is due to a number of important factors:
1. The VoIP equipment market has historically served a niche status. As carriers begin large scale deployments,
we expect the price of equipment and consequently components to come down dramatically.
289
2. Most VoIP-enabled modems to date have been enabled with discrete VoIP DSPs alongside the modem SoC,
yielding a sizable market for discrete VoIP ICs in CPE gateways. As voice-enabled modems become more
mainstream, we expect the majority of these models will utilize integrated modem SoCs that integrate VoIP
functionality. These solutions are already shipping in large volume today.
3. VoIP infrastructure is becoming more dense, offering additional channels per semiconductor device. The
increased level of port integration should naturally bring down costs.
4. Gateway and infrastructure designs are moving from standalone DSP and communications processor designs
to customized application specific standard products, lowering the cost of these designs significantly.
5. IP phones have generally been designed as very feature-rich terminals, as VoIP enterprise service has been
relegated to the high-end enterprise. As service providers roll out new choices for VoIP service, we expect
mid-range phones to come to market, using lower-cost semiconductor solutions and enabling fewer features.
VoIP Semiconductor Competitors: While many IC vendors participate in the voice-over-IP segment, the market
has consolidated considerably as newer, more mature designs have been readied for widespread deployment by
service providers. Texas Instruments currently dominates the market in nearly all categories, with about a 57%
market share overall. TI has been able to leverage its dominant position in DSPs and strong integration competencies
to develop ASSP solutions for all types of VoIP equipment. Broadcom was a distant No. 2 with 13%, followed by
Mindspeed with 9% and Agere and Freescale with 7% each. Other vendors include Centillium, Infineon, and PMC-
Sierra.
By application, the top IP phone SoC vendors include TI, Broadcom, Agere, and Infineon. In CPE, TI, Broadcom,
Conexant, and Infineon each have VoIP products to go along with their modem ICs; telecom IC vendor PMC-Sierra
also entered this market with a standalone VoIP solutions based on its MIPS core and the assets acquired from
defunct VoIP start-up Brecis.
Over on the infrastructure side, the top vendors of ICs for media gateways include TI, Mindspeed, Freescale, and to a
lesser extent Centillium. For IP PBXs, the top vendors include TI, Freescale, Agere, Mindspeed, Centillium, and
Infineon.
Note that besides dedicated VoIP ASSPs, other vendors that participate in the market include vendors of
communications processors (Freescale, Intel, Broadcom, AMCC, IBM, PMC-Sierra, IDT), Ethernet switches (Broadcom,
Intel, Marvell, Realtek, Vitesse), T/E framers and LIUs (Infineon, Agere, PMC-Sierra, Mindspeed), TSI/TDM switches
(Agere, Zarlink, Infineon, IDT, Vitesse), ATM ICs (PMC-Sierra, Agere, NEC, Mindspeed) and POTS ICs (Infineon,
Legerity, Silicon Labs).
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Voice -over-IP
Voice-over-IP
VoIP Semiconductor Market Trends

•Modem IC vendors are integrating VoIP into modem chipsets,
eroding the opportunity for discrete VoIP ICs in gateway CPE.
•The media gateway market is demanding higher-density VoIP
solutions.
•IP phone costs are coming down as integrated SoC solutions
help reduce the bill-of-materials—enterprise VoIP adoption is
now quite high in new office installations.
•IP phone SoCs are including security encryption.
•IP phones are incorporating multiple Ethernet ports and are
moving to GigE.
•Vendors are integrating wireless LAN into IP phones for both
the enterprise and residential market.
•Software capability is critical in winning IC designs.
•Cellular hand-off is a long term driver for residential VoIP but
is still in development.
• Modem IC vendors are integrating VoIP into modem chipsets, eroding the opportunity for discrete
VoIP ICs in gateway CPE. The majority of residential VoIP service to date has been enabled with separate
terminal adapters that connect to modems to perform the IP-to-TDM conversion. Newer deployments utilize
modems with integrated VoIP functionality—we estimate that >50% of cable modems shipping today use
integrated VoIP solutions, though DSL is further behind. As these functions have converged, so have the SoC
roadmaps, with most IC vendors now shipping single-chip modem/VoIP solutions in high volume.
• The media gateway market is demanding higher-density VoIP solutions. As carriers seek to broadly
adopt residential VoIP, the need for high-density media gateways has increased. IC vendors continue to ramp the
channel densities in their VoIP solutions, in many cases moving to finer process geometries to keep costs down.
• IP phone costs are coming down as integrated SoC solutions help reduce the bill-of materials. A major
hindrance to the growth of the enterprise VoIP market has been the high prices for IP phones. In order to enable
more wide scale deployment, VoIP IC vendors are designing more integrated solutions, including application
processor, Ethernet switch and interface, audio interface and LCD controller functionality on the same SoC with
the packet processor DSP. This has helped drive the cost of IP phones below $300 (depending on the feature set
and level of functionality). Two examples of these are Broadcom’s BCM1113 VoIP Ethernet CPE Engine and TI’s
TNETV1050 IP Phone Processor, diagrammed on the following page. Note that IC vendors are also trying to
enable lower-cost phones by stripping down features and performance from their SoCs.
291
Examples of IP Phone SoCs
Source: Broadcom, Texas Instruments
• IP phone SoCs are including security encryption. IP networks are inherently insecure. VoIP phones are
therefore exposed to things like hacker attacks, viruses and worms, whereas TDM phones have no such risks. IC
vendors have therefore begun incorporating security blocks into IP phone SoCs.
• IP phones are incorporating multiple Ethernet ports. An IP phone needs just needs a single port to connect
to the LAN. Most newer phones, however, have at least one other port to connect to a PC; this allows an IT
manager to connect an IP phone and PC in a single office without running a second cable to the switch or using up
another switch port.
• IP phones are shipping with GigE. Newer IP phones are incorporating Gigabit Ethernet. This is related to the
point above; as IP phones are now designed to be placed between the switch and the PC, a GigE switch in the
phone would be required to enable Gigabit Ethernet to the desktop.
• Vendors are integrating wireless LAN into IP phones for both the enterprise and residential market.
Wi-Fi phones enable cordless IP phones to roam throughout a home or enterprise network.
• Software capability is critical in winning IC designs. This includes both software to run the DSP stack and
for control and signaling. Note that software is offered by the major IC vendors as well as by third parties and
OEMs, who also have their own proprietary software stacks.
• Cellular hand-off is a long term driver for residential VoIP but is still in development. One major long-
term advantage of voice-over-IP with wireless is that it could be used as in a hand-off topology from cellular
phones. Though the technology requires some additional development, the basic idea is that a handset could
incorporate cellular technology as well as wireless LAN and VoIP, leveraging the cellular network when in the field
but switching to a lower-cost VoIP network when in the home or enterprise. We would expect to see mature
versions of this technology towards the end of the decade.
292
Wireless
Wireless
With its clear value proposition, cellular communications

has taken the world by a storm, with penetration around
35% globally and as high as 90%+ in some countries.
While the “killer app” is still voice, carriers are seeking to

increase revenue per subscriber with multimedia and
data connectivity, which is also driving a replacement
cycle for handsets and infrastructure equipment.
Source: Motorola, Nokia, LG Electronics, Samsung, CIBC World Markets Corp.
The market for wireless communications has emerged in the past few years as one of the most important in
electronics. Serving both the needs of business users and consumers, wireless has not only enhanced voice
telecommunications, but also changed the way people worldwide live in countless ways. Already at approximately
35% penetration globally and as high as 90%+ in some countries, wireless is rapidly deploying in emerging markets
as well, with worldwide service moving from a luxury just a few years ago to a mainstream consumer service today.
Despite the promise of services to be enabled with 3G technologies, the “killer app” for wireless clearly remains voice.
Still, carriers are seeking to increase revenue per subscriber by rolling out multimedia and data connectivity features.
Handset and infrastructure OEMs are therefore benefiting from a replacement cycle to support these services. Newer
handsets include multimedia features such as camera modules, MP3 audio, MPEG-4 video, and mobile TV support,
data connectivity features such as wireless Internet, messaging and E-mail, Bluetooth, wireless LAN, and GPS, and
continuing improvements in signal quality, battery life, displays and form factor design.
The landscape for wireless is still a dynamic one. Besides the incumbent wireless service providers, OEMs, and
component and software suppliers, new stakeholders in wireless include content providers, consumer electronics
companies, wireline telecom and cable companies, and networking OEMs. Business models in a number of industries
are changing to meet an increasingly mobile global population.
293
Wireless
Wireless
Wireless Communications Technologies

TDMA, iDEN, GSM, PDC (2G) – The first digital cellular networks were based on
time division multiplexing, with TDMA being used in the U.S. and Latin America,
GSM in Europe and Asia, and PDC in Japan. TDMA and GSM have for the most part
migrated to 2.5G GPRS, and PDC has gone straight to 3G W-CDMA. iDEN is used
by Sprint/Nextel for push-to-talk in the U.S.
CDMA/CDMA2000 1xRTT (2G/2.5G) - Pioneered by Qualcomm, CDMA
technology is used by Verizon and Sprint in the U.S. and several carriers in Asia.
The 2G version of CDMA has already given way to 2.5G CDMA2000 1xRTT.
GPRS and EDGE (2.5G/2.75G) – GPRS is an update to GSM that supports data
packets. Most GSM carriers are now fully GPRS-capable. EDGE is an enhancement
that increases data throughput to 384 Kbps.
CDMA2000 1xEV-DO & revisions (3G/3.5G) - EV-DO is the 3G implementation
of CDMA. 3.5G Rev-A will boost data throughput. Rev-B is in development.
W-CDMA/UMTS, TD-SCDMA and HSPDA/HSUPA (3G/3.5G/3.75G) –
W-CDMA/UMTS is the 3G standard that is beginning to replace GSM/GPRS and PDC
around the world. TD-SCDMA is variant being developed for China. HSDPA is an
enhancement for faster downlink, while HSUPA boosts the uplink.
WiMAX (4G) – IEEE wireless broadband standard that grew out of fixed wireless
and is being targeted for mobile broadband wireless as well.
LTE (4G) – The “Long Term Evolution” standard is under discussion, and will be
targeted at replacing W-CDMA networks around the world.
Wireless Communications Technologies
2G
• TDMA: One of the original cellular standards when wireless went from analog to digital, TDMA divides call
spectrum into different time slots to transmit multiple calls simultaneously. TDMA networks in the U.S. and
Europe have already been overlaid with the global GSM standard, and most have also been and upgraded to
support GPRS and in some cases EDGE. Some TDMA systems in Latin America, however, remain on the legacy
standard.
• iDEN: iDEN is a TDMA-based technology that also supports data, short messaging and dispatch radio (two-way
radio). Nextel in the U.S. uses the iDEN standard, though with its acquisition by Sprint, Nextel’s subscribers are
likely to migrate to CDMA-based technologies over time.
• GSM: GSM is a global TDMA-based technology that uses SIM cards to identify individual subscribers. GSM is the
predominant 2G standard in use throughout Europe, Asia and the Middle East and Africa, though nearly all GSM
carriers have added 2.5G GPRS across the network and are adding EDGE as well. These networks will eventually
migrate to W-CDMA/UMTS, and many carriers are well underway with their network upgrades.
294
• PDC: PDC is the dominant 2G standard that was used in Japan. Most carriers in Japan have already upgraded
their PDC networks to W-CDMA and are actively migrating their subscriber bases, skipping the 2.5G node entirely.
• CDMA: Pioneered by Qualcomm, CDMA uses a spread spectrum technique to overlap every transmission on the
same carrier frequency, assigning a unique code to each signal. This requires fewer cell sites for the same
number of calls. 2G CDMA networks (sometimes referred to as “CDMAone”) have already moved to 2.5G
CDMA2000 1xRTT and are also migrating to 3G CDMA2000 1xEV-DO.
2.5G & 2.75G

• GPRS: GPRS is an update to GSM that supports data packets. Most GSM carriers are now fully GPRS-capable,
with GPRS handset shipments now far outpacing 2G GSM shipments.
• EDGE: EDGE is an enhancement that increases data throughput to 384 Kbps. While GPRS is considered 2.5G,
EDGE is sometimes referred to as 2.75G.
• CDMA2000 1xRTT: CDMA2000 is a set of standards evolving from the original CDMA technology. 1xRTT is the
2.5G version which has fully replaced 2G CDMA around the world, adding enhanced data capabilities and
throughput.
3G
• W-CDMA/UMTS: W-CDMA is the 3G standard that is replacing GSM/GPRS (including the old TDMA networks)
and PDC. W-CDMA, as the name implies, brings CDMA technology to the GSM world, and thus, it requires new
network hardware in addition to different handsets (whereas GPRS was a mostly a software upgrade in the
network). Note that Japanese carriers have already rolled out W-CDMA and are actively migrating their subscriber
bases from PDC; carriers in Europe and the U.S. are implementing W-CDMA/UMTS now.
• CDMA2000 1xEV-DO: EV-DO is the mainstream 3G CDMA standard that boosts throughput for the data side of
the handset. The EV-DO buildout has accelerated, and EV-DO services are now available from carriers in the U.S.
and Asia. Revisions of EV-DO (known as Rev-A and Rev-B) are underway to boost data throughput and to add
compatibility with WiMAX over time.
• CDMA2000 1xEV-DV: EV-DV is an alternate 3G CDMA standard that boosts throughput for both the voice and
data sides of the handset. Qualcomm (and therefore its handset customers and carriers) have shelved plans for
EV-DV chipsets and is instead focusing on EV-DO.
• TD-SCDMA: 3G standard being developed from the ground up for China. The Chinese Ministry of Information
Industry is spearheading the effort to drive this standard along with Chinese carriers, networking OEMs, and
handset vendors.
3.5G, 3.75G, & 4G

• HSDPA: HSDPA is an enhancement to W-CDMA/UMTS that boosts data throughput to 1.8 Mbps or 3.6 Mbps in
the downlink. Further steps to 7.2 MBit/s and beyond are planned for the future.
• HSUPA: HSUPA will boost the upload speed of HSDPA up to 5.76 Mbps. While HSDPA is considered 2.5G, HSUPA
is sometimes referred to as 3.75G.
• CDMA2000 1xEV-DO Rev-A and Rev-B: Rev-A is a set of enhancements to EV-DO that will boost downlink
data rates up to 3.1 Mbps and uplink data rates up to 1.8 Mbps in a radio channel dedicated to carrying high-
speed packet data. Rev-B is in development and will add compatibility to WiMAX over time.
• WiMAX: WiMAX is an IEEE wireless broadband standard that grew out of fixed wireless and is being targeted for
mobile broadband wireless as well. Sprint in the U.S. was the first major carrier to endorse WiMAX for its cellular
network.
• LTE: The “Long Term Evolution” standard is under discussion, and will be targeted at replacing W-CDMA around
the world. LTE will use OFDM (Orthogonal Frequency Division Multiplexing) and MIMO (multiple-input multiple-
output) antenna technology that is currently used in the more advanced wireless data LANs.
295
Wireless
Wireless
Cellular Upgrade Paths

•GSM and TDMA systems have successfully migrated to 2.5G GPRS.
Some GPRS systems are also adding EDGE. For 3G, these carriers are
implementing W-CDMA/UMTS; U.S. and European carriers are deploying
these networks now, while the Japanese skipped 2.5G and have been
deploying W-CDMA for several years. HSDPA and HSUPA will boost the
speed of W-CDMA, and LTE represents the 4G upgrade.
•CDMA systems have already implemented 2.5G 1xRTT, and the
migration to 3G EV-DO is now well under way. Some carriers will follow
the CDMA2000 revision path, while others will move to WiMAX or LTE.
GSM GPRS EDGE
TDMA W-CDMA HSDPA HSUPA

LTE
PDC
CDMA 1xRTT EV-DO Rev-A

Rev-B
iDEN WiMAX
2G 2.5G 3G 3.5G 4G
With 3G spectrum auctions long complete (except in China), most carriers have positioned themselves for gradual
upgrades to 3G and beyond over the next few years. Most carriers decided to implement 2.5G standards before
moving to 3G, as the investment and technology hurdles were far lower than for 3G. 2.5G is now fully deployed in
the major developed markets around the world. 3G is just now gaining momentum, with the cost of infrastructure
solutions declining rapidly and handset availability quickly ramping up from multiple vendors.
Looking at each of the major network technologies by themselves, we find that GSM systems have, for the past few
years, been migrating to 2.5G GPRS systems. This took place first in Europe and Asia, but the U.S. quickly followed,
and the upgrade is now complete. Some of these systems are also implementing EDGE. Though it took some time,
carriers are now well under way rolling out 3G UMTS.
In Japan, PDC-based carriers have skipped GPRS entirely and deployed 3G W-CDMA service. The uptake was initially
slow, but carriers remained committed and are actively migrating their subscriber bases over from PDC.
In the CDMA world, 2G systems have implemented an update to IS-95A and support CDMA2000 1xRTT. 3G EV-DO
service is now commercial in the U.S. and Korea, with Rev-A and Rev-B planned to boost data rates.
Looking beyond 3G, UMTS carriers will implement HSDPA and HSUPA to boost data rates on the down and up link,
and eventually will migrate to the LTE standard now in development. CDMA carriers will implement revisions, but
over time some may move to WiMAX or LTE.
296
Wireless
Wireless
Three Key Markets:

Wireless Handsets
Wireless Infrastructure
WiMAX
Although they are intimately connected, we segment wireless communications equipment between handsets and
infrastructure equipment. They are two sides of the same coin, yet the market drivers are different: handset sales
are driven by consumer and enterprise demand in the form of both new subscribers and handset replacements, and
infrastructure sales are driven by carrier build-out programs. In fact, the design of infrastructure systems requires
competencies from the wireline infrastructure world, and many of the OEM and IC vendors discussed in the
telecom/datacom section also play in wireless infrastructure (whereas the handset vendors are generally different).
We also discuss separately the market for WiMAX equipment. Though WiMAX could one day be simply another
cellular standard, it is emerging out of the fixed wireless world and for the next few years will be largely a data service
as opposed to a full-blown voice and data technology like UMTS or CDMA2000. Though today’s handset OEMs and
chip suppliers are doing development work in WiMAX, many new players are emerging to serve this nascent
technology, and thus we believe it warrants separate attention for the purposes of this report.
297
Wireless
Wireless Handsets
Handsets
Wireless handsets have seen one of the strongest, most

consistent adoption curves in the history of technology.
After a slight pause in 2001, handset shipments have
roared back, growing double-digit each year, exceeding
800 million units in 2005. Emerging market
penetration continues to rise, and global replacement
rates have stabilized near 25%. Handset OEMs remain
committed to an improving feature set and lower costs.
Handset Unit Shipments Replacement vs. New Sub
900 70% 450 80%
New Subscriber Handsets
Replacement Handsets
Handset Replacement Rate / YoY Growth In New Subscribers

800 400 New Subscriber Growth
60%
Replacement Rate 60%
700 350
50%
Handset Unit Shipments in Millions
600 Handset Unit Shipments 300 40%

40%
YoY Growth
500 250
30% 20%
400 200
20%
300 150 0%
10%
200 100
-20%
100 0% 50
0 -10% 0 -40%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: CIBC World Markets Corp. Source: CIBC World Markets Corp.
Wireless handsets have seen one of the strongest, most consistent adoption curves in the history of technology. The
late 1990s saw unfettered growth culminating in nearly 400 million handsets shipped in 2000. The market then hit a
brief speed bump in 2001, as economic weakness coupled with plateauing global penetration and a lack of compelling
new phone features took the wind out of the wireless market’s sails.
The pause proved remarkably brief, however. Since 2001 the market has roared back with a vengeance. The
replacement rate stabilized in the low 20% range, even as the installed base broadened to include developing regions
with lower discretionary incomes. New subscriber handsets have been the big surprise, however, as we have seen
remarkably strong subscriber growth in emerging markets, particularly in Asia, Latin America, and Eastern Europe.
After two double-digit negative years in 2001 and 2002, subscriber addition jumped over 20% in 2003 and nearly
40% in 2004, and in 2005 they exceeded replacement handsets for the first time since 2001, growing nearly 30%
year-over-year.
298
Wireless
Wireless Handsets
Handsets
The Wireless Subscriber Base

Wireless subscribers continue to grow. Though
subscriber additions trailed off in 2001-02 as
penetration plateaued in developed regions, the market
has since recovered with strong global subscriber
growth, particularly in the emerging markets. New low-
cost handsets and ODM supply chain models are playing
an important role in equipping the emerging markets.
Wireless Subscribers New Subscriber Handsets
2,500 450 80%
Middle East & Africa New Subscriber Handsets
Asia Pacific 400 70%
New Subscriber Growth
Europe
2,000 Americas 60%
350
50%
300
Subscribers in Millions
1,500 40%
250
30%
200
1,000 20%
150
10%
100
500 0%
50 -10%
00 0 -20%
1999 2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
After several years of 35%+ growth in the late 1990s, wireless subscriber additions trailed off in 2001-2002 (down
12% and 10%, respectively) as penetration plateaued in developed regions. The market has since recovered with
subscriber growth increasing 21% in 2003, 38% in 2004, and 29% in 2005. Emerging markets like Asia, Latin
America, and Eastern Europe have been particularly strong. Low-cost handsets and ODM distribution models are
playing an important role, as they deliver low cost, quick time to market, and effective local distribution.
Though subscriber addition growth is still at healthy rates even after many years of robust growth, global penetration
is rising and we believe new subscriber additions will start to taper off soon. There should still be pockets of strength
in markets like Eastern Europe and China, but on the whole additions should begin to drop substantially over the
coming years. Growth in the handset market will therefore likely be dependent on replacement rates, which should
remain healthy as OEMs continue to introduce handsets with increased feature sets, both at the low and high end.
In terms of the subscriber base, we find that in 2005, 22% of the world’s 2.1 billion wireless subscribers were found in
North and South America, 30% were in Europe, 38% in Asia Pacific including Japan and 10% in the Middle East and
Africa. Over time, the Americas and Europe have declined slightly as a percentage of total while Asia Pacific and MEA
have increased. Still, both the Americas and Europe regions have underpenetrated markets (particularly Latin
America and Eastern Europe), which should allow the subscriber base to grow on an absolute basis.
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Wireless
Wireless Handsets
Handsets
Handset Replacement Market

As the handset market has matured, replacement rates
have come down, but are still quite healthy at roughly
20%-25% worldwide. OEMs remain focused on adding
multimedia and data connectivity features as well as
improving battery life and industrial design, which is
starting to push the replacement rate higher in 2006.
Handset Replacement Replacement Handset
Rate By Region Unit Shipments
45% 600 50%
Replacement Handsets
40% Replacement Rate 45%
500
40%
35%
35%
30%
Handset Replacement Rate

400
30%
25%
300 25%
20%
20%
15% 200
15%
Americas
10%
Europe 10%
100
Asia Pacific
5% 5%
Middle East & Africa
0% 0 0%
2000 2001 2002 2003 2004 2005 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Though subscriber growth has proved remarkably robust over the past few years, OEMs and service providers have
for years anticipated the wireless moving to more of a replacement market. If subscriber growth declines as we
expect, the replacement handset market should become a majority of unit shipments.
The handset replacement rate—which is a simple ratio of replacement handsets sold divided by the total subscriber
base—ramped hard in the late 1990s as digital service became more pervasive and increased competition sparked
frequent carrier switching (helped along by generous carrier handset subsidies), and replacement peaked in 1999 at
43%. Replacement trends then declined sharply in 2000 and 2001, as users stretched the lives of their new
handsets; weaker economic conditions in 2001 clearly had an effect as well.
Handset replacement has stabilized since then in the 20%-25% range, and is projected to move higher in 2006.
Handset OEMs have focused on improving the feature sets of their offerings while driving down time to market. In
addition to improved battery life, smaller form factors and improved signal quality, these phones offered data
capability like SMS messaging, e-mail and wireless Internet (enabled by new 2.5G and 3G networks), multimedia
features like cameras and enhanced audio and connectivity features like Bluetooth, WLAN, and GPS. OEMs continue
to pay close attention to the features demanded by a new wireless-savvy consumer base and have been willing to
sacrifice margin by offering more expensive models at stable, consumer-friendly price points to keep the subscriber
base hooked on a quick replacement cycle.
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Wireless
Wireless Handsets
Handsets
Wireless Handset Unit Wireless Handset

Forecast Suppliers
•We expect wireless handsets to grow at
a 10% CAGR, from 810 million units in
Others
17 %
•3G shipments should grow steadily Sagem Nokia
through 2010, when they should 2% 33 %
represent >50% of total shipments.

BenQ/Siemens
•2.5G should decline at a 1% CAGR with 5%
growth starting to moderate in 2007 as
3G takes off.
Sony Ericsson
6%
•2G should decline to just 5% of the
market in 2010, mostly in emerging LG
7%
markets.
1,400,000
3G & 3.5G Samsung Motorola
1,200,000
2.5G
13 % 18 %
2G
Analog Handset
1,000,000 Source: Dataquest, CIBC World Markets Corp.

800,000
600,000
400,000
200,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireless Handset Unit Forecast: Since bottoming in 2001, the handset market has seen solid growth driven both
by increased subscriber growth and healthy handset replacement rates. In 2002 handset shipments grew 17% driven
by recovering sales of replacement phones. Shipments improved again in 2003 (up 14%) and 2004 (up 30%) as
replacement sales held up and subscriber additions increased in emerging markets. 2005 was another robust year
with handset growth of 22%, led by new subscriber growth and healthy replacement rates. In total, we estimate that
810 million handsets shipped in 2005.
Looking ahead, we forecast handsets to grow at a 10% rate, rising from 810 million units in 2005 to 1.3 billion units
in 2010. In terms of phone generation, we expect 2.5G to decline from 70% of handsets in 2005 to 40% in 2010; 3G
should grow from just 10% in 2005 to 54% of total in 2010. 2G, still at 21% of shipments in 2005, should decline to
5% of total in 2010.
Wireless Handset Suppliers: The top supplier of handsets in 2005 was Nokia, with 33% unit share overall and
particular strength in GSM, especially in Europe. Motorola was second with 18%, with a healthy mix between
GSM/GPRS and CDMA and a solid presence worldwide. Samsung was third with 13%; Samsung tends to focus on the
high end and also has a nice mix between GSM/GPRS and CDMA. LG and Sony Ericsson followed with 7% and 6%
share, respectively; LG is mostly a CDMA player while Sony Ericsson is mostly GSM. Other major suppliers include
BenQ/Siemens (BenQ acquired Siemens’ handset business in 2005), Sagem, Kyocera, Panasonic, NEC, and Sanyo.
301
Wireless
Wireless Handsets
Handsets
The audio subsystem generates and receives voice information

Audio DSP - processes the digital voice signals, generating digital
audio on the transmit side and encoding it on the receive side
Audio Codec - converts digital voice signals to analog and vice versa
Speaker Amp - generates audio signals for the speaker Runs the overall handset system
The application processor and (including OS) as well as key
digital baseband use SRAM and features; in less advanced handsets
flash memory for processing and the processor is integrated into the
software storage digital baseband
Microphone Flash
Audio Audio Memory LCD Screen
Speaker Speaker Codec DSP
Amp SRAM
Antenna
IF/ Application Keypad

Power Digital
RF Transceiver/ Processor/
Amp Baseband
Synthesizer Microcontroller
Sits in front of the
antenna and boosts
signal strength
Power Multimedia &

Controls radio wave Battery Management
generation and reception Connectivity
Converts the analog

radio signal to a digital
stream and vice versa
Performs digital signal These devices are used in multimedia
Controls and optimizes phones, and are usually specialized DSPs
processing, implementing
the use and delivery of and analog components, i.e. imaging and
the modulation scheme
power to the handset camera ICs, graphics, Bluetooth, GPS,
(encoding technique)
wireless LAN, TV tuning, MP3 decoding,
MPEG-4 video processing, etc.
Source: Texas Instruments, CIBC World Markets Corp.
The semiconductors used in wireless handsets can vary greatly by model, especially when additional multimedia
features are added, but the primary functions are essentially the same. Voice traffic is captured by the antenna and
processed by the RF block, which includes a power amp, an RF and an IF transceiver, which converts the analog signal
to a digital bit stream. A digital baseband processes the encoded signal into voice signals and sends it through an
audio DSP to the speaker. On the transmit side, the process is reversed: the microphone sends audio signals to the
audio DSP, which are processed by the baseband and sent through the RF block to the antenna.
In addition to these devices, an application processor or microcontroller controls the system and runs the phone
software; this can be integrated into the digital baseband. More advanced handsets will also contain discrete ICs or
chipsets to enable features like the camera, graphics, Bluetooth, wireless LAN, GPS, or mobile TV. The system also
uses significant flash memory, SRAM and power management devices.
RF Block
• RF: The RF front end controls the radio wave generation on the transmit side and receives the radio wave signal
on the receive side, translating between low-frequency analog signals used in the handset (specifically by the IF
transceiver) and high-frequency RF signals used in radio communications.
302
• IF/Transceiver/Synthesizer: The IF performs all quadrature modulation of “I” and “Q” baseband signals,
converting the analog radio signal to a digital stream to be processed by the baseband and vice versa.
Baseband and Audio Processing, Power Management

• Digital Baseband: The baseband processor performs digital processing on the signal, implementing the wireless
modulation scheme (the encoding technique, e.g., GSM, GPRS, EDGE, CDMA, CDMA2000 etc.), encoding and
extracting voice signals in and out of the transmission protocol. It is usually implemented as a DSP or an ASSP
with embedded DSP.
• Audio DSP/Baseband: Also called the analog baseband, the audio DSP sits between the digital baseband and
the speaker/microphone circuits and processes the audio signals to and from the digital baseband, converting the
stream into voice signals and vice versa.
• Audio Codec: On the receive side, the audio codec converts the digital voice signals to analog signals to be sent
to the speaker amp; on the transmit side, it receives and converts voice signals from microphone to digital for
processing by the audio codec.
• Speaker Amp: The speaker amp drives the audio signals in the handset speaker or headset.
• Power Management: Power management ICs regulate, control, manipulate and optimize the use and delivery
of battery power to handset components.
• Analog baseband (not shown in diagram): The audio DSP, codec, and speaker amp are often integrated into a
single IC known as the analog baseband. Many analog basebands also include power management.
Application Processor and Memory

• Application Processor/Microcontroller: The application processor or microcontroller runs the system software
and controls overall handset functionality. Most handsets integrate the processor into the digital baseband; more
advanced handsets use a discrete application processor such as TI’s OMAP or ST’s Nomadik.
• Flash Memory: Flash memory is the primary memory used by the handset for storage of system software,
phone book entries and other user data. In traditional handset designs the flash memory used is high-density
NOR flash, though NAND is making inroads alongside NOR, especially in multimedia handsets.
• SRAM, PSRAM, or Mobile DRAM: The digital baseband and application processor use some volatile memory for
processing functions. In traditional handset designs this has been SRAM, though we are increasingly seeing a mix
of SRAM, PSRAM (Pseudo-SRAM), and Mobile DRAM.
• Stacked Memory (not shown in diagram): Stacked memory is a module containing flash memory and SRAM (or
PSRAM or M-DRAM) in a single package. Also called MCP (multi-chip package) memory. It is also sometimes
offered with an application processor in-package.
• Multimedia and Connectivity ICs: These ICs or chipsets are used in advanced phones to implement
multimedia and connectivity functions. These features will usually be implemented with a chipset that includes
digital processors plus an analog front end as described below. Note that some of this logic can be loaded onto
the application processor or an intelligent co-processor, eliminating the need for discrete ICs.
o Camera: Camera modules usually include a CMOS or CCD image sensor and an image processing IC.
o Advanced Graphics: Some handsets include a graphics co-processor, though many application
processors can also perform this function.
o Bluetooth: Bluetooth functionality requires an additional radio and baseband, usually implemented as a
single-chip Bluetooth SoC.
o Wireless LAN: 802.11 functionality requires an additional radio and baseband.
o GPS: GPS functionality requires an additional radio and baseband.
o FM Tuner: FM tuning requires a discrete tuner, though this is sometimes integrated with Bluetooth.
o Mobile TV (e.g. DVB-H): TV tuning requires a digital TV tuner and demodulator.
o MP3 Audio Decoding: MP3 audio decode can be done with a separate digital audio processor or on the
application processor.
o MPEG-4 Video Processing: MPEG-4 video decode and encode can be done with a separate digital video
processor but can also be performed by an application processor or graphics co-processor.
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Wireless
Wireless Handsets
Handsets
Handset Semiconductor Handset Semiconductor

•Handset ICs growing at 7%, from $30.2
Others
21 % Texas
•Standalone baseband should be flat as Instruments
22 %
functionality is integrated into application
processors (growing at a 38% CAGR). Analog Devices
•Cellular RF ICs to grow 6%, boosted by 2% Agere
Mediatek 2 %
3G RF and multi-band handsets. 2%
•Memory to grow 6%, led by NAND as it Renesas
2%
penetrates the high-end alongside NOR. RF Micro Qualcomm
•Connectivity ICs to grow at a 34% CAGR; Devices 18 %
3%
representing 10% of IC revenue in 2010. Skyworks
•Analog ICs to remain under pressure. 4%
Infineon
$45,000 5% Freescale
Connectivity NXP/Philips STMicro 7%
$40,000
RF & Power Amp 5% 7%
Memory & SIM Card
Analog and power management
$35,000 Imaging
Applications processor & multimedia Baseband RF & Handset
& AP Power Amp Memory
Baseband processor
$30,000
$25,000 TI Qualcomm Intel

$20,000 Qualcomm Skyworks Samsung
Freescale RF Micro Devices Spansion
$15,000
STMicro Infineon STMicro
$10,000
NXP/Philips Renesas Renesas
$5,000 Infineon NXP/Philips Sharp
$0
Agere STMicro Toshiba
2002 2003 2004 2005 2006 2007 2008 2009 2010 Analog Devices Freescale Elpida
Note: Includes memory. Note: Market share pie excludes memory sold into handsets.
Wireless Handset Semiconductor Forecast: The wireless semiconductor market totaled $30.2 billion in 2005.
The market had taken a dive in 2001, down nearly 20% year over year and was flattish in 2002; this was driven by
price declines and inventory of components that trailed IC revenue behind unit shipments. The market came back
hard in 2003 and 2004, up 22% and 36%, respectively, as unit shipments were strong, component prices improved,
and the semiconductor bill-of-materials benefited from the shift to feature rich handsets. Growth decelerated in 2005,
with the market up 14% as strong unit shipments was partially offset by price declines and inventory.
Looking ahead, a number of factors affect the wireless handset semiconductor market besides just unit shipments:
• Phone generation: 3G phones need more advanced (and more expensive) baseband and RF ICs.
• Multi-mode capability: multi-mode phones may need more integrated basebands and additional radios.
• Multimedia feature set: multimedia phones can require applications processors, co-processors, camera
modules and additional memory; advanced screens also need more LEDs and battery management solutions.
• Connectivity: handsets incorporating Bluetooth, WLAN, GPS, radio & mobile TV require additional ICs.
• Memory content: more memory is needed to run advanced software and for data storage.
304
A quick glance at this list points to an increasing semiconductor bill-of-materials for handsets. At the same time,
handsets remain a consumer driven market and thus sales are extremely sensitive to price, especially in emerging
markets. Consumers have demonstrated a willingness to replace their phones with new models in order to get new
features, but also, in general, an unwillingness to pay a lot extra for these features. Consequently, we would expect
upward pressures on the semiconductor bill-of-materials to be mitigated or offset by downward pressures to keep
costs down. This is enabled by Moore’s Law, increasing integration and a mature set of large chip suppliers.
Consequently, we expect the growth rate for handset semiconductors to slightly trail unit shipments going forward. In
total, we expect handset semiconductor sales to grow at 7% CAGR, from 30.2 billion in 2005 to $42.4 billion in 2010.
In 2005, we estimate that digital basebands represented 28% of IC content, with application processors another 3%,
followed by memory at 28%. On the radio side, RF and power amps represented 16% of total. Imaging ICs was
another 15%, followed by analog basebands and power management at 8%. Connectivity solutions, such as
Bluetooth, represented just 3% of the market in 2005.
Looking ahead, we expect to see some shift in device content, driven by new multimedia and connectivity features
and also by integration. We expect baseband and application processors to grow at a 7% CAGR through 2010. Note
that application processors will likely integrate in more baseband functionality over time, resulting in a flat CAGR for
baseband processors and a 38% CAGR for application processors. Memory should grow 6%, led by NAND, which
continues to see steady adoption alongside NOR, especially in feature-rich handsets. Analog and power management
ICs should decline at a 2% CAGR as their functionality is integrated into the baseband/applications processor.
Cellular RF ICs should grow 6%, boosted by increased demand for tri-band and 3G handsets. Growth should be
tempered somewhat by single-chip cell phone designs that include the RF, targeted for ultra-low-cost phones.
Connectivity ICs, such as Bluetooth and WLAN, should experience rapid growth at a 34% CAGR growing from just 3%
of the market in 2005 to 10% in 2010. Bluetooth is by far the largest segment today; but over time we expect
802.11, FM radio and mobile TV, GPS, and UWB to be large contributors as well.
The exhibits below display handset semiconductor revenue forecast by device type.
Handset Semiconductor Forecast

Baseband (includes memory) Radio Connectivity
$35.0 $8.0 $4.5
Other IC
Switch/Other IC UWB & NFC
Imaging
$7.0 $4.0 GPS
$30.0 Analog and Power Management Power Amplifier
Radio & Mobile TV
Memory
Cellular RF ICs $3.5 WLAN
Digital Processing $6.0
$25.0 Bluetooth
Semiconductor Revenue in Billions
$3.0
$5.0
$20.0 $2.5
$4.0
$15.0 $2.0
$3.0
$1.5
$10.0
$2.0
$1.0
$5.0
$1.0 $.5
$.0 $.0 $.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireless Handset Semiconductor Competitors: The large volume and diverse nature of devices required to
enable a wireless handset have ensured that, besides the-exception-that-proves-the-rule Qualcomm and a few niche
players such as RF Micro Devices and Skyworks, the majority of handset semiconductors are supplied by large,
diversified DSP and analog semiconductor suppliers. These vendors possess not only analog and digital IC design, but
also system level expertise; and, often, in-house manufacturing to drive the product to high volume.
The two market leaders in wireless semiconductors in 2005 were Texas Instruments, with 22% total market share,
and the aforementioned Qualcomm, with 18% share. Freescale and STMicroelectronics followed with 7% market
share each. Each of these vendors derived more than $1 billion from the handset market in 2005.
There are several vendors with less than 6% share but with more than $300 million in revenue in 2005, including
NXP/Philips, Infineon, Skyworks, RF Micro Devices, Renesas, Mediatek, Agere, and Analog Devices. Other major
vendors include NEC, MtekVision, Corelogic, ATI/AMD, Dialog, Intel/Marvell (Intel sold its handset business to Marvell
in 2006), NVIDIA, Matsushita and Broadcom. Note that this long list still excludes memory suppliers (discussed
below).
Looking at the market by subsystem, the baseband market is led by Texas Instruments, which held 32% share of all
baseband components (excluding memory) in 2005. TI is the leader in DSPs for GSM, GPRS, and UMTS handsets,
305
with a smaller position in CDMA; overall TI’s digital baseband market share in 2005 was 34%. Note that TI supplies
all of Nokia’s digital basebands and is also the supplier to Ericsson Mobile Products (EMP), a wireless solution provider
with designs at Sony-Ericsson, LG, and Sharp. TI is also a leader in the low-cost segment and serves Nokia, Motorola,
as well as a number of ODMs. TI is also the No. 2 supplier of analog baseband components with 25% share and leads
the application processor segment with 38% share, including a very strong presence in Japan.
Qualcomm was the No. 2 baseband IC supplier in 2005 with 20% share, owing to its dominant share in CDMA and an
emerging position in UMTS. Qualcomm held a 27% share of the digital baseband market, and 8% of baseband analog
ICs; the structure of Qualcomm’s chipset precludes application processors.
Freescale, which spun out of Motorola in 2005, was third with 8% share, entirely from GSM/GPRS/UMTS sales to
Motorola. Freescale held 11% share in digital basebands and 6% in analog basebands. STMicroelectronics was No. 4
overall with 7% share, almost entirely driven from its analog baseband business, where it is No. 1 with 28% share (ST
is also No. 2 in application processors with 11% share). NXP/Philips and Infineon follow with 4% share each, mostly
from digital basebands (key wins being Samsung for NXP/Philips and Siemens for Infineon; though Infineon is
suffering as BenQ/Siemens shuts down Siemens product lines). Rounding out the top vendors in 2005 were Agere
with 3% and Analog Devices, Mediatek, and NEC, each with 2% share.
Note that the relationships between baseband IC vendors and their OEM customers vary greatly. Suppliers like
Qualcomm, NXP/Philips, and Agere primarily sell packaged chipsets that include software, protocol stacks, and
reference designs. Other IC suppliers partner more closely with their customers, customizing their solution to the
needs of the individual customers; the most prominent examples here are TI (with its close relationships with Nokia
and Ericsson Mobile Products) and Freescale (which has been captive to Motorola historically). Note that this latter
set of companies also pursue full system solutions with reference designs in order to serve other OEMs and ODMs
outside of their core customer set.
2005 Total Baseband IC Market Share 2005 Digital Baseband Market Share
Others
Others Analog Devices 8%
16 % 3%
Agere
3%
Texas Mediatek
NEC Texas
Instruments 3%
2% Instruments
Analog Devices 32 %
2%
Infineon 34 %
Agere
3% 5%
Mediatek
2% NXP/Philips
6%
Infineon
4%
NXP/Philips
4% Freescale
11 %
STMicro
7% Qualcomm
20 % Qualcomm
Freescale
27 %
8%
2005 Baseband Analog Market Share 2005 Wireless Application Processor Market Share
Others
Others 11 %
Renesas
18 %
2%
STMicro NVIDIA
28 % 4%
Rohm Texas
3% Intel
Instruments
4%
Analog Devices 38 %
3%
Agere ATI/AMD
4% 10 %
Dialog
5%
Freescale Corelogic
6% Texas 10 %
Instruments STMicro
Qualcomm 25 % MtekVision 11 %
8% 11 %
306
On the RF and power amp side, the market is somewhat more fragmented, with no vendor holding more than 20%
share. Qualcomm was the No. 1 supplier overall in 2005 with 16% share, due to its 26% share of the RF transceiver
market, where it supplies RF components to go with its basebands. Qualcomm does not supply power amps and
instead partners with third parties to offer these to customers on its reference design.
Skyworks was the No. 2 supplier in with 14% share; Skyworks is No. 2 in power amplifiers with 28% share and has a
smaller position in RF transceivers. RF Micro Devices was third with 14% owing to its leading 35% share of the power
amp market, including a high-profile supply agreement with Nokia. Infineon was fourth with 9% share, owing to its
No. 2 position in transceivers (and the top position in GSM/GPRS with lots of coverage at Nokia), where it holds 14%
share. Renesas rounded out the top five with 8% share, including 17% of the power amp market and a smaller share
in transceivers. Other significant RF and power amp suppliers include NXP/Philips, STMicroelectronics, Freescale,
Silicon Labs, Maxim, Avago, and Anadigics. The exhibits below display RF and power amp market shares individually.
2005 Handset RF Transceiver Market Share 2005 Handset Power Amp Market Share
Others
11 %
Others Avago
21 % 2%
Qualcomm Anadigics
26 % 3%
RF Micro
Freescale Devices
4% 35 %
Renesas
4%
Maxim
5% Renesas
Infineon 17 %
Freescale
5% 14 %
Skyworks
6% NXP/Philips
Silicon Labs 7% Skyworks
STMicro
6% 7% 28 %
Also participating in the handset semiconductor market are the vendors of flash memory and SRAM. On the flash
side, the top makers of flash for handsets are Intel, Spansion, STMicroelectronics, Samsung, Renesas, Sharp, Toshiba,
and M-Systems. Suppliers of low-density NOR flash (e.g., SST, Macronix, Atmel, etc.) do not participate in this
market. Suppliers of NAND flash (e.g., Samsung, Toshiba, etc.) just began to show up in handsets in 2005.
On the SRAM side, the top suppliers into handsets are Samsung, Intel, Spansion, Elpida, STMicroelectronics, NEC,
Toshiba, Hynix, and Cypress. Note that this includes vendors of multi-chip package memories that include flash and
SRAM (many of these vendors source some of their SRAM externally and resell it).
The exhibits below display NOR flash and SRAM market shares for wireless handsets individually.
2005 Handset Flash Memory Market Share 2005 Handset SRAM Market Share
Others
M-Systems 7% Others
3% 17 %
Toshiba Intel
4% 27 % Samsung
29 %
Sharp Cypress
6% 3%
Hynix
Renesas 3%
7%
Toshiba
3%
NEC
4%
Samsung STMicro
Spansion Intel
14 % 5%
19 % 15 %
Elpida
9% Spansion
STMicro
14 % 12 %
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Wireless
Wireless Handsets
Handsets
Wireless Handset Semiconductor Market Trends

•The market is clearly focused on 3G and beyond.
•Larger baseband players benefiting at the expense of tier-2s.
•Japanese OEMs moving away from first-generation ASIC solutions.
•Feature rich handsets require additional application processing.
•Application processors now a mainstream feature in 3G and advanced
handsets.
•Integrated baseband/application processors now going to volume.
•Connectivity/multimedia ICs now the fastest growing segment.
•Bluetooth has been a big success in handsets; wireless LAN and UWB are
forthcoming.
•IC vendors are focused on integration and single-chip handset designs.
•Increased complexity driving RF component trends:
•Direct conversion receivers (DCRs) eliminating IF filters.
•Power amp modules integrating switch, power, and filter.
•Modules including all RF components now coming to market.
•ODMs now an integral part of the supply chain.
•More advanced handsets require lots more flash memory.
•Stacked memory solutions now dominate the market.
•Ushering NAND suppliers into the market as well.
• The market is clearly focused on 3G. After several years in the development stage, 3G handsets are ramping
meaningfully, with shipments expected to approximate 100 million units in 2006. IC vendors are now squarely
focused on this opportunity, particularly with UMTS (since efforts to break Qualcomm’s hold on CDMA2000 have
failed). Most initial sourcing decisions by OEMs have been made, and there has been a definite consolidation in
the hands of the top players (the top three suppliers of 3G hold 55% overall share vs. 47% for the total market).
We also see a trend in Japan away from in-house ASICs which originally drove 3G designs for NTT DoCoMo; most
of NTT’s handset suppliers are looking to ASSP solutions from TI, Renesas, EMP or Qualcomm for new designs.
• Feature rich handsets require additional application processing. Newer handsets, especially those with
advanced multimedia and data capability, require more advanced application processing; OEMs are incorporating
specialized processors or co-processors along side the digital baseband IC. These application processors, led by
Texas Instruments’ OMAP, began to play a meaningful role in 2003 and have accelerated quickly, reaching nearly
$1.7 billion in revenue in 2005. TI and STMicroelectronics have pioneered an open standard for applications
processors that has been endorsed by Nokia and others. This should increase penetration of application
processors and enable fast, cost effective and power-efficient phones.
• Integrated baseband/application processors are now going to volume. Tied in with the application
processor trend are new integrated baseband/application processor designs, which are beginning to go to volume
at selected OEMs (particularly in Japan, which has been ahead of the curve with feature-rich phones). These
308
solutions should be effective for the mainstream feature phone, though we believe external application processors
will remain the most common architecture for the very high end, where feature differentiation is key.
• Connectivity and multimedia ICs are now the fastest growing segment in handset semiconductors.
The focus on feature phones is just beginning, in our view, and OEMs are clearly focused on having the right set of
multimedia and connectivity features that consumers demand and service providers want to enable. The largest
opportunities today are for imaging (camera phone), Bluetooth (for headset connectivity), and to a lesser extent
graphics. Over time, however, we expect 802.11, FM radio and mobile TV, GPS, and UWB to be large growth
markets as well.
• Bluetooth has been a big success in handsets; wireless LAN and UWB are forthcoming. Looking at
handset networking technologies, Bluetooth penetration in handsets reached 26% in 2005 to our estimate, and
will likely near 48% in 2006 and reach 58% in 2010. The value proposition is clear: headset connectivity goes
right at the killer app for handsets, which is still voice. On the wireless LAN side, OEMs are starting to embrace
the application base that would require wireless LAN connectivity (e.g. connectivity to PCs, VoIP hand off, etc.)
and high end handsets are beginning to incorporate the designs. Still, the power consumption profile is more
challenging than Bluetooth, and VoIP handoff technology still needs work, so it may still be another year or two
until WLAN is a mainstream feature like Bluetooth.
UWB technology is first being commercialized in 2006 for PCs with wireless USB, but will be targeted for handsets
as well. We expect this to be a factor towards the back half of the forecast period.
• IC vendors are focused on integration and single-chip handset designs. Like all high-volume
semiconductor markets, integration is a big factor in wireless. Vendors with baseband and RF capability have
pursued single-chip handset IC designs including all baseband and RF components. Texas Instruments, which
currently offers all handset components besides memory and power amplifiers, has an aggressive single-chip
roadmap and started shipping its LoCosto single-chip solution in 2006. Infineon and Silicon Laboratories also
have single-chip solutions.
• Increased complexity driving RF component trends. The seemingly conflicting needs of increasingly
complex 2.5G and 3G phones combined with the need for simplified and cost-effective phone designs is driving
new RF solutions. Three areas of note include direct conversion receivers (DCRs), integrated power amps and
front-end modules, in each case offering increased functionality with a lower part count and lower total cost.
DCRs, which remove the need for intermediate frequency filters and integrated PA module, which include switch,
power and/or filter technology, have become increasingly common. Complete front-end module solutions are still
emerging, but are likely to make a larger impact further out. These modules will integrate the PA, switch, filter,
DCR and other technologies into a single multi-chip package.
• ODMs now an integral part of the supply chain. ODM suppliers in Taiwan, China, and Korea have risen to
become a very important constituency in the handset market in the last few years. Some OEMs use these ODMs
for a significant portion of their supply globally; others use them to help boost a local presence in emerging
markets. ODMs also play a role similar to OEMs in some cases in that they sell either their own branded phones
or sell directly to operators. From a component perspective, ODMs are helping drive sales of complete handset
chipset designs now in the market from a number of large handset semiconductor suppliers.
• More advanced handsets require lots more flash memory. Covered in the segment on flash, the ramp of
2.5G handsets and a richer mix of full-featured phones are driving increased demand for flash, which in many
cases sees a 4X-5X increase in bits per phone as a new generation is introduced. It is also ushering in NAND flash
suppliers, as the densities required are becoming so large that OEMs are willing to look into a combination of NOR
and NAND in next generation designs.
• Multimedia handsets are beginning to use NAND flash in addition to NOR. As mentioned above, NAND is
starting to penetrate the handset market, particularly in designs that require more user data storage. NOR is still
being used in these handsets for code storage.
• OEMs have moved to stacked memory solutions. Handsets of the past used discrete flash and SRAM
memories. In order to reduce power consumption, chip count and board space usage, most OEMs have moved to
stacked memory solutions, which contain flash and SRAM in a single package. In some cases, the application
processor can also be packaged with memory.
309
Wireless
Infrastructure
2.5G/3G Wireless Infrastructure System

T1/T3
Mobile Switching
TM
A
Center (MSC)
T1/T3
IP
PSTN
Mobile
Terminals
Basestation
Controller (BSC)
Public
Data Base Transceiver
AT
Network
M
IP Station (BTS)
IP Routers T1/T3
Core Network Radio Access Network

Source: IDC, Nokia, Motorola, LG, Cisco Systems, Computer Desktop Encyclopedia, CIBC World Markets Corp.
Wireless voice and data service is enabled by dedicated wireless networks that act as extensions of the public wireline
telecom/datacom network. Wireless carriers often overlap their coverage areas to compete with one another; they
can also offer service to each other’s subscribers (known as “roaming”).
The public wireless network is divided into two segments: the radio access network and the core network. The radio
access network consists of base transceiver stations (BTSs), which are often referred to as “cell towers” or just
“basestations.” Each BTS has a defined range and sends and receives digitally encoded voice and data traffic to and
from mobile terminals in its coverage area (sometimes called a cell, as in “cellular”). When a connected terminal
passes out of the basestation’s coverage area, the call is passed to a nearby BTS (coverage areas generally overlap),
allowing for an uninterrupted signal as users move around within the carrier’s network.
Base transceiver stations are managed by a network of basestation controller stations (BSCs), which sit between the
radio access network and the core network. BSCs forward traffic between BTSs and also pass calls back and forth to
and from the core network. The core network manages the interface between the greater wireless network and the
public wired telecom network and includes mobile switching centers that handle voice traffic (interfacing with the
PSTN) and IP routers that handle data traffic (interfacing with the data network and the Internet).
310
Wireless
Infrastructure
Wireless Infrastructure Wireless Infrastructure

Equipment Forecast Suppliers
•Following years of rapid growth as carriers Others
built out coverage worldwide, we expect 9%
wireless infrastructure equipment revenue Lucent

to decline at a 0.5% CAGR, from $60.9 7% Ericsson
30 %
•Extending coverage reach, especially in Alcatel
8%
emerging markets, has been a far stronger
driver than 3G; upgrade churn is a factor
but has proven to be only incremental. Nortel
•W-CDMA should rise from 18% of total 9%
spending in 2005 to 35% in 2010;
GSM/GPRS should still be 47% in 2010.
$70,000 Motorola Nokia
Other 10 % 14 %
iDEN Siemens
$60,000 WCDMA 12 %
1xEV-DO
CDMA/CDMA2000
$50,000 GSM/GPRS/EDGE Forecast and market share is on a revenue basis and
includes all wireless infrastructure, not just basestations.
Equipment Revenue ($M)
$30,000
$20,000
$10,000
$-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Wireless Infrastructure Equipment Forecast: 2004 and 2005 were very strong years for wireless infrastructure,
with equipment revenue growing 22% and 15%, respectively. Total equipment revenue reached $60.9 billion, and
represented well over half of total carrier (wireline+wireless) equipment spending. The sharp increase is happening
on two fronts: carriers in emerging markets have raced to build out coverage areas, and carriers in developed
markets have begun implementing 3G networks based on UMTS and EV-DO. The former driver has proven to be the
stronger of the two, evidenced by the high share still generated by 2G/2.5G systems even in 2006 (75% of total).
Looking ahead, however, we expect the market to roll over as carriers scale back deployments now that service
coverage has been greatly expanded. 3G will continue to generate some incremental churn, but it will have a modest
effect on the total shipment number. We expect the market to reach $59.5 billion in 2010, a negative 0.5% CAGR.
Wireless Infrastructure Suppliers: Ericsson was the top supplier of wireless infrastructure in 2005, with 30%
revenue share. Ericsson remains the incumbent in GSM/GPRS, where it holds nearly 40% share overall; the company
has a slightly lower share in W-CDMA. Nokia and Siemens followed with 14% and 12%, respectively, also mostly
from GSM; note that in 2006 Nokia and Siemens announced that they would combine their wireless infrastructure
equipment divisions. Motorola was fourth with 10% share and is strong in CDMA, though it does have a significant
presence in GSM as well. Rounding out the top five was Nortel with 9% share from both CDMA and GSM. Alcatel was
next with 8% share (mostly GSM/GPRS and W-CDMA), followed by Lucent with 7% share (almost entirely CDMA); in
2006 Alcatel and Lucent agreed to merge. Other vendors include Samsung, Huawei, ZTE, UTStarcomm, and Datang.
311
Wireless
Infrastructure
Digital down converters

Analog-to-digital demodulate and filter the Runs the system software
converters convert the signal to the baseband so
Converts down and controls overall
analog signal from the further processing can be
the intermediate basestation functioning
Receives radio wave RF/IF system to a digital done at lower frequencies
Sits in front of the signals, converts to frequency signal for the baseband The microprocessor uses SRAM
antenna and boosts an intermediate and flash memory for
incoming signal strength frequency (IF) processing and software storage
Flash
Communications
Antenna Processor SRAM
RF IF
LNA ADC DDC
Receiver Processor
Digital
Loop ATM / T/E
Baseband
Filter Backhaul
ASIC
Power Pre- RF
Amp
DAC DUC
Amp Modulator
DSPs PLDs
DSPs PLDs
Source: Dataquest, CIBC World Markets Corp. DSPs PLDs
SRAM FIFO
A series of ASICs, DSPs, and
PLDs perform digital signal
Multi-port processing, implementing the
antenna and boosts modulation scheme (encoding
Controls radio Digital-to-analog technique)
output signal strength converters convert the Interfaces between the
wave generation
digital signal from the transmit and receive RF
Digital up converters components and the
baseband into an analog The DSP bank uses a series of
perform filtering and digital baseband
signal for RF modulation standard and specialty SRAMs,
modulation from the
baseband frequency to including FIFOs, dual-ports, and
the carrier frequency multi-ports
Note: Basestation systems often separate functions such as RF transmission and reception, power
amplification, baseband processing, system control and backhaul transport on separate cards within the
basestation. The diagram above depicts a simplified system that would contain all of these functions on a
single card.
Note that unlike our other block diagrams, most basestation systems are actually less integrated than
depicted in our block diagram, often breaking out what is represented in our diagram as a single device
into a block of separate devices.
Also note that we do not display the ICs that perform backhaul and the interface to the wireline network.
Though these systems are a significant portion of wireless equipment spending (and are included in our
equipment forecast on the previous slide), the devices used in these equipment types are actually more
similar to wireline ICs and are therefore included in our discussion of communications infrastructure.
The semiconductors used in wireless infrastructure systems can vary by protocol and by the OEM’s architectural
design, but they are largely similar across platforms in terms of their function. Voice and data traffic is transmitted
and received to and from individual handsets by the antenna and processed by the RF block, which includes power
amp and RF modulation components on the transmit side and LNA, RF receiver and IF processing components on the
receive side. A digital baseband subsystem performs protocol processing, translating the voice signals into encoded
312
digital signals for transmission—the baseband subsystem will usually include a series of ASICs, DSPs, PLDs, and
memories. Wireline ICs implement the backhaul, ferrying traffic calls back and forth between the PSTN (public
switched telephone network) and the basestation, while control plane processors control the overall system.
Baseband and System Control

• Digital Baseband ASIC: The baseband processor performs digital processing on the signal, implementing the
wireless modulation scheme (the encoding technique, e.g., GSM, CDMA, TDMA, GPRS, etc.), encoding and
extracting voice signals in and out of the transmission protocol.
• Communications Processor: A communications processor manages and controls basestation transceiver
system functions. Though only one is shown in our block diagram, each subsystem in a basestation could have its
own processor or processors.
• DSPs: Given the number and complexity of high-speed signals processed in a basestation system, discrete DSPs
are used in conjunction with the baseband ASIC.
• PLDs: PLDs are often used within the baseband system, as the multitude of wireless standards makes late-stage
customization critical in base station design.
• FIFO, Dual-Port, and Multi-Port SRAM: These specialty SRAMs are used for queuing of signals and as glue
logic between the DSPs.
• SRAM: SRAM is used by the DSP banks and system control processor.
• Flash: Flash memory is used by the system processor.
Transceiver and Power Amp Subsystems - Transmit Side

• Loop Filter: The loop filter interfaces between the transmit and receive RF components and the digital baseband.
• Digital Up Converter (DUC) (transmit side): A digital converter that performs filter and modulation functions
from the baseband frequency up to the carrier frequency.
• Digital-to-Analog Converter (DAC) (transmit side): A high-performance digital-to-analog converter converts
the digital signal from the baseband system to an analog signal for the RF subsystem.
• RF Modulator (transmit side): The RF modulator performs radio wave generation on the transmit side,
translating between low-frequency analog signals used in the basestation to high-frequency RF signals used in
radio communications. It usually includes a preamp to help amplify the signal before sending it to the power
amp.
• Power Amp (transmit side): One of the most important functions in basestation platforms, power amp ICs are
high-power specialized ICs that sit in front of the antenna and boosts signal strength on the way out.
Transceiver Subsystem - Receive Side

• LNA (Low Noise Amplifier): The LNA is a power amp that receives the signal from the antenna and boosts it
for processing by the system.
• RF Receiver: The RF receiver down converts the radio signal for processing by the system, translating between
the high-frequency RF signals used in radio communications and low-frequency analog signals used in the
basestation, usually by an IF transceiver.
• IF Processor: The IF processor performs all quadrature modulation of “I” and “Q” baseband signals, converting
the radio signal down from the intermediate frequency (IF) to an analog signal for use by the system.
• Analog-to-Digital Converter (ADC): A high-performance analog-to-digital converter converts the analog signal
from the RF subsystem to a digital signal for the baseband.
• Digital Down Converter (DDC): A digital converter that performs filtering and demodulation so that baseband
functions can be performed at lower frequencies.
• Loop Filter (also listed on the transmit side): The loop filter interfaces between the transmit and receive RF
components and the digital baseband.
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Wireless
Infrastructure
Wireless Infrastructure Wireless Infrastructure

Semiconductor Forecast IC Competitors
Others
CAGR though 2010, remaining near 15 %
$1.6 billion. Freescale
NEC 25 %
•Though basestation units are expected 3%
to decline, IC revenue should benefit Analog
Devices
from the shift to 3G/3.5G. 3%
•Baseband DSPs should grow at a 7% NXP/Philips
CAGR as additional processing is 6%
required to process 3G/3.5G traffic.
Fujitsu
$2,250
Power Amplifier Components 6%
Transceiver ICs
$2,000
Baseband DSPs
Texas
Baseband ASICs/ASSPs
$1,750
IBM Instruments
7% 18 %
$1,500
Qualcomm Agere
$1,250 8%
8%
$1,000
Baseband &
Programmable RF Power
$750
Transceiver
DSP Amp
$500 ASIC/ASSP
TI Freescale
Qualcomm
Freescale NXP/Philips
$250
IBM
$0 Analog Devices Infineon
2002 2003 2004 2005 2006 2007 2008 2009 2010 Agere
Agere Eudyna
Note: Our wireless infrastructure semiconductor forecast includes Fujitsu
only wireless-specific components. ICs used for backhaul and STMicro
system control as well as in the core network are excluded, as
TI
these are covered in the communications infrastructure segment. NEC
Wireless Infrastructure Semiconductor Forecast: We expect the market for wireless infrastructure
semiconductors to grow at a 1% CAGR, remaining at about $1.6 billion. Though equipment spending is expected to
decline modestly over the next few years, the shift to 3G and 3.5G worldwide should benefit the wireless IC market,
sustaining and even growing the semiconductor bill-of-materials.
In terms of device content, we expect a slight mix shift over the next few years. Baseband DSPs should see nice
growth at 7%, rising from 21% of total content in 2005 to 28% in 2010. Power amplifiers should decline at a 4%
CAGR, falling from 32% of total in 2005 to 25% of total in 2010—the cost of these subsystems should edge lower with
the growth of direct conversion technologies (DCR) and digital predistortion. Baseband ASICs/ASSPs and transceiver
ICs, at 31% and 16% of total content in 2005, should remain relatively stable. Note that specifically excluded from
our forecast are ICs used for backhaul and system control as well as in the core network, as these are covered in the
communications infrastructure section of this report.
Wireless Infrastructure Semiconductor Competitors: The market for wireless infrastructure semiconductors
includes many of the same companies that supply ICs for wireless handsets, but in general, is more weighted toward
suppliers of custom ICs. The large handset semiconductor suppliers like Freescale, Texas Instruments, Agere,
Qualcomm, NEC, and NXP/Philips all participate. A number of other companies, mostly in the analog converter
markets, also have a fair amount of content in transceiver card designs. Overall, the top supplier in 2005 was
314
Freescale with 25% share. Texas Instruments followed with 18% and Agere and Qualcomm each held 8%. Other
vendors include IBM with 7%, Fujitsu and NXP/Philips, each with 6%, and Analog Devices and NEC, each with 3%.
On the ASIC/ASSP side, Qualcomm was the No. 1 vendor with 15% share owing to its ASSP solutions for CDMA and
W-CDMA base stations. IBM and Agere were next, each with 14% share, followed by Fujitsu and Texas Instruments
with 13% each; all four vendors have significant presences both on the baseband and transceiver side. Other vendors
include NEC (6%), NXP/Philips (5%), and Analog Devices (4%).
On the DSP side, Texas Instruments is the clear market leader with 61% share overall. Freescale was second with
28% share. Analog Devices held 7%, while Agere held 5%; both vendors have been marginalized in recent years.
The final piece of the basestation IC market is that of 2005 ASIC/ASSP Market Share
power amps, also called microwave transistors. These
components are the most specialized to wireless
infrastructure and thus support only a few large, Others Qualcomm
16 % 15 %
committed vendors with the necessary set of design and
manufacturing competencies. The runaway leader in this
Analog
market is Freescale, with 75% market share in 2005. Devices
NXP/Philips was a distant No. 2 with 13% share, followed 4%
by Infineon with 6%. Other suppliers include Eudyna
NXP/Philips IBM
Devices (formerly Fujitsu Compound Semiconductor) and 5% 14 %
STMicroelectronics. Agere exited the business in 2005,
as it had failed to generate enough momentum to get NEC
6%
that business going.
The exhibits to the right and below display market share Agere
data for basestation baseband ASIC/ASSPs, baseband Texas 14 %
DSPs, and power amp ICs. Instruments
13 % Fujitsu
13 %
2005 Basestation DSP Market Share 2005 Basestation Power Amp Market Share
Agere STMicro
Analog Eudyna
5% 3%
Devices 3%
Infineon
7%
6%
NXP/Philips
13 %
Texas
Instruments
Freescale
61 %
28 %
Freescale
75 %
Although outside our application-specific wireless infrastructure IC forecast, we note that basestations typically include
a fair amount of content from telecom backhaul transport ICs. Wireless backhaul is usually implemented using T1 or
T3 lines, often with ATM capability to support data services. Wireless backhaul IC providers include PMC-Sierra,
Agere, Infineon, Fujitsu, Mindspeed, NEC, Maxim, and Exar.
Finally, basestations use a variety of memory types, the most important of which is SRAM. Top SRAM suppliers
include Samsung, Intel, NEC, Spansion, Cypress, STMicroelectronics, Renesas, and Hynix. They also draw on FIFO
and multi-port memories, a niche communications memory, which are supplied by IDT and Cypress. Finally, FPGAs
are widely used across basestation designs; the top vendors are Xilinx, Altera, and Lattice Semiconductor.
315
Wireless
Infrastructure
Wireless Semiconductor Market Trends

•With standards likely to remain in flux for some time, highly
programmable devices like DSPs and FPGAs should continue to
play a major role in basestation designs.
•The migration to all-IP networks via IMS (IP Multimedia
Subsystems) and fixed/mobile integration also favor a
programmable approach.
•RF and power amplifier subsystem costs are coming down due to
DCR and digital pre-distortion technologies.
•2.5G and 3G basestations require more advanced backhaul:
T1/E1 or T3/E3 links are being upgraded to ATM or packet-over-
SONET.
•Wireless backhaul will eventually migrate to IP.
•OEMs are pushing open standards for 3G basestation designs.
•IC vendors are evolving basestation solutions to support WiMAX.
• Changing interface standards, IMS, and fixed/mobile integration favor a programmable approach
leveraging DSPs and FPGAs. While ASICs should still play a large role in basestation baseband designs, DSPs
and FPGAs continue to play a major role in basestation designs. OEMs need to keep the design as flexible as
possible to support the ever-changing needs of wireless carriers.
• RF and power amplifier subsystem costs are coming down due to DCR and digital pre-distortion
technology. Like in the handset market, new techniques and higher levels of integration are lowering the cost of
radio and power amp solutions. For RF solutions, direct conversion radio ICs eliminate the IF stage. For power
amps, digital predistortion relaxes power amplifier performance requirements, reducing subsystem costs.
• 2.5G and 3G basestations require higher bandwidth backhaul. The majority of basestations use T1/E1 or
T3/E3 lines for backhaul. These lines are relatively inexpensive and are optimized for voice-only traffic. As the
market moves to 2.5G and 3G, however, carriers are beefing up their backhaul to better support both voice and
data traffic. They are now using ATM-over-SONET, and increasingly will be pushing IP-based solutions.
• OEMs are pushing open standards for 3G basestation designs. These efforts seek to modularize 3G designs
in order to enable more interoperability between component vendors. New industry alliances are defining
communications standards between the various subsystems within a basestation. This should eventually allow
increased competition and enable lower cost solutions.
316
WiMAX
WiMAX
With the rapid growth of wireless networking in the

consumer PC market, OEMs and chipmakers are looking
to take wireless data networking to the next level.
WiMAX is an IEEE standard that grew out of fixed

wireless, with the goal of becoming a standards-based
solution for last mile wireless broadband access as an
alternative to cable and DSL. Though networks are
organized in a similar architecture to cellular, WiMAX
employs OFDM techniques that are the basis of Wi-Fi, and
operates in a mix of licensed and unlicensed spectrum.
The first commercial deployments are fixed WiMAX,

targeted at emerging markets or rural areas without
adequate wired broadband infrastructure. Mobile WiMAX
is in the early stages (Korea being an early adopter), with
the goal being full mobile broadband data access.
With the rapid growth of wireless networking in the consumer PC market, OEMs and chipmakers are looking to take
wireless data networking to the next level.
WiMAX (Worldwide Interoperability for Microwave Access) is an IEEE standard that grew out of fixed wireless, with the
goal of becoming a standards-based technology enabling the delivery of last mile wireless broadband access as an
alternative to cable and DSL. Though networks are organized in a similar architecture to cellular, WiMAX employs
OFDM techniques that are the basis of Wi-Fi, and operates in a mix of licensed and unlicensed spectrum. WiMAX
essentially takes over where Wi-Fi leaves off, acting as a long-range, secure data connection for PCs over a wider
area.
The first commercial deployments are fixed WiMAX, targeted at emerging markets or rural areas without adequate
wired broadband infrastructure. Countries that are generating strong traction for WiMAX include India, China, Eastern
Europe, and the Middle East. Mobile WiMAX is in the early stages, with the goal being full mobile broadband data
access. Korea is an early adopter of mobile WiMAX, and is deploying a service known as “WiBro,” which uses a subset
of the full WiMAX standard to get to market quickly.
317
WiMAX
WiMAX
WiMAX Protocols
802.16 - The original WiMAX standard
designed for fixed wireless, 802.16 provides
up to 70 Mbps of shared point-to-multipoint
transmission in the 10-66 GHz frequency
bands as far as 37 miles. The higher
frequencies generally require line-of-sight.
802.16d – Also called 802.16-2004 or simply “fixed

WiMAX,” this standard uses the 2-11 GHz frequency bands
to penetrate walls and other dense objects. The standard
uses non-scalable OFDM for the modulation scheme.
802.16e – Also called 802.16-2005 or simply “mobile

WiMAX,” this standard has a number of improvements
over 802.16d, most notably support for full mobility. The
standard uses scalable OFDMA for the modulation scheme.
WiMAX is the commercial name for the IEEE 802.16 wireless networking standard targeted for metro and wide area
wireless. The 802.16 standard was initially designed for high bandwidth point-to-point fixed wireless applications,
using wireless broadband connectivity as a last mile alternative to wired T1, DSL, or cable modem lines. The standard
has since been enhanced for mobile applications as a way to provide data connectivity to consumers much the same
way cellular networks provide voice connectivity.
The most relevant wireless protocols are as follows:
• 802.16: The original WiMAX standard, 802.16 provides up to 70 Mbps of shared point-to-multipoint transmission
in the 10-66 GHz frequency bands as far as 37 miles. The higher frequencies generally require line-of-sight to
work.
• 802.16d: Also called 802.16-2004 or simply “fixed WiMAX,” this standard uses the 2-11 GHz frequency bands to
penetrate walls and other dense objects. The standard uses non-scalable OFDM for the modulation scheme.
• 802.16e: Also called 802.16-2005 or simply “mobile WiMAX,” this standard has a number of improvements over
802.16d, most notably support for full mobility. The standard uses scalable OFDMA for the modulation scheme.
318
WiMAX
WiMAX
WiMAX Infrastructure and

WiMAX Unit Forecast
•With 44 thousand units shipped in 2005,
CPE Suppliers
WiMAX is in its infancy; the market should
start to ramp meaningfully in 2006 and Samsung
reach 16.0 million units in 2010. LG
•802.16d (fixed) CPE should represent the Alvarion
bulk of initial deployments and grow Airspan
steadily to 35% of units in 2010.
Motorola
•802.16e (mobile) CPE should begin
ramping in 2007 and represent 62% of Nortel
shipments in 2010. Alcatel
•Basestations should experience healthy Fujitsu
growth but represent less than 5% of the Sumitomo
market.
18,000
Melco
16,000
WiMAX Basestations SK Telecis
Redline
802.16e clients
14,000 802.16-2004 CPE
12,000
10,000
8,000
6,000
4,000
2,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
WiMAX Unit Forecast: WiMAX has just started to take off with roughly 1.3 million units expected to ship in 2006,
up from just 44 thousand in 2005. The initial market for WiMAX has been for fixed wireless applications in emerging
markets and rural areas, where broadband build outs have been limited (the industrialized world has already spent
heavily on broadband and cellular infrastructure and has therefore been less interested in deploying WiMAX). Fixed
WiMAX should see steady growth as service offerings broaden.
Mobile is seeing limited deployment today, primarily in Korea with WiBro. WiBro in Korea should dominate mobile
WiMAX for the next one to two years, but will be joined by Sprint and Clearwire in the U.S. in 2008, when the market
should see an acceleration. Other significant markets conducting trials with mobile WiMAX include Japan, Taiwan, and
China; these should begin to contribute in 2008 and beyond.
In total we expect the WiMAX market to reach 16 million units in 2010. 802.16d (fixed) CPE should represent the
bulk of initial deployments and grow steadily to 35% of units in 2010. 802.16e (mobile) CPE should begin ramping in
2007 and represent 62% of shipments in 2010. Basestations should experience healthy growth but represent less
than 5% of the market.
WiMAX CPE and Infrastructure Suppliers: The WiMAX equipment market is being served by a number of large,
diversified communications equipment OEMs including Samsung, LG, Motorola, Nortel, Alcatel, Fujitsu, Sumitomo, and
Melco. Smaller companies more heavily focused on the technology include Alvarion, Airspan, and Redline.
319
WiMAX
WiMAX
Interfaces with the

Ethernet network
The MAC implements the
802.16 protocol, applying and
removing WiMAX headers
around the data payload
Ethernet Ethernet Ethernet

Antenna MAC PHY Cable
IF/ WiMAX
Power 802.16
RF Transceiver/ Baseband/
Amp MAC
Synthesizer PHY
antenna and boosts
signal strength
DRAM Flash
Controls radio wave
generation and reception
The baseband/PHY and
Converts the analog Performs digital signal MAC use DRAM memory The MAC uses flash
radio signal to a digital processing, implementing memory
stream and vice versa the OFDM/OFDMA
modulation scheme
Source: Intel, CIBC World Markets Corp.
Note: The diagram above shows a WiMAX CPE implementation. WiMAX basestations have a similar block
diagram to cellular basestations, with the notable difference of a WiMAX baseband card in place of the
cellular baseband card.
WiMAX CPE devices look like a blend between a handset, a broadband modem, and a wireless LAN client. The WiMAX
signal is received and transmitted through the RF block, which includes a power amp, RF and IF transceiver. The
signal is processed by a baseband/PHY, which implements the modulation scheme, and then an 802.16 MAC removes
or applies 802.16 overhead. Data packets are then relayed to the host system, likely over Ethernet in a discrete CPE
implementation or over PCI-Express in an ExpressCard or mini-PCI implementation.
RF
• RF/IF Converter (RF): The RF front end controls the radio wave generation on the transmit side and receives
the radio wave signal on the receive side, translating between low-frequency analog signals used by the system
(specifically by the IF transceiver) to high-frequency RF signals used in radio communications.
320
• I/Q Modem (IF): The IF performs all quadrature modulation of “I” and “Q” baseband signals, converting the
analog radio signal to a digital stream to be processed by the baseband and vice versa. In most implementations,
the IF is integrated with the RF in a single direct conversion transceiver, as shown in the block diagram above.
Baseband/MAC
• WiMAX Baseband/PHY: The baseband/PHY performs the first level of digital processing on the signal,
implementing the OFDM/OFDMA modulation scheme (encoding technique).
• WiMAX MAC: As in Ethernet or wireless LAN, the MAC applies and removes overhead and implements the
802.16 protocol.
• DRAM and Flash: These memories are used by the baseband and MAC.
Ethernet Interface
• Ethernet Controller: The Ethernet controller provides the interface between the wired network (through the
Ethernet cable) and the WiMAX CPE. As in an Ethernet NIC application, the MAC handles the Ethernet protocol
and the PHY interfaces with the cable and performs signal conversion.
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WiMAX
WiMAX
WiMAX Semiconductor WiMAX Semiconductor

•We expect WiMAX semiconductor
revenue to grow from a small base in WiMAX CPE Infrastructure
2005 to $563 million in 2010; the market Intel PicoChip
should start to ramp in 2006.
Beceem Texas Instruments
•CPE chipset and basestation revenue
should ramp first in 2006, followed by Runcom Fujitsu
client chipsets in 2007. Samsung LSI Analog Devices
•Client chipsets should represent 42% of GCT Runcom
the market in 2010, followed by Sequans Sequans
basestation ICs at 31% and CPE chipsets
at 27%. Wavesat STMicro
$600
TeleCis
WiMAX Basestation ICs Fujitsu
$500 802.16e client chipsets
RF WiMAX Handset
802.16-2004 CPE chipsets
$400
Maxim WiMAX CPE IC

$300
Analog Devices vendors +
$200 NXP/Philips Texas Instruments
Texas Instruments Altair
Sierra Monolithics Comsys
$100
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
RF Magic
Source: CIBC World Markets Corp. SiGe Semiconductor
WiMAX Semiconductor Forecast: 2006 was an important year for WiMAX semiconductor vendors as the mobile
802.16e standard was ratified at the end of 2005 and the first official 802.16-2004 WiMAX-certified products hit the
market in the beginning of 2006. The market should start to accelerate in developed regions in 2007 and 2008 for
mobile implementations of WiMAX. In total, we expect the WiMAX IC market to reach $563 million in 2010.
By device type, 802.16d CPE chipsets and basestation revenue should ramp first in 2006, followed by 802.16e for
mobile in 2007. By 2010, mobile CPE chipsets should represent the greatest revenue opportunity at 42% of the
market in 2010, followed by basestation ICs at 31% and fixed CPE chipsets at 27%.
WiMAX Semiconductor Competitors: A large number of major semiconductor vendors and start-ups are now
targeting the WiMAX market. Intel has been the most vocal in the space, envisioning a Centrino-like rollout of WiMAX
to further catalyze mobility trends and therefore notebook growth. Intel dominates 802.16d CPE shipments today.
Other vendors of 802.16d include Fujitsu, Sequans, Wavesat, and TeleCis.
For 802.16e, Beceem, Runcom, Samsung LSI, and GCT all supply Korea’s WiBro initiative. All the 802.16d chipset
vendors are also targeting 802.16e, and a number of other vendors are looking specifically to enable WiMAX handsets.
This includes large cellular baseband suppliers like TI as well as start-ups like Altair and Comsys.
In the infrastructure market, the major vendors include PicoChip, TI, Fujitsu, ADI, Runcom, Sequans, and STMicro.
RF suppliers include Maxim, ADI, NXP/Philips, TI, Sierra Monolithic, SiGe Semiconductor, and RF Magic.
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WiMAX
WiMAX
WiMAX Semiconductor Market Trends

•Fixed WiMAX designs focusing on emerging markets, mobile
WiMAX on developed markets.
•The market will likely wait for “wave 2” certification rounds.
•The Sprint WiMAX announcement was a major catalyst for the
mobile market.
•Fixed WiMAX suppliers all moving to supply mobile as well.
•Intel dominates fixed WiMAX but is behind in mobile.
•Start-up activity is heavy; will meet incumbent suppliers when
market focus shifts to the handset market.
•With cost a gating factor, IC makers focusing on integrating
MAC and PHY.
•Power consumption a critical design factor.
•Basestation designs are still very fluid.
• Fixed WiMAX designs focusing on emerging markets, mobile WiMAX on developed markets. Fixed
WiMAX provides an effective broadband solution where copper infrastructure is weak, and markets like India,
China, Eastern Europe, and the Middle East and Africa are all seriously looking at fixed WiMAX for broad-based
deployments. Mobile WiMAX, on the other hand, is seeing early traction in Korea with WiBro, and will be the basis
of Sprint’s next-generation network in the US. Japanese carriers are also looking into mobile WiMAX.
• The market will likely wait for “wave 2” certification rounds. The WiMAX standards are still in flux to some
degree. The 802.16d and 802.16e working groups have each put forth an early standard, which is being certified
as “wave 1” compliant. “Wave 2” certification will take place in 2007 and 2008, and will include a more complete
feature set. Though some “wave 1” equipment will hit the market, most carriers likely will wait until “wave 2” is
available before taking the network wide.
• The Sprint WiMAX announcement was a major catalyst for the mobile market. In August 2006, Sprint
Nextel made a major announcement that it would build a 4G wireless data network using WiMAX technology, with
an aggressive goal of covering up to 100 million people in 2008. Sprint plans to spend up to $3 billion through
2008 on this project, and has chose Intel, Motorola and Samsung as partners. Sprint then became the first major
incumbent carrier outside Korea to make a push into WiMAX, validating the technology and providing a huge
catalyst to OEMs and chip suppliers targeting the mobile WiMAX market.
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• Fixed WiMAX suppliers all moving to supply mobile as well. The first chip companies to target WiMAX were
focused on the fixed market, as mobile looked several years out at the time. This included Intel and Fujitsu as
well as a number of start-ups like WaveSat, TeleCis, Sequans, and PicoChip (on the infrastructure side). At this
point, however, mobile looks just a year or two away in real volume, catalyzed by the WiBro deployment in Korea
and the Sprint announcement in the U.S. All the chip suppliers supplying to the fixed WiMAX market are now
moving to supply the mobile market, though most are retaining a development track specifically for fixed as well.
• Intel dominates fixed WiMAX but is behind in mobile. Intel has played a huge role in getting WiMAX off the
ground. The company was one of the first large technology players to commit resources to WiMAX, and talked
about it extensively at its developer forums and investor events. The “Rosedale” chip was one of the first to
market for WiMAX, and has seen broad adoption by OEMs targeting the fixed market.
Intel has been less successful in making the transition to mobile, though the market is still emerging. The WiBro
deployment in Korea had used silicon from three start-ups as well as from Samsung’s internal semiconductor unit;
Intel has not participated there to date. Over time, however, we would expect Intel to get to market with a
mobile solution, and to drive it into its core notebook market. Adoption will clearly not approach anything along
the lines of WiFi, but we could certainly envision a bundling campaign along the lines of Centrino.
• Start-up activity is heavy; will meet incumbent suppliers when market focus shifts to the handset
market. As mentioned above, Intel was the first big technology player to commit to WiMAX. Fujitsu has also
been there since the beginning, but beyond that the WiMAX baseband/MAC market is being driven by start-ups.
Sequans, Wavesat, and Telecis are all shipping product to the fixed market, and are moving to mobile market.
Beceem, Runcom, and GCT in Korea have all supplied the WiBro deployment in Korea. RF ICs and basestation
DSPs are being supplied by incumbents as we would expect them to, though even there we see some start-ups.
We expect there to be a shift once the market begins to focus on handset designs. The incumbent cellular
baseband suppliers like Texas Instruments, Qualcomm, and Freescale all seem to be staying away from the
WiMAX market for data-only applications like PC client cards, but are unlikely to stay on the sidelines when WiMAX
hits the handset. Texas Instruments has already indicated that it is doing development work in WiMAX with its
key handset partners; we would expect any commercial product to be an ASIC for Nokia or EMP.
• With cost a gating factor, IC makers focusing on integrating MAC and PHY. With 3G wireless now in
volume deployment, WiMAX system vendors and chip suppliers all understand that WiMAX system costs must be
very competitive for there to be any real market penetration at all. On the chip side, vendors are already
integrating the baseband/PHY and MAC. This architecture has been proved out in WiFi and seems to be par for
the course in WiMAX as well.
• Power consumption a critical design factor. Almost as important as cost for a WiMAX system is power
consumption, as service providers recognize that consumers won’t tolerate a technology that drains the notebook
battery. Power will be even more critical in the handset market, where consumers have well-documented
preferences for long battery life and talk time.
• Basestation designs are still very fluid. With the standards still in flux, WiMAX basestation designs are still
very fluid. Vendors like TI and PicoChip offer high performance DSPs running software that they help design.
Chip designers like Runcom and Sequans allow their basestation designs to be ported to an FPGA, which is then
integrated into a larger system. Intel offers a card that can plug into a cellular basestation to enable WiMAX. We
would expect designs to be very dynamic until volume deployment takes place around the world.
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Consumer
Consumer Devices
Devices
Seven Key Markets:

Digital Set-Top
Set-Top Digital Cameras
Boxes
MP3/PMP
Digital TVs
Video Game Consoles
DVD Players and
Recorders Flash Memory Cards
The consumer electronics market includes a diverse array of devices centered on audio and video entertainment. To
date, most consumer electronic devices have been analog in nature, meaning that functionality was enabled by analog
devices with some limited digital support for system control—and thus have not required much computing power.
These devices have historically been implemented with standard semiconductor parts such as analog SLICs,
microcontrollers, standard logic and discretes. When application specific digital devices were needed, they were
usually custom devices, consistent with the practices of the Japanese electronics OEMs that dominate the market.
With the increasing digitization of consumer electronics, however, the paradigm is rapidly changing. The content itself
has migrated to digital formats, and the devices used to process them have moved into the digital realm. The analog
content is still there, but in many cases an analog ASSP replaces the SLIC. On the digital side, the microcontroller
may still be there but it takes a back seat to a DSP or digital microperipheral that performs digital processing and in
most devices, some form of digital encode/decode. These digital processors almost always have to comply with
standards, facilitating the use of merchant silicon solutions by OEMs. It has also sped time-to-market for OEMs and
has enabled increasing competition from non-Japanese suppliers in the U.S., Europe and, increasingly, in Asia.
For this report, we have selected a few key consumer electronics markets undergoing this paradigm shift, where there
exist significant application-specific semiconductor markets. We include set-top boxes, digital TVs, DVD players
and recorders, digital cameras, MP3 and portable media players, and video game consoles. We also include
a discussion of flash memory cards, which find most of their usage in digital consumer devices.
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Digital
Digital Set-Top Boxes
Set-Top Boxes
Set-Top Box Unit Key Set-Top Box

Forecast Suppliers
•We expect set-top boxes to grow at a
16% CAGR, from 83 million units in 2005 Cable
to 173 million units in 2010. Motorola/General Instrument
•Cable should outgrow the market, driven Cisco/Scientific Atlanta
by an HD upgrade cycle in developed Pace
regions and digital cable rollouts in China. Humax
•Satellite remains an important market but Sony
will face tough competition from cable. Pioneer
•IPTV should grow from a small base to Huawei
15% of total in 2010.
•Free-to-air pervades emerging markets Satellite & Free-to-Air
and should be roughly 30% of 2010 units. Pace
Thomson/RCA
•DVR penetration should continue to rise. Echostar Samsung
Philips Sony
200,000
DVR/DVD-R Combo
Humax Panasonic
180,000 Standalone DVR
Free-to-Air Set-Top Box
160,000 IPTV Set-Top Box
Satellite Set-Top Box LG Electronics Digiwave
140,000 Cable Set-Top Box
120,000
100,000
Standalone DVR &
80,000 DVR/DVD-R
60,000
Tivo Panasonic
40,000
Thomson/RCA LG
20,000
Philips Pioneer
- Sony Humax
2002 2003 2004 2005 2006 2007 2008 2009 2010
Digital Set-Top Box Unit Forecast: The market for digital set-top boxes (STBs) has experienced rapid growth in
the past few years as digital cable began replacing legacy analog cable TV service and as satellite TV (which was
digital from the start) grew to compete with cable. A large market also exists for “free-to-air” satellite and terrestrial
set-top boxes, which do not require service contracts and are popular in emerging markets and also in Western
Europe. In total, we estimate that the market totaled 83 million units in 2005.
As we look ahead, a number of new technologies are pervading the market, driving a nice upgrade cycle on a number
of vectors. In cable, MSOs have embraced high definition content as a differentiator, and have been able to charge
additional fees for this content to an increasingly HD-savvy public (particularly in the U.S., where cable is strongest).
HD services require entirely new set tops and more sophisticated infrastructure. In satellite, providers are moving to
8PSK for the front end and MPEG-4 encoding for the back end to save bandwidth; this also requires new set-tops.
Satellite has also been moving to HD, though at a slower pace than cable. Then there is the trend towards digital
video recorders (DVRs), which are penetrating cable and satellite in addition to a standalone DVR market. Finally,
IPTV is gaining momentum as telecom providers look to video services for additional revenue; these services will
require an entirely new rollout of set-top boxes.
Overall, we estimate the market is growing at a 16% CAGR, rising from 83 million boxes in 2005 to 173 million in
2010. Cable should outgrow the market with a 22% CAGR through 2010, driven by HD and DVR upgrade cycles in
developed regions and digital cable rollouts in China. Satellite should experience modest growth of 7%, boosted by
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HD and DVR but mitigated by competition from cable, and later in the forecast from IPTV. IPTV, which represented
less than 5% of the market today, should grow at a 59% CAGR to represent 15% of the market in 2010. Free-to-air
should grow at an 11% CAGR and remain an important segment for emerging markets, representing roughly 30% of
total in 2010.
Looking specifically at DVRs, we expect the DVR market to grow from 18 million units in 2005 to 51 million units in
2010, a 24% CAGR. Note that 29% of DVR units in 2010 should be standalone and DVR/DVD-R boxes; 61% should
be service-based (or free-to-air, though this is small). Our DVR penetration rates in 2010 are 36% for satellite, 24%
for IPTV, 21% for cable (cable set-tops for China will have low DVR penetration) and 14% for free-to-air. This
penetration rate is a percentage of boxes shipped; the percentage of DVRs in the installed base will be far lower,
pointing to continued growth in DVR shipments for years to come. The exhibits below display set top box vs. DVR
shipments along with DVR unit shipments by type.
Set-Top Box and DVR Unit Shipments DVR Unit Shipments
200 60
DVR DVR/DVD-R Combo
180
Standalone DVR
Set-Top Box
50
160 Free-to-Air DVR
IPTV DVR
140
40 Satellite DVR
Unit Shipments in Millions
Unit Shipments in Millions

120 Cable DVR
100 30
80
20
60
40
10
20
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010
Digital Set-Top Box Suppliers: The set-top box market is somewhat fragmented, not surprising given the various
formats used for the delivery of video services. Cable is by far the most concentrated, with Motorola/General
Instrument and Cisco/Scientific Atlanta (Cisco acquired Scientific Atlanta in 2006) dominating the category,
particularly in the U.S. Note that both of these vendors are also aggressively targeting the IPTV market. Other cable
set-top providers include Pace, Humax, Sony, Pioneer, and Huawei, though they have small shares compared with the
market leaders.
On the satellite side, Echostar produces its own boxes, while DirecTV contracts with a number of third party suppliers,
mostly Thomson, Humax, LG Electronics, and Philips. These vendors—along with Samsung, Sony, Panasonic,
Toshiba, Pace, and NEC—also serve satellite providers in Europe (such as the “Sky” networks) and Asia, along with
the large free-to-air market.
A number of vendors supply standalone DVRs and DVR/DVD-R boxes, including Tivo, Thomson/RCA, Philips, Sony,
Panasonic, Pioneer, LG, and Humax.
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Digital
Set-Top Boxes
Performs audio
Performs graphics
generation, including Sends a digital signal to
Decodes and processing and encoding
DRAM is used by the digital audio encoding the TV using HDMI
decompresses the digital (such as NTSC, PAL,
MPEG-2 decoder and (such as Dolby
video signal into digital etc.) before sending the
the graphics processor Digital, DTS, etc.)
audio and video signal video signal to the TV
Converts the video signal to
Receives the signal from
analog and sends it to the TV
the tuner, performs initial
over coaxial or RCA cable
analog processing
HDMI HDMI Out

Front End Back End DRAM
Graphics Video
Coaxial Video Out
Cable/ Analog MPEG Processor DAC
Cable/ Receiver/
Satellite Satellite Front Decoder
Demod
Feed Tuner* End (Encoder*) Audio Audio Audio Out
Processor DAC
Modem Coax Out

Interfaces with the coaxial Micro- Block
cable/satellite feed and Demodulates the signal
tunes the incoming signal and converts it to digital processor Converts the digital audio
signal into analog and sends
DVR Block it to the TV/audio system over
coaxial or RCA cables
Control plane DRAM
Microprocessor - controls Box-to-box The modem block can
contain either an
overall system functioning Flash Networking analog or cable modem
DRAM, flash - memory
used by the processor
The DVR block contains an
Networked set-top boxes MPEG-2 encoder, additional
and DVRs use MoCA or DRAM memory, and a hard
HPNA to communicate with drive interface IC
one and other
* Tuner - DVRs and cable modems require an additional tuner; some set-top boxes
also have multiple tuners to support picture-in-picture or other functionality
Source: IDC, CIBC World Markets Corp. MPEG-2 Decoder/Encoder - In a DVR the decoder also functions as an encoder
A set-top box looks very much like a modem with additional audio and video processing functionality. Front end ICs
(tuner, AFE, demodulator) receive the signal from the network, and back end ICs (MPEG decoder, graphics and audio
processors) decode it. The key difference is that instead of a data stream, the set-top decodes a video signal.
Set-top box semiconductors blend devices from the communications and digital video worlds. A tuner receives and
tunes the signal from the coaxial cable, which is processed by an analog front end and demod, which converts the
analog signal to digital. The signal is then decoded by an MPEG decoder, which then offloads the decoded digital
signal to graphics and audio processors. The decoded signals are then sent to the television, either in a digital format
using HDMI or in an analog format over RCA or component cables (the latter requires a conversion back to analog).
In a DVR, additional ICs are added in to support MPEG encoding as well as hard disk drive interface control. ICs found
in the hard disk drive are not discussed here, as they are captured in our discussion of HDDs earlier in the report.
Front End
• Tuner: The tuner receives the signal from the coaxial cable or satellite feed and tunes it to the proper RF
frequency. Most set-top boxes have just a single tuner, though some boxes have multiple tuners to support
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picture-in-picture or other advanced features. DVRs and cable modem-enabled boxes also require an additional
tuner.
• Analog Front End: The analog front end receives the signal from the tuner and performs the front-end analog
processing.
• Receiver/Demod: The receiver chip demodulates the signal and converts it to digital for decode and processing
by the set-top box. It is sometimes integrated with the analog front end for an integrated front end ASSP.
Back End
• MPEG Decoder: The MPEG decoder decodes and decompresses the encoded digital signal into audio and video
signals. Most set-top boxes use the MPEG-2 standard, though newer satellite and IPTV boxes are moving to
MPEG-4, which offers tighter signal compression.
• Graphics Processor/Encoder: The graphics processor performs digital image generation, adding graphic items
associated with the interactive guide, on-demand menus, and other services. It also includes an encoder to
perform any additional processing on the video signal before it is sent to the TV, such as NTSC, PAL, etc. It is
usually integrated into a back-end ASSP centered around the MPEG decoder.
• Audio Processor: The audio processor is a DSP that performs digital audio generation, as well as any additional
audio encoding, such as Dolby Digital, DTS, etc. Also usually integrated into the back-end ASSP.
• Microprocessor: A microprocessor performs control plane functions and runs the set-top box software. It is
sometimes embedded in a back-end ASSP, though more advanced boxes will use a discrete processor.
• Flash/DRAM: The MPEG decoder and microprocessor use a variety of memories.
Back End Interface

• Video D/A Converter: A video digital-to-analog converter converts the video signal to analog format to send it
to the TV over coaxial or RCA or component cables.
• Audio D/A Converter: An audio digital-to-analog converter converts 16-bit stereo samples into left and right
alternating-current audio signals and sends them to the TV over coaxial, optical, or RCA cables.
• HDMI Interface IC: More advanced set-top boxes include an HDMI (High Definition Multimedia Interface)
interface, which is an all-digital, high-definition standard that supports both video and audio with digital rights
management capabilities. An HDMI interface IC is needed to support this interface.
Modem
• Analog Modem SLIC and Codec (not pictured in diagram): Some set-top boxes incorporate the ability to send
upstream signals (such as an order for a pay-per-view program) to the service provider over an analog modem.
The SLIC drives the signal over the RJ-11 telephone line and the codec performs the digital-to-analog and analog-
to-digital conversion for the modem.
• Single-Chip Cable Modem (not pictured in diagram): Some newer high-end digital cable set-top boxes
incorporate cable modem functionality by adding a single-chip cable modem device and an additional tuner.
Digital Video Recorder (DVR)

• MPEG encoder (not pictured in diagram): An MPEG encoder chip encodes video signals into the MPEG format for
storage on the hard drive. The encoder is usually implemented as a separate device, though in next-generation
designs it is being integrated in with the MPEG decoder.
• DRAM (not pictured in diagram): The encoder DSP requires additional DRAM memory.
• ATA/SATA Controller (not pictured in diagram): The ATA/SATA controller provides the interface to the hard
disk drive. It is usually integrated into the MPEG decoder, but can be a discrete IC as well. Note that some DVRs
support an external SATA hard disk drive in addition to the internal HDD.
Box-to-Box Networking
• MoCA PHY and MAC (not pictured in diagram): MoCA is a networking protocol that uses coaxial cable to connect
set-top boxes and other networking devices. MoCA enables multi-room DVR and Internet-based features now
emerging from service providers. The PHY interfaces with the coax while the MAC performs protocol processing.
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• HPNA PHY and MAC (not pictured in diagram): An alternative to MoCA, HPNA started out using the in-home
telephone wiring but has been adapted to also work over coax.
Digital
Set-Top Boxes
Set-Top Box Set-Top Box Semiconductor

Others
•We expect set-top box semiconductors 11 %
to grow at a 10% CAGR, from $1.9 SigmaDesigns
billion in 2005 to $3.2 billion in 2010. Scientific 2%
Atlanta
•Integrated front/back end ICs should 2% Fujitsu
STMicro
35 %
steadily replace discrete solutions. Intel/Zarlink 2 %
2%
•Ramping HD penetration in cable and LSI Logic
2%
satellite should support ASPs, as should ALPS
4%
MPEG-4 in satellite and free-to-air.
•DVR ICs should grow rapidly as NXP/Philips
4%
penetration increases.
•Box-to-box networking is gaining Conexant
traction for next generation designs.
8%
$3,500
Box-to-Box Networking Broadcom
DVR Back-End
$3,000
29 %
Integrated Front & Back-End
Back End/MPEG Processor
Front-End/Demodulator
$2,500
Satellite/Free-to-Air Cable
Tuner
$2,000
STMicroelectronics Broadcom
$1,500
Broadcom STMicroelectronics
$1,000
Conexant LSI Logic
Fujitsu ALPS
$500
NXP/Philips Scientific Atlanta/Cisco
$0
Maxim Anadigics
2002 2003 2004 2005 2006 2007 2008 2009 2010 Intel/Zarlink Freescale
Note: Includes only DVR content within DVR/DVD-R boxes.
Source: IDC, CIBC World Markets Corp. Source:IDC, CIBC World Markets Corp.
Digital Set-Top Box Semiconductor Forecast: We expect set-top box semiconductors to grow at a 10% CAGR,
rising from $1.9 billion in 2005 to $3.2 billion in 2010. Strong unit growth is clearly a driving factor, but there are
also a number of trends benefiting the bill-of-materials (helping to offset price pressure), including ramping HD
penetration in cable and satellite, MPEG-4 in satellite and free-to-air, multiple tuners, and increased DVR penetration.
In terms of device segments, integrated front/back end ICs should steadily replace discrete solutions. DVR ICs should
grow rapidly as penetration increases, and box-to-box networking like MoCA and HPNA should grow nicely as well.
Digital Set-Top Box Semiconductor Competitors: The set-top box IC market is highly concentrated, with the top
two players holding more than 70% market share. STMicroelectronics held a 35% share in 2005, including a 47%
share in satellite (with DirecTV, Echostar, and free-to-air) and a big piece of cable (with Scientific Atlanta). Broadcom
was No. 2 in 2005 with 29% overall, including 39% in cable (mostly Motorola) and 27% share in satellite (Echostar
and DirecTV). Conexant was the No. 3 supplier in 2005 with 8% share, derived from satellite (DirecTV and Echostar),
cable (some low-end Motorola boxes), and a ramping free-to-air effort. Note that both Broadcom and Conexant have
been successful at gaining share from ST in the move to MPEG-4, where ST lost a number of important designs.
330
No other vendor held more than 5% share in 2005. These include consumer OEM NXP/Philips, tuner and demod
specialist Zarlink (which sold this business to Intel in 2005), tuner vendor ALPS, ASIC and processor suppliers LSI
Logic and Fujitsu, internal ASIC supplier Scientific Atlanta (acquired by Cisco in 2006) and IPTV leader Sigma Designs.
Digital
Set-Top Boxes
Set-Top Box Semiconductor Market Trends

•Set-top box designs are moving to two integrated ASSPs.
•DVRs are providing increased content for IC suppliers.
•Cable has led the charge in HDTV; satellite is ramping now.
•Satellite is moving to MPEG-4 for tighter compression.
•IPTV is still in the early stages but is clearly a focus at IC vendors.
•Set-top boxes are increasingly incorporating multiple tuners.
•Momentum is building for MoCA and HPNA for box-to-box
networking.
•Set-top box IC suppliers are looking to expand into digital TV.
High End HDTV and DVR Set Top Boxes
• Set-top box designs are moving to two integrated ASSPs. Competitive pressures in the set-top box IC
market have sparked a new crop of integrated devices. Most designs now incorporate two highly integrated
devices: one ASSP for the front end and a second one for the back end. Only tuner, processor, memory and
interface devices are left external. Some newer designs take it a step further, integrating the front and back end
into a single-chip SoC, but these are usually targeted for the low end or free-to-air market as opposed to
mainstream service-based set-tops.
• DVRs are providing increased content for IC suppliers. Though originally a standalone opportunity, DVRs
have now penetrated every major type of set-top box and are offered by all major service providers. This has
provided increased content for IC suppliers; we estimate that IC content (excluding tuners) attributable to DVR
functionality represented $326 million in 2005 and will grow to $536 million in 2010.
• Cable has led the charge in HDTV; satellite is ramping now. After several years of unfulfilled promises,
HDTV has finally become a reality. As HD-capable TV sets have moved into mainstream price points, cable MSOs
have moved in to provide HD content in an effort to differentiate their offerings from satellite. MSOs aggressively
331
rolled out HDTV services across their footprints, which also necessitated new HD-capable set-tops (which they
provided to customers as they signed up for HD services, for which they pay a premium). Satellite vendors have
since moved to provide HD, though they remain somewhat behind cable due to bandwidth constraints. From the
IC vendor’s perspective, HD has increased the ASP for their devices (especially the back end ASSP) as well as
solidifying their positions with key customers.
• Satellite is moving to MPEG-4 for tighter compression. MPEG-4 employs more advanced encoding
techniques than MPEG-2, which allows it to use less bandwidth for a comparable video stream, or a similar
amount of bandwidth for a more advanced video stream (like HD). Satellite service providers have been quick to
embrace MPEG-4, as they are naturally bandwidth-limited given their use of expensive satellites. In most cases,
satellite service providers are launching MPEG-4 and HD services at the same time, which allows them to
essentially swap out the box at the customer’s request (they can usually charge them for this when they sign up
for HD). Note that in addition to driving box churn and therefore unit growth, MPEG-4 is also driving a share shift
at the IC level, as incumbent satellite set-top IC supplier STMicroelectronics was late in getting its solution to
market and allowed Broadcom and Conexant to win some major designs at its customers.
• IPTV is still in the early stages but is clearly a focus at IC vendors. IPTV is still in the introduction phase,
with some limited deployment taking place in Europe and Asia, mostly for low end service. Over time, the video
technology should mature and the broadband pipes used to deliver the service should move to higher bandwidth
levels, allowing for a comparable number of channels to cable or satellite as well as the introduction of HD. A big
issue for the market will be the maturity of boxes based on Microsoft’s VC-1 codec, which was chosen for AT&T’s
Project Lightspeed.
Note that IPTV requires a completely new set-top box design, with the analog front end replaced by digital ICs
that strip video streams from IP packets, and back end ICs that support IPTV codecs (like VC-1). The major set-
top IC vendors are all looking to IPTV for the next leg of growth, with Conexant, Broadcom, STMicroelectronics,
and NXP/Philips all offering solutions to the market. New competitors are also looking to IPTV as an entry point,
such as media processing specialist Sigma Designs (which is Microsoft’s preferred vendor for VC-1) as well as DSP
vendors like Texas Instruments and Analog Devices. The market is still in its infancy, and it is unclear as to which
vendors will win long-term.
• Set-top boxes are increasingly incorporating multiple tuners. Many set-top box OEMs are incorporating
multiple tuners in their high-end boxes to support multiple channels of video (for picture-in-picture and DVR) or
for data traffic. Tuner IC vendors are meeting this challenge by integrating multiple tuners on a single IC.
• Momentum is building for MoCA and HPNA for box-to-box networking. Box-to-box networking allows set-
top boxes to communicate with each other within the home, usually using the coax infrastructure (though the
POTS infrastructure or even the power network could suffice). This allows features such as DVR-sharing, and is
also a critical component for on-demand services in video services using PON RF overlay. Though some OEMs
have developed proprietary solutions, standards such as MOCA and HPNA are set to replace these as the
application matures. Already, we have seen Verizon’s FiOS TV leverage MoCA to enable on-demand services,
while AT&T’s Project Lightspeed will incorporate HPNA into the gateway and set-top boxes.
• Set-top box IC suppliers are looking to expand into digital TV. In 2005, the digital TV semiconductor
market surpassed the set-top box semiconductor market in total revenues for the first time. Not surprisingly, we
have seen IC vendors with IP and design competencies in set-tops moving to address this large and growing
related opportunity. Broadcom, NXP/Philips, and ATI/AMD have all made in-roads in the digital TV market
(NXP/Philips is actually the No. 2 semiconductor vendor there, though that is more related to historical vertical
integration with Philips Electronics). Competition should be fierce here, however, as they will be met by IC
vendors moving in from the display scaler, graphics, and DVD markets as well as a host of pure-plays. Cost
pressures, of course, will be brutal in this consumer-oriented market.
• Traditional ASIC vendors are being marginalized, though ASSP vendors are adopting an ASIC-like
approach. Vendors like LSI Logic, Fujitsu, IBM, and Toshiba used to have sizable businesses in set-top boxes.
Over the past few years, however, these players have been squeezed out by ASSP vendors like
STMicroelectronics, Broadcom, and Conexant. At the same time, the ASSP vendors have grown closer to their top
customers, adopting an ASIC-like approach to top players while serving smaller customers with standard
products.
332
Digital
Digital TV
TV
The television market is undergoing significant changes

on a number of fronts. In addition to high-definition
content and new services like on-demand and digital
video recording, the display technology is changing as
well. An additional complication is the FCC mandate for
digital terrestrial broadcasting, which necessitates
additional functionality for digital tuning inside the TV.
Digital TVs can be classified as “digital ready” or
“integrated digital.” In both cases, the TV utilizes digital
processing algorithms to display the image on the
screen. The distinction is found in how the TV receives
the video signal—digital ready TVs require a set-top box
to tune and decode digital content, while integrated
digital TVs incorporate a digital tuner, and can receive
signals broadcast over the air and decode them without
the need for an external set-top box.
The television market is undergoing significant changes on a number of fronts. In addition to high-definition content
and new services like on-demand and digital video recording, the display technology is changing as well. An
additional complication is the FCC mandate for digital terrestrial broadcasting, which necessitates additional
functionality for digital tuning inside the TV. Consumers are now faced with a dizzying array of choices: wide-screen
(16:9) vs. standard (4:3); SDTV vs. EDTV vs. HDTV; digital ready vs. integrated digital; flat screen vs. “big box;” LCD
vs. Plasma; CRT vs. DLP vs. LCoS vs. rear-projection LCD (HTPS); the list goes on. We will try to distinguish between
TV technologies on the most important vectors.
One basic but very important distinction between digital TVs is whether they include a digital tuner or not; i.e., are
they “digital ready” or “integrated digital.” Digital ready TVs utilize digital processing algorithms to display the image
on the screen, but do not include the capability to tune and decode digital terrestrial broadcasts. They require a set-
top box to perform this function. Integrated digital TVs incorporate a digital tuner, and can receive signals broadcast
over the air and decode them without the need for an external set-top box. The major digital terrestrial signals in use
today are ATSC (Advanced Television Systems Committee, used in the U.S., Canada, South Korea, Taiwan and
Argentina), DVB (Digital Video Broadcasting, used in Europe and Asia), and ISDB (Integrated Services Digital
Broadcasting, used in Japan).
Note that the distinction between digital ready or integrated digital is completely independent of the display
technology used or whether the TV supports HDTV, EDTV, or SDTV.
333
Digital
Digital TV
TV
Digital vs. High Definition

There is some confusion between the terms “digital”
and “High Definition.” They are not the same.
High Definition (HD) is a set of digital formats that
support the highest quality video. To view HD, both
the TV and the content must be high definition.
Some digital TVs support HD but not all.
One step below HD is Enhanced Definition (ED); one
step below that is Standard Definition (SD).
Digital TV Formats
HDTV – The highest quality video formats, HD supports
720p at 24, 30, and 60 frames per second (fps), 1080i at
30 fps, and 1080p at 24 and 30 fps.
EDTV – An intermediate quality, ED supports 480p at 24,
30, and 60 fps.
SDTV – A lower quality, SD supports 480i at 30 fps.
“p” = progressive scan, “i” = interlaced
There is some confusion between the terms “digital” and “High Definition.” They are decidedly not the same thing.
Digital signifies that the TV can display video using digital processing algorithms. High Definition, along with its
counterparts enhanced definition and standard definition, refer to the quality of the video signal itself.
High Definition (HD) is a set of digital formats that support the highest quality video. To view HD, both the TV and
the content must be high definition. Some digital TVs support HD but not all. One step below HD is enhanced
definition (ED); one step below that is standard definition (SD).
• HDTV – The highest quality video formats, HD supports 720p at 24, 30, and 60 frames per second (fps),
1080i at 30 fps, and 1080p at 24 and 30 fps.
• EDTV – An intermediate quality, ED supports 480p at 24, 30, and 60 fps.
• SDTV – A lower quality, SD supports 480i at 30 fps.
Note that the “i” distinction signifies that the signal is interlaced, which reduces the bandwidth required for signal
transmission by transmitting only half the picture per frame. In an interlaced signal, each frame displays either the
odd lines or even lines (they alternate at each frame; this fools the eye into thinking it is seeing the entire picture).
The “p” signifies that the signal is progressive scan, which means that the entire signal is transmitted for every frame.
334
Digital
Digital TV
TV
Display Technologies
CRT – The incumbent “big box” display technology, CRTs use
cathode ray guns that shoot electrons through a tube onto a
screen coated with luminous phosphors.
LCD – LCD uses liquid crystals in between two coated sheets of
glass. LCD enables high-quality displays with thin form factors
and, in our opinion, is the most promising display technology.
Plasma – Plasma is a flat-screen technology that uses tiny cells
lined with phosphor that are full of inert ionized gas. Currently
enables the largest sized flat panel TVs.
DLP – A MEMS-based technology that uses tiny mirrors to
reflect an image onto the screen. Enables large screen TVs that
are thinner and lighter than CRTs, but not flat.
LCoS – LCoS uses liquid crystals coated over the surface of a
silicon chip to produce a tiny image, which is then enlarged and
projected onto the TV screen.
HTPS-LCD– These displays use small, transmissive LCD
screens augmented by backlights to produce an image, which is
then enlarged and projected onto the TV screen.
A number of display technologies are used in the digital TV market today. Again, the display technology is completely
independent of whether a TV supports HD or ED or SD, or whether it has a digital tuner or is even digital at all (most
CRTs are analog, though most of the others are nearly 100% digital).
• CRT (cathode ray tube) – The incumbent “big box” display technology, CRTs use cathode ray guns that shoot
electrons through a tube onto a screen coated with luminous phosphors.
• LCD (liquid crystal display) – LCD uses liquid crystals in between two coated sheets of glass. LCD enables
high-quality displays with thin form factors and is the most promising display technology.
• Plasma – Plasma is a flat-screen technology that uses tiny cells lined with phosphor that are full of inert
ionized gas. Currently enables the largest sized flat panel TVs (though LCD is catching up).
• DLP (digital light processing) - A MEMS-based technology that uses tiny mirrors to reflect an image onto the
screen. Enables large screen TVs that are thinner and lighter than CRTs, but not flat.
• LCoS (liquid crystal on silicon) – LCoS uses liquid crystals coated over the surface of a silicon chip to produce
a tiny image, which is then enlarged and projected onto the TV screen.
• HTPS-LCD (high temperature polysilicon LCD) – This technology, generally deployed in projectors, passes
light through miniaturized transmissive LCD screens to produce an image, which is then enlarged and
projected onto the TV screen.
335
Digital
Digital TV
TV
Digital TV Unit Forecast Key Digital TV Suppliers

•We expect rapid growth in digital TVs Digital CRT LCD TV
sparked by HD content, FCC mandates for TTE
100%
digital broadcasting, and falling prices for Konka 90% Others

Skyworth
components, especially LCD panels. Hisense
80%
TTE
Changhong
•We expect total digital TV units to grow Haier
70% JVC
Toshiba
from 70 million in 2005 to 227 million

Panasonic
Sanyo 60%
LG
SVA
units in 2010, a 26% CAGR. Philips
50%
Sony
•LCDs should be the biggest growth Panasonic 40%

Samsung
Samsung
driver, rising from 21 million units in
30%
Sony Philips
2005 to 123 million units in 2010.

20%
•TVs with integrated digital should rise

10% Sharp
from 18% of total digital TV units in 2005

0%
LCD TV
to 62% in 2010.
Plasma TV Microdisplay TV
250,000 Others
100% 100%
Other (LCOS, LTPS LCD) TTE
Others LG
DLP 90% 90%
Hitachi
Plasma
JVC
200,000 HTPS LCD 80% Sony 80% Toshiba
LCD Pioneer Panasonic
Digital CRT 70% Hitachi 70%
Mitsubishi
150,000 60% Philips 60%

Samsung
50% 50%
Samsung
40% 40%
100,000
LG
30% 30%
20% 20% Sony

50,000
Panasonic
10% 10%
0% 0%
- PDP TV DLP, LCOS, HTPS TV
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Display Search, IDC, CIBC World Markets Corp.

Source:Display Search, CIBC World Markets Corp.
Digital TV Unit Forecast: We expect rapid growth in digital TVs sparked by HD content, FCC mandates for digital
broadcasting, and falling prices for components, especially LCD panels. We expect digital units to grow from 70
million in 2005 to 227 million units in 2010 a 26% CAGR. By 2010 we expect 95% of total TVs to be digital.
LCDs should be the biggest growth factor, rising from 21 million units in 2005 to 123 million units in 2010. The
market should benefit as gen 8+ LCD glass fabs come online, driving panel prices lower. Plasma, the most direct
competitor with LCD, should also grow at a healthy 29%, though it will remain just below 10% of units. Digital CRT,
the largest segment today, should decline as a percentage of total from 58% of units in 2005 to 36% in 2010. DLP,
LCoS, LTPS and HTPS should all grow but will remain small percentages of the market, serving niche segments.
Note that TVs with integrated digital should rise from 18% of total digital TV units in 2005 to 62% in 2010. The CAGR
for integrated digital TVs through 2010 should approximate 63%, though off a small base in 2005 (12.4 million units).
Digital TV Suppliers: Dozens of players serve the digital TV market, including incumbent analog TV makers in
Japan, Europe, and Korea, as well as new ODMs in Asia. Top suppliers of LCD TV include Sharp, Philips, Samsung,
Sony, and LG. Top suppliers of plasma include Panasonic, LG, Samsung, Philips, and Hitachi. Top suppliers of
microdisplay TVs (DLP, LCOS, HTPS) are Sony, Samsung, Mitsubishi, Panasonic, and Toshiba. Top suppliers of digital
CRT include Thomson, Konka, Skyworth, Hisense, and Changhong.
336
Digital
Digital TV
TV
Decodes and decompresses

Receives the analog the encoded digital signal into Performs digital
signal from the tuner audio and video signals image generation Scales the image for
and performs analog Converts the digital signal
production on the screen,
processing to analog for video and
DRAM is used by the DRAM is used by the scaler
Demodulates the signal audio out functionality and
Tunes the and converts it to digital MPEG-2 decoder and to drive speakers
incoming digital the graphics processor
terrestrial signal
Scaler/ CRT/ LCD/

Front End Back End De-interlacer/ Plasma/ DLP
DRAM
Image Processor Screen
Digital TV Analog 8VSB/
Digital DRAM
Signal Front COFDM
Tuner
Feed End Demod
Graphics Graphics Video Video Out
Processor Encoder DAC
HDMI/DVI HDMI MPEG
Input Interface Decoder
Audio Audio Post- Audio Speakers/
Processor Processor DAC Audio Out
RCA/Component Video ADC Micro-

Input processor
Audio ADC
Analog TV/
DRAM Flash
Cable/Satellite RF/tuner
Performs any additional
Feed (Coax) audio encoding (such as Performs additional
Performs digital Dolby Digital, DTS, etc.) video processing and
audio generation
Converts the analog encoding (such as
signal from RCA, Control plane NTSC, PAL, etc.)
Receives component, terrestrial, or Microprocessor - controls
Interfaces with the coaxial
HDMI or DVI cable/satellite to digital overall system functioning
cable/satellite feed and tunes
the incoming analog signal digital input DRAM, flash - memory
used by the processor
Note: The block diagram above and the discussion below apply to integrated digital TVs, which use the
maximum amount of semiconductor content. Digital ready TVs have a similar back end, but the front end
lacks the digital tuner and associated analog front end components.
Digital TV designs are similar to those of set-boxes, with a few architectural differences. First, the front end is
specifically designed for digital terrestrial signals, from the tuner to the analog front end to the demodulator. Analog
tuners and ADCs are included as well to handle legacy analog input. The back end ICs are largely the same as a set-
top, with the addition of scaler, deinterlacer and cone filters to produce the actual image on the screen. These image
processing functions are similar to those found in a PC flat panel display and are usually performed on a single IC.
Other ICs found in a digital TV include those that produce the actual image. We do not include these in our block
diagram, as they vary markedly based on the display technology. For example, LCD and HTPS TVs require LCD
drivers and timing ASICs, plasma screens require plasma drivers, DLP TVs require a DLP MEMS array and controller
chipset, and LCoS TVs require an LCoS engine.
Front End
• Digital Tuner (only used in integrated digital TVs): The digital tuner receives the digital terrestrial signal from
either an antenna or digital terrestrial receiver and tunes it to the proper RF frequency. TVs can have multiple
tuners to support picture-in-picture or other functionality.
337
• Analog Front End (only used in integrated digital TVs): The analog front end receives the signal from the tuner.
• 8VSB/COFDM Demodulator (only used in integrated digital TVs): The demodulator chip demultiplexes the
8VSB/COFDM signal and converts it to a digital stream for decode and processing by the digital back end. This
chip can be integrated with the analog front end for an integrated digital TV front end ASSP.
• RF/Tuner: An analog tuner receives input from either an antenna or from a cable/satellite set-top box.
• Video A/D Converter: A video analog-to-digital converter converts the video signal received from either the
RF/tuner or RCA/component/S-Video input to digital.
• Audio A/D Converter: An audio analog-to-digital converter converts the audio signal received from either the
RF/tuner or RCA input to digital.
• HDMI/DVI interface IC (only used in TVs that support HDMI or DVI): A specialized interface IC receives HDMI
or DVI digital input. Note that in the case of HDMI, the audio signal is transmitted alongside the video; in DVI,
the audio is taken in separately via RCA cables.
Back End
• MPEG Decoder: The MPEG decoder decodes and decompresses the digital signal into audio and video signals.
• Graphics Processor: The graphics processor performs digital image generation, adding graphic items associated
with on-screen menus and other features. Usually integrated into the DTV back-end ASSP.
• Graphics Encoder: The graphics encoder performs additional processing and encoding on the video signal, such
as NTSC, PAL, etc. Also usually integrated into the DTV back-end ASSP.
• Audio Processor: The audio processor is a DSP that performs digital audio generation. Also usually integrated
into the DTV back-end ASSP.
• Audio Post-Processor: The audio post-processor performs any additional audio encoding, such as Dolby Digital,
DTS, etc. Also sometimes integrated into the DTV back-end ASSP.
• Microprocessor: A microprocessor performs control plane functions and runs the DTV system software including
menus, features, and effects. It is sometimes embedded in a DTV back-end ASSP, though more advanced TVs
will use a discrete processor.
• Flash/DRAM: The MPEG decoder and microprocessor use a variety of memories.
Back End Image Processing

• Image Processor: An image processor performs scaling, deinterlacing and cone filter functions. In newer
designs, the image processor is integrated with the back end decode processor for a full DTV back-end SoC.
• DRAM: The image processor uses DRAM memory.
Back End Interface

• Video D/A Converter: A video digital-to-analog converter converts the video signal to analog format for video
out functionality over RCA cables.
• Audio D/A Converter: An audio digital-to-analog converter converts 16-bit stereo samples into left and right
alternating-current audio signals for audio out.
338
Digital
Digital TV
TV
Digital TV Semiconductor Digital TV Semiconductor

•Digital TV semiconductors should grow Others Matsushita
at a 15% CAGR, from $2.3 billion in 15 % 11 %
2005 to $4.7 billion in 2010.
•Front end ICs should grow at a 33% Samsung
NXP/Philips
CAGR, benefiting from both unit growth Zoran 2 %
11 %
3%
and rising penetration of digital tuners. Silicon Image
•Integrated DTV back ends should grow 3%
at a 55% CAGR as they replace Micronas

4%
Sharp
standalone MPEG decode and image 8%
ALPS
processors in mainstream DTVs. 4%
•Interface ICs should face price pressure Renesas Genesis
6%
and integration. 4%
Toshiba
$5,000 5% ATI
Audio/Video Post-processing, MCU, and Interface
Pixelworks Trident 6%
$4,500 Integrated DTV back-end (MPEG + image) Sony
Image Processor
5% 5% 6%
$4,000 MPEG Processor
$3,500
Front End Tuner and Demodulator
Custom DTV Merchant DTV
$3,000 ASICs ASSPs

$2,500
Matsushita Trident
$2,000
NXP/Philips ATI
$1,500
Sharp Genesis
$1,000
Sony Pixelworks
$500 Toshiba Zoran
$0 Renesas Broadcom
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, CIBC World Markets Corp. Source:IDC, CIBC World Markets Corp.
Digital TV Semiconductor Forecast: The market for digital TV semiconductors should see one of the fastest
growth rates and largest SAMs in the semiconductor industry, driven by strong unit shipments and the increased
penetration of integrated digital, which requires increased IC content. Note that revenue growth will trail units due to
integration trends which will decrease the total semiconductor BOM and pressure ASPs for discrete components. In
total, we expect the market to grow from $2.3 billion in 2005 to $4.7 billion in 2010, a 15% CAGR.
By device type, front end ICs should grow at a 33% CAGR, benefiting from both unit growth and rising penetration of
digital tuners. Integrated DTV back ends should grow at a 55% CAGR as they replace standalone MPEG decode and
image processors in mainstream DTVs; discrete MPEG and image processors should grow 15% and 4%, respectively,
as these devices maintain their niche at the high-end. Audio/video post-processing, MCU, and interface ICs also face
price and integration pressure and should decline at a 6% CAGR.
Digital TV Semiconductor Competitors: The digital TV semiconductor market was once served primarily by ASIC
suppliers selling internally in Japan and Europe, though their positions have been eroding over time as ASSP suppliers
have been entering the market with competitive solutions. Note that vertically integrated OEMs will likely still
embrace the ASIC model at the high end in an effort to better differentiate their products. The top suppliers of digital
TV semiconductors in 2005 were vertically integrated TV makers Matsushita, NXP/Philips, and Sharp, followed by
ASSP suppliers Genesis, ATI, and Trident. Other major suppliers include Sony, Pixelworks, Toshiba, Renesas, Alps,
Micronas, Silicon Image, Zoran, and Samsung. Note that Broadcom recently entered this market as well.
339
Digital
Digital TV
TV
Digital TV Display Digital TV Display

•Semiconductors sold into the display
mechanism within a digital TV are a LCD/PDP Drivers
separate market from signal and image
processing, warranting separate discussion. Samsung Sharp
•We expect a 24% CAGR, from $1.6 billion NEC Magnachip
in 2005 to $4.9 billion in 2010. Matsushita Seiko Epson
•LCD drivers are the largest market and Oki Electric Sanyo
have the highest CAGR at 39%, benefiting Novatek STMicroelectronics
from both unit volumes and larger screens. Himax Solomon Systech
•Plasma should grow at a 15% CAGR, while Sunplus Toshiba
DLP/LCoS should grow 5%. Renesas
$6,000
DLP/LCoS Devices
$5,000 PDP Drivers DLP

Texas Instruments
LCD Drivers
$4,000
LCoS
$3,000
JVC
$2,000
$1,000 Sony
Source: Garner, CIBC World Markets Corp.
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Digital TV Display Semiconductor Forecast: Semiconductors sold into the display mechanism within a digital TV
are a separate market from signal and image processing (discussed on the previous page), warranting separate
discussion. We expect the display market to grow at a stronger rate than the signal and image processing market,
driven by the shift from CRT to advanced display technologies like LCD and plasma (and to a lesser extent DLP and
LCOS) which require more semiconductor content than legacy technologies like CRT. In total, we expect the market
to grow at a 24% CAGR, from $1.6 billion in 2005 to $4.9 billion in 2010.
By device type, LCD drivers are the largest market and have the highest CAGR at 39%, benefiting from both unit
volumes and larger screens. Plasma should also grow at a healthy rate of 15%, though it will lose share to LCD over
time. DLP and LCoS will likely occupy a niche market and should grow at a 5% CAGR; note that revenue for this
segment is expected to peak in 2007 as large screen flat panel TV pricing becomes more competitive, eroding the
growth rate for DLP and LCoS.
Digital TV Display Semiconductor Competitors: The digital TV display semiconductor market is served by
vendors of LCD and PDP drivers, DLP MEMS devices, and LCoS engines. Besides the notable exception of Texas
Instruments, the top suppliers of these components are all based in Asian and Japan. The top suppliers of LCD/PDP
drivers include Samsung, NEC, Matsushita, Oki, Novatek, Himax, Sunplus, Renesas, Sharp, Magnachip, Seiko Epson,
and Sanyo. Texas Instruments is the sole supplier of DLP chipsets, while JVC and Sony produce LCOS engines.
340
Digital
Digital TV
TV
Digital TV Semiconductor Market Trends

•Sparked by FCC mandates, integrated
digital TVs are penetrating the U.S. market.
•Digital penetration is set to ramp globally
as other countries gradually shut off analog
transmission.
•Japanese OEMs which lead the TV space
remain committed to internal ASICs for the
high end, but are starting to leverage
merchant solutions for mainstream models.
•Imaging processing remains a key focus for semiconductor vendors.
•Integrated solutions for front and back end are coming to market to
drive down cost.
•Incumbents in the digital set-top box, DVD, graphics, and display IC
markets have rushed into digital TV.
•HDMI is now a standard feature on advanced TVs.
•1080p-capable TVs are now widely available, but content is lacking.
•OEMs are exploring home networking solutions to connect digital TVs
to set-tops, PCs, A/V devices, and peripherals.
• Sparked by FCC mandates, integrated digital TVs are penetrating the U.S. market. The FCC currently
mandates that all analog transmission will end in February 2009 and in support of the mandate, all TVs sold in the
United States as of March 2007 must have an integrated digital tuner. This is driving additional opportunity for IC
vendors, particularly for tuners, demodulators, and MPEG decoders.
• Digital penetration is set to ramp globally as other countries gradually shut off analog transmission.
Global dates for analog shutoff vary significantly by region (Germany and the Netherlands in 2006, Finland in
2007, Denmark in 2009, emerging markets in 2010 and beyond, etc.). Note that certain regions may experience
early penetration of digital TV in advance of the planned analog shutoff date (China will likely have substantial
digital broadcasting available for the 2008 Beijing Olympics).
• Japanese OEMs which lead the TV space remain committed to internal ASICs for the high end, but are
starting to leverage merchant solutions for mainstream models. Many of these OEMs will continue ASIC
development for the high end in an effort to better differentiate their product offerings, but are turning to
merchant solutions for low-end models. This is similar to the strategy they originally pursued in the DVD market.
• Imaging processing remains a key focus for semiconductor vendors. Image processing remains a key
focus for chip vendors, especially as screens become larger (problems with image quality become more noticeable
on larger screens). 1080p, 3D motion processing, and multiple MPEG streams also present technical challenges.
341
• Integrated solutions are coming to market to drive down cost. DTV ASSPs now in the market look similar
to set-top box front and back end ASSPs, but include the additional content unique to digital TV, such as
terrestrial demodulation functions on the front end and scaling and deinterlacing functions on the back end. Note
that these solutions are initially targeted for the low end of the market as they are optimized for cost and
integration rather than image quality (though this will likely change over time).
• Incumbents in the digital set-top box, DVD, graphics, and display IC markets have rushed into digital
TV. The list of component suppliers includes vendors from the set top box (Broadcom, Sigma Designs), DVD
(Zoran, MediaTek), graphics (ATI, Trident) and display (Genesis, Pixelworks) segments.
• HDMI (High-Definition Multimedia Interface) is now a standard feature on advanced TVs. HDMI is the
digital interface standard for the consumer electronics industry and has throughput of up to 5 Gbps, ideal for
HDTV applications. Today HDMI is implemented mostly with discrete I/O ICs, though this functionality is
gradually being integrated into the image processor for mid-level DTVs. High end DTVs will likely continue to use
discrete HDMI ICs for performance reasons as OEMs target image quality rather than cost savings—these TVs are
now beginning to include multiple HDMI inputs. Note that low-end DTVs do not ship with HDMI capability, though
this will change over time.
• 1080p-capable TVs are now available but HD content is lacking. TVs capable of displaying 1080p content
are now in the market, though the high levels of bandwidth required have limited the amount of content that
service providers can offer at this pixel rate. Note that this is gradually changing due to improvements in
compression technologies, as well as the launch of Sony’s PS3 which is 1080p-capable.
• OEMs are exploring home networking solutions to connect digital TVs to set-tops, PCs, A/V devices,
and peripherals. Candidates being tested include wireless technologies like 802.11n and UWB, powerline
networking like HomePlug, and coax networking technologies like MoCA and HPNA.
342
DVD
DVD
DVD has emerged as one of the fastest growing and

most pervasive consumer electronics technologies
ever, with over 150 million players shipped in 2005.
Consumers have demonstrated a willingness to pay
for the superior quality of commercial read-only
movies. Compatibility with PC and game console
media formats have also helped ubiquitize DVD.
Consumer electronics DVD is now evolving on a
number of fronts. New home theater and digital TV
systems regularly incorporate DVD functionality.
Automotive and portable DVD have gained
considerable consumer adoption. DVD recording is
gaining traction and should get a boost from
DVR/DVD-recorder units in the future. DVD audio is
in the early stages but looms as a future driver.
DVD has emerged as one of the fastest ramping consumer electronics technologies ever, with more than 150 million
consumer decks shipped in 2005. Sales have been driven primarily by strong demand for the superior quality of
commercial read-only movies for the home; oddly enough, this is true for the PC market as well, where consumers
use the DVD drive for little more than watching DVDs on their PCs (though this is changing). DVD is also used in
game consoles and has future opportunities in both consumer electronics and PCs for video recording, data storage
and audio; these loom as future demand drivers but are unlikely to surpass read-only movies in the short term.
DVD’s success has been due to a convergence of a number of market drivers:
• Broad-based OEM support for the DVD video standard, avoiding a VHS vs. Beta standard war.
• Steadily declining component and device price points globally, pushing the premium over VHS to nearly zero.
• A clear value proposition for consumers, especially given the lower price points of players and media.
• Compatibility with PC and game console media formats.
• Support of studios, with new films moving to DVD and releases of older movies steady.
• Robust security and copy protection, especially compared to CDs, reassuring content owners.
• Support of major video rental chains, which are now organizing their retail locations around DVD.
• New business models such as Netflix are creating new penetration points into consumer demand for movies.
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DVD
DVD
Next generation blue laser DVD formats are now coming

to market. Today’s DVDs do not offer enough capacity
for high definition video, and OEMs and content owners
are looking to drive yet another upgrade cycle now that
HDTV sets have reached mainstream price points.
Two incompatible standards are competing to succeed
DVD, Blu-ray and HD-DVD. OEMs have lined up behind
one or the other, with no resolution currently in sight.
Major Supporters Major Supporters

Sony Toshiba
Hitachi NEC
Philips Sanyo
Panasonic Microsoft
Pioneer Intel
LG
Next generation blue laser DVD formats are now coming to market. Today’s DVDs do not offer enough capacity for
high definition video, and OEMs and content owners are looking to drive yet another upgrade cycle now that HDTV
sets have reached mainstream price points.
Two incompatible formats are currently being promoted to succeed DVD: Blu-Ray and HD-DVD. Blu-Ray can store 25
GB of data on a single-layer disc or 50 GB on a dual-layer disc; transfer speed is 36 Mbps. Blu-Ray is supported by
hardware vendors including Sony, Panasonic, Philips, Pioneer, Hitachi, LG, and others. Note that Sony’s Playstation 3
game console includes a Blu-ray drive.
HD-DVD can store 15 GB of data on a single-layer disc or 30 GB on a dual-layer disc; transfer speed is also 36 Mbps.
HD-DVD is supported by hardware vendors including Toshiba, NEC, and Sanyo as well as Intel and Microsoft. Note
that Microsoft offers an add-on HD DVD drive for the Xbox 360.
At present, both formats appear viable and have strong hardware, software, and content owner support.
Unfortunately, this should delay meaningful volume of either format as consumers wait to see which will eventually
win out before investing. In the meantime, a number of OEMs are pursuing universal players or are supporting both
formats. This would include the major PC OEMs Dell, HP, and Apple as well as consumer electronics OEMs like
Samsung.
344
DVD
DVD
DVD Player and Recorder Key DVD Player and

Unit Forecast Recorder Suppliers
•We expect DVD players and recorders to
grow from 154 million units in 2005 to DVD Players
207 million units in 2010, a 6% CAGR.
Funai Panasonic
•DVD recorders should see a 43% CAGR,
rising to 48 million units in 2010; LG TCL
standalone DVD players should decline at Sony Tonic
a 20% CAGR. Samsung Philips
•Portable, automotive and home theater Cyberhome Thomson/RCA
DVD players should outpace the market. Orion Sharp
•Blue laser formats should take time to Vestel D&M
ramp as consumers hold off for a single
winning standard.
200,000
Blue Laser DVD
DVD Home Theater & Combo
DVD Recorders
175,000
Panasonic Sony
DVD Portable & Auto
DVD Players
LG Samsung
150,000
125,000 Cyberhome Vestel

100,000 Philips Toshiba

Funai Orion
75,000
50,000
25,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
DVD Player and Recorder Unit Forecast: DVD unit growth has very strong over the past several years, as OEM
and ODMs have met consumer demand with inexpensive players. This helped drive a big upgrade cycle vs. VCRs and,
in fact, grew the market beyond VCRs in unit terms. Note that growth has been decelerating and was up 20% in 2005
(vs. 42% in 2004 and 72% in 2003), mostly due to a slowdown in developed markets, where penetration is high.
Going forward, we expect units to grow at a 6% CAGR, from 154 million in 2005 to 207 million in 2010. DVD
recorders should see a 43% CAGR, rising to 48 million units in 2010. Portable and home theater DVD players should
follow, growing 11% and 7% respectively. Standalone players should decline at a 20% CAGR, representing 12% of
the market in 2010. Blue laser should take time to ramp as consumers hold off for a single winning standard; our
estimate is 30 million players in 2010.
DVD Player and Recorder Suppliers: The DVD market is highly fragmented and has undergone some significant
share shifts as ODMs have commoditized the market. The largest supplier of DVD players is Japanese ODM Funai,
which produces DVD players for many of the recognizable Japanese brands. Branded players LG, Sony, and Samsung
were next, followed by a number of ODMs (Cyberhome, Orion, Vestel, TCL, Tonic). Branded players like Panasonic,
Philips, RCA, Toshiba, and JVC also participate but tend to use ODMs for actual player production.
On the DVD recorder side, most of the large electronics OEMs produce their own decks, though ODMs are starting to
penetrate. Top vendors include Panasonic, LG, Cyberhome, Philips, Funai, Sony, Samsung, Vestel, Toshiba and Orion.
345
DVD
DVD
This ASSP This ASSP performs

demodulates the the first level of digital
analog signal and processing on the
converts it to digital signal, preparing it for
decode and performing The front end
error correction control decoder requires
external DRAM
Converts the analog
video and audio signal
to digital for recording
Front End
Servo/Motor Digital ASSP DVD Recorder Only
Drivers Front End
Analog Front End
Servo
RF Demod- Decode/
DVD ASSP Control
(Encode*)
DRAM Video
Amp Video In
Drive ulator
ADC
Bay Laser
Driver MPEG-2 Audio
Decoder (Encoder*) ADC Audio In
ROM Back End Video
Video Video Out
Amplifies the signal
SRAM Digital Encoder
coming from the DAC
ASSP
DVD read laser Audio
DRAM Audio
MPU Processor Audio Out
DAC
Controls the DVD
read (and write) laser The back end
ASSP uses a
variety of external Converts the digital
memories video and audio
This ASSP decodes, signals into analog and
decompresses, and sends it to the TV/audio
processes encoded digitals system
signal into audio and video
signals
* DVD recorders require that the

front end and MPEG-2 decoders
Source: IDC, CIBC World Markets Corp. double as encoders
Like set top boxes, DVD player semiconductors can be broken down into a front end block and a back end block. The
front end reads the DVD and performs analog to digital conversion and preliminary decoding, as well as drive bay and
laser control. The back end decodes the signal and processes it into video and audio signals for transmission to the
TV. In a DVD recorder, additional silicon is required to take in video and audio and the back end and front end
decoders double as encoders.
Note that PC-based DVD drives have a similar design, but ends at the front end; back end processing is done on the
host PC. The market for PC-based DVD drives is discussed earlier in this document in the section on optical drives.
Front End
• Laser Driver: The laser driver controls the DVD read (and write) laser.
• RF Amp: The RF amp amplifies the signal coming off the DVD laser.
• Front End Analog ASSP: The front end analog IC includes the demodulator and servo/motor driver. The
demodulator receives the signal from the RF amp and converts it to a digital format to be processed. The
servo/motor driver controls the movement of the drive bay.
346
• Front End Digital ASSP: The front end digital IC includes the servo control, read channel DSP, and front end
decoder. The servo control DSP controls the servo driver and is also responsible for error correction control. The
read channel DSP and front end decoder perform the first layer of digital processing on the digital signal and
prepare it for back end video/audio processing. In a DVD recorder, it also encodes the MPEG-2 stream and writes
it to the DVD.
• DRAM: DRAM memory is used by the front end decoder.
Back End
• Back End Digital ASSP: The back end digital IC includes an MPEG-2 decoder, video encoder, audio processor,
and embedded microprocessor. The MPEG-2 decoder decodes and decompresses the digital signal into audio and
video signals. In a DVD recorder, it also encodes the video and audio signal and compresses it into the MPEG-2
format. The video encoder performs additional processing and encoding on the video signal before it is sent to
the TV, such as NTSC, PAL, etc. The audio processor is a DSP that performs digital audio generation. The
microprocessor performs system control plane functions and runs the DVD player software.
• ROM, SRAM, DRAM: The back end IC uses a variety of memories.
Progressive Scan (only found in Progressive Scan DVD players)

• Video De-interlacer (not shown in diagram): This DSP breaks the signal down into separate rows for
progressive scan video. It is usually integrated with the progressive video encoder.
• Progressive Video Encoder (not shown in diagram): This encoder implements the Progressive Scan format and
sends the signal out to the TV. It is usually integrated with the video de-interlacer; in some cases both the
interlacer and encoder are integrated in with the back end digital ASSP to create a progressive scan-capable back
end ASSP.
• DRAM (not shown in diagram): The video deinterlacer uses DRAM memory.
Back End Interface

• Video and Audio D/A Converters (DACs): Video and audio digital-to-analog converters convert the video and
audio signal to analog format to send it to the TV over RCA cables.
• Video and Audio A/D Converters (ADCs) (DVD recorder only): Video and audio analog-to-digital converters
receive the analog video and audio input to be recorded.
• ATA/SATA Controller (hard disk drive-enabled DVD recorder only): Some DVD recorder decks include hard disk
drive functionality. In these drives, an ATA/SATA controller interfaces between the back end IC and the hard disk
drive.
347
DVD
DVD
DVD Semiconductor DVD Semiconductor

•We expect DVD semiconductors to Others
grow at a 4% CAGR, rising from $1.6 17 %
billion in 2005 to $2.0 billion in 2010. Mediatek
•Unit growth and an increasing mix of NXP/Philips 30 %
higher-ASP DVD recorder ICs should be 2%
Sony
partially offset by ASP pressure and 2%
device integration. Cheertek
3%
•DVD recorder penetration is also TI
driving increased content for PC and 3%
peripheral interface ICs. Toshiba

3%
$2,500 LSI Logic
ESS
PC/Peripheral Interface ICs 10 %
A/V Interface ICs
5%
$2,000 Back End ICs NEC
Front End ICs 5% Zoran
SunPlus 9%
9%
$1,500
DVD Player DVD Recorder

$1,000
Mediatek LSI Logic
Zoran NEC
$500
SunPlus Mediatek
ESS TI
Toshiba NXP/Philips
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IDC, CIBC World Markets Corp. Sony SunPlus
DVD Semiconductor Forecast: We expect DVD semiconductors to grow at a 4% CAGR, rising from $1.6 billion in
2005 to $2.0 billion in 2010. Unit growth and an increasing mix of higher-ASP DVD recorder ICs should be partially
offset by normal ASP pressure and device integration. Note that in addition to the increased front and back end
content in DVD recorders, these high end decks are also driving increased content for PC and peripheral interface ICs.
We expect these ICs to grow to around 7% of DVD semiconductor content in 2010.
With regards to blue laser DVD, we estimate that ICs attributable to these players will top $530 million in 2010, 27%
of total DVD IC revenue. Those players will likely be implemented with custom ASICs with high ASPs. ICs associated
with DVD players should decline at a 20% CAGR, representing 17% of IC revenue in 2010, largely due to much lower
ASPs for player-only blue laser decks. DVD recorder ICs should grow 14%, to 57% of total revenue in 2010.
DVD Semiconductor Competitors: Vertically integrated system houses utilizing internal ASICs, primarily in Japan,
originally dominated the DVD semiconductor market. As the market has grown, however, cost has become the focus,
driving the market to merchant ASSP solutions. The market leader in 2005 was Taiwanese fabless supplier MediaTek,
with 30% share overall, though it has been less successful in DVD recorders. LSI Logic was the No. 2 supplier in 2005
with 10% share%; LSI led the DVD recorder segment with 26% share. Zoran and SunPlus each followed with 9%
share; both are strong in the DVD player segment. NEC, strong in DVD recorder, and ESS, positioned at the low end
of the player market and in VCD, each held 5%. Other players include Toshiba, TI, Cheertek, Sony, and NXP/Philips.
348
DVD
DVD
DVD Semiconductor Market Trends

•DVD players are heading toward single-chip designs.
•DVD back-end ASSPs are incorporating more high-end
processing and encoding.
•IC vendors are all looking to the recorder market to fuel growth.
•Integration in the DVD recorder IC market is happening at a
slower pace than for DVD player ICs.
•DVR/DVD-Recorder decks represent the next generation of
consumer video appliances.
•The standards battle continues between Blu-ray and HD-DVD;
merchant IC players are already enabling combo players.
• DVD players are rapidly heading towards integrated single-chip designs. The major ASSP suppliers have
been aggressive with their integration roadmaps. Most designs use a single digital ASSP with front and back end
functions along with an analog front end ASSP; while others take it a step further with single-chip DVD players.
Note that integration in the DVD recorder IC market is happening at a slower pace than for DVD player ICs.
• DVD back-end ASSPs are incorporating more high-end functionality. Examples include support for
progressive scan, in-motion zooming, DVD audio, MP3 encoding, high performance graphics processing, MPEG-4
and DivX video, copy protection, NTSC/PAL decoding and USB/flash card interfaces.
• IC vendors are all looking to the recorder market to fuel growth. With margins compressing on the player
side and the semiconductor revenue plateauing, most back end vendors have turned their attention to the
recorder market. We expect specialization and integration to take hold in this market as volume ramps.
• DVR/DVD-Recorder decks represent the next generation of consumer video appliances. Standalone
DVRs are giving way to decks that include the ability to store video content optically for long-term storage.
• The standards battle continues between Blu-ray and HD-DVD. As discussed above, each has solid
hardware and content support. Until one emerges as the clear successor to DVD, consumer adoption should be
minimal. Whenever adoption does take off, the DVD IC market should see a nice boost in ASPs. Note that IC
vendors are already enabling universal players that support both formats.
349
Digital
Digital Cameras
Cameras
One of the first consumer electronics applications to

broadly and successfully “go digital,” digital cameras
have surpassed sales of 35 mm cameras globally, and
camcorders have also followed suit.
Digital cameras and camcorders now address all
segments of the market, from the value segment to
the professional market with new digital SLRs. Only
the lack of a pervasive and efficient digital
photofinishing infrastructure holds back penetration
growth. Even there, the rise of photo-capable printers
is ushering in an all-digital world for photography.
One of the first consumer electronics applications to broadly and successfully “go digital,” digital cameras have
surpassed 35 mm analog cameras globally and digital camcorders have followed suit. Digital models now address all
segments of the market, from the value segment to the professional market. Only the lack of a pervasive and
efficient digital photofinishing infrastructure holds back penetration growth, though photo printers and online printing
services like Snapfish and Ofoto (now called Kodak EasyShare Gallery) are helping finish off analog cameras.
Key trends impacting the sales of digital cameras and camcorders include:
• Declining prices plus aggressive competition = increase in consumer demand.
• Increasing broadband penetration enabling digital image sharing and printing.
• Improvements in product quality: cameras have gotten steadily smaller, picture quality has improved, and LCD
screens are now larger and sharper.
• USB and Firewire connections have replaced proprietary serial-port based connectors, improving connection speed
and allowing for universal connectivity across PCs.
• PC OEMs and software providers are increasingly focusing on digital media, improving the support structure for
digital imaging on the PC.
• Rising penetration of consumer photo printers, in some cases with direct wired/wireless links to digital cameras.
350
Digital
Digital Cameras
Cameras
Digital Camera Unit Key Digital Camera

Forecast Suppliers
•We expect digital still cameras and
Others
camcorders to grow at a 4% CAGR, 13 % Sony
rising from 107 million units in 2005 to 18 %
Casio
132 million units in 2010. 4%
•The market should reach a plateau in Samsung
2008 as global penetration peaks. 4%
•Digital still cameras should remain HP
4%
nearly 90% of unit shipments with
digital camcorders representing the Panasonic
4%
Canon
18 %
balance.
140,000 FujiFilm
Digital Camcorders 7%
120,000 Digital Cameras
Nikon
8% Kodak
100,000
Olympus 12 %
9%
80,000
60,000 Digital Still Digital

Camera Camcorder
40,000
Canon FujiFilm Sony
20,000 Sony HP Canon
-
Kodak Casio JVC
2002 2003 2004 2005 2006 2007 2008 2009 2010 Olympus Samsung Panasonic
Source: IDC, Dataquest, CIBC World Markets Corp. Nikon Panasonic Samsung
Digital Camera and Camcorder Unit Forecast: The digital camera market includes two distinct classes of devices:
digital still cameras (DSCs) and digital camcorders. The technology used in these devices is remarkably similar, and
in fact many digital still cameras are able to record short videos while many camcorders can take digital stills as well.
The market, however, has done a good job of clearly delineating the primary function of these devices and our
forecast is consistent with that distinction.
In total, we expect digital still cameras and camcorders to grow at a 4% CAGR, rising from 107 million units in 2005
to 132 million units in 2010. Digital still cameras should remain nearly 90% of unit shipments; 94 million units in
2005 growing to 117 million units in 2010, a 4% CAGR. Digital camcorders represent the balance; 12.5 million units
in 2005 growing to 14.5 million units in 2010, a 3% CAGR. Note that the market should reach a plateau in 2008 as
global penetration of digital vs. analog peaks.
Digital Camera and Camcorder Suppliers: The market for digital cameras supports a number of players from the
traditional photography, consumer electronics, and computing worlds. In 2005, the market leader was Sony with
18% share overall, with the No. 2 position in DSCs (15% share) and the top position in digital camcorders (with 39%
share). Canon was No. 2 overall with the top position in DSCs (17% share) and the No. 2 position in digital
camcorders (21% share). Kodak rounded out the top 3 with 12% share. Olympus, Nikon, and FujiFilm followed with
9%, 8%, and 7%, respectively. Other major suppliers include Panasonic, HP, Samsung, and Casio, each at 4%.
351
Digital
Digital Cameras
Cameras
This DSP is a specialized

A sensor receives the camera ASSP that performs This block can include
Converts the analog image to digital imaging processing either a Bluetooth or
image from the lens digital to be processed Interfaces with the
and compression wireless LAN chipset USB, Firewire, or
serial cable to connect
up to the PC
CCD/CMOS AFE/A/D Bluetooth/

Lens Digital Image Antenna
Image Converter WLAN Block
Processor
Sensor
The digital image
processor and embedded Flash Interface Interface
MPU use DRAM and flash Microprocessor
for processing and storage DRAM Controller Cable
Video TV
LCD LCD DAC Monitor
Screen Drivers
Memory Power
Flash Battery
Card Management
Converts the digital

image to analog and
Generates the sends the video signal to
image on the LCD Power management the TV over RCA cables
screen ICs control and
optimize the use and
delivery of power
Digital camera semiconductors have come a long way in just a few short years as IC vendors have recognized the
large unit opportunity available once cameras hit reasonable price points. Although most devices are designed
internally as custom ASICs, the level of integration and specialization in the analog, digital and even image sensor ICs
has been remarkable.
In a typical camera implementation, an image sensor receives the image from the lens and passes it to an analog
front end, which converts the image to a digital format. A digital image processor DSP then processes the image and
stores it in a flash memory card, usually with some level of file compression. The image can then be passed to a host
computer either through an interface cable (usually USB) or Bluetooth or wireless LAN, or it can be displayed on a TV
monitor. Most cameras also have an on-board LCD screen for image display and manipulation and for camera setting
and memory bank management.
Front End
• CCD/CMOS Image Sensor: The image sensor receives the image from the lens. It can either be a CCD
(Charged Coupled Device) or a CMOS-based (silicon) image sensor.
352
• Analog Front End(AFE) / Analog-to-Digital-Converter (ADC): This ADC converts the image from analog to
digital for processing and storage.
Back End
• Digital Image Processor: This DSP is a specialized ASSP that processes the image signal. It usually has an
embedded microprocessor to run the camera software and LCD display.
• DRAM and Flash: The embedded microprocessor and the DSP use DRAM and flash memory.
Interface, Power Management and Display

• Interface Controller: Most digital cameras have some sort of short-wire interface to hook up to a PC, either
USB, Firewire, or a proprietary interface through the PC serial port.
• Video Digital-to-Analog Converter (DAC): Some digital cameras and most camcorders allow for hookup to a
television or other monitor through an RCA cable. This signal is converted and driven by a video DAC.
• Bluetooth Baseband and RF/IF (not pictured in diagram) –Bluetooth-enabled cameras can interface wirelessly
with a PC via a personal area network in order to transfer images. They can also use Bluetooth to connect directly
to a photo printer to print out images. In a Bluetooth chipset, the baseband performs the digital processing and
protocol encoding and the RF/IF performs the radio transmission/reception.
• Wireless LAN Baseband/MAC and RF/IF/PA (not pictured in diagram): Wireless LAN-enabled cameras can
interface wirelessly with a PC via an 802.11 wireless LAN in order to transfer images. In an 802.11 chipset, the
baseband/MAC performs digital processing and protocol encoding and the RF/IF/PA performs the radio
transmission/reception and power amplification.
• Power Management: Power management ICs control and optimize the use and delivery of power in the camera
and manage the battery.
• Display Drivers: Display drivers produce the image on the LCD screen.
353
Digital
Digital Cameras
Cameras
Digital Camera Digital Camera

•We expect digital camera ICs, $3.5 billion Image Processor/ASSP
in 2005, to yield a flat CAGR. Revenue Samsung
Others
should peak in 2006 at $3.8 billion.

7%
3%
Fuji Micro
•Image sensors should remain nearly 60% 4%
Fujitsu
of the market; the continued ramp of Matsushita

6%
33 %
higher megapixel cameras should help

mitigate pricing pressure. Zoran
7%
•Image processors should grow in line with
the market; discrete MPUs/MCUs should
TI
7%
decline steadily due to integration.

SunPlus
•Merchant image processors should 8% Sony
continue to displace custom ASICs.

Renesas 15 %
10 %
Camera Image Sensor

$5,000
Image Sensor
$4,500
MPU/MCU Omnivision
Sanyo 1%
$4,000 Imaging ASIC/ASSP
9%
$3,500
$3,000
$2,500
Sharp Sony
24 % 41 %
$2,000
$1,500
$1,000
$500
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010 Matsushita
25 %
Digital Camera and Camcorder Semiconductor Forecast: We estimate that the digital camera IC market totaled
$3.5 billion in 2005 (excludes memory, which is usually implemented with external flash cards). Nearly 60% of this
revenue was derived from image sensors, with the balance derived from image processing and microcomponents.
Looking ahead, we expect digital camera ICs to grow at a flat CAGR, peaking in 2006 at $3.8 billion and declining to
$3.5 billion in 2010. We expect image sensors to grow at a 1% CAGR as the ramp of higher megapixel cameras helps
mitigate pricing pressure. Image processors should be flat as the move to merchant solutions drives IC costs lower;
the slightly slower CAGR for camcorders also plays a part as these ICs carry higher ASPs. Discrete MPUs/MCUs should
decline at a 7% CAGR to represent less than 5% of the market in 2010.
Digital Camera and Camcorder Semiconductor Competitors: The digital camera IC market includes two distinct
markets: camera ICs and image sensors. On the image processor side, the top three vendors in 2005 were ASIC
suppliers, though we would believe their shares eroded in 2006 as merchant solutions gained significant traction. In
2005, Fujitsu was the market leader with 33% share, followed by vertically-integrated camera/camcorder leader Sony
with 15% and Renesas with 10%. Merchant camera ASSP vendor SunPlus held 8%, followed by imaging DSP vendor
TI and ASSP vendor Zoran, each with 7%. Other major suppliers include Matsushita, Fuji Micro, and Samsung.
The top digital camera image sensor supplier in 2005 was Sony with 41% share. Matsushita was No. 2 with 25%,
followed by Sharp with 24% and Sanyo with 9%. Note that these vendors all supply both internally and externally.
354
Digital
Digital Cameras
Cameras
Digital Camera Semiconductor Market Trends

•Merchant image processing solutions have gained significant
ground vs. custom ASICs.
•A shift towards an ODM model to drive lower costs has further
fueled this trend.
•The march toward multi-megapixel cameras continues.
•Digital SLR is starting to take share in the professional market.
•CMOS image sensors are seeing strong adoption in digital SLRs
as well as camcorders, but are being phased out of mainstream
point-and-shoot digital cameras where CCD reigns.
•Digital cameras should see strong increased penetration of
Bluetooth and wireless LAN; UWB is also being evaluated.
• Merchant image processing solutions have gained significant ground vs. custom ASICs. Zoran, SunPlus,
and TI have been the most successful with merchant ASSP solutions, and have made some impressive strides at
top tier OEMs in addition to second string players. Note that the trend toward outsourcing (ODMs) has been
accelerating in the digital camera market, further shifting share to these merchant players.
• The march towards multi-megapixel cameras continues. In 2005, DSCs made a big move towards multi-
megapixel, specifically 5-megapixels and higher, which we estimate represented 60% of total units in 2005. Over
the next few years, 5- and 6-megapixel should serve the low end, with 7- and 8-megapixel moving into the
mainstream. Digital SLR should also represent a growth area as it takes share from analog in the professional
market. The move to higher megapixels should help buffer ASPs in image sensors from normal price pressure.
• CMOS image sensors are seeing strong adoption in digital SLRs as well as camcorders, but are being
phased out of mainstream point-and-shoot digital cameras where CCD reigns. CMOS image sensors
dominate the camera phone market but have made little progress breaking into mainstream DSCs. CMOS has
done well in digital SLRs (>55% share in 2005 and rising) and is starting to gain share in digital camcorders.
• Digital cameras should see strong increased penetration of Bluetooth and wireless LAN; UWB is also
being evaluated. As ASPs for Bluetooth and wireless LAN chipset solutions decline, we expect OEMs to quickly
add wireless connectivity to their cameras. As UWB matures it, too will receive strong consideration.
355
MP3
MP3 and
and Portable
Portable Media
Media Players
Players
The MP3 format has dramatically changed the

entertainment industry, causing headaches for content
owners while being a boon for consumers electronics
providers. With NAND flash prices continuing to fall and
with consumer HDDs readily available, MP3 player sales
have taken off. On the content side, business models
are now evolving to support legal downloads of music.
The next frontier is clearly video. Portable media
players already support a multitude of formats, and the
content ecosystem (both legal and illegal) for video is
following closely behind that of the music industry.
MP3 technology has dramatically changed the entertainment industry and has caused innumerable headaches for
content owners. Content providers have struggled to maintain control of content distribution, even with progress in
DRM technology (there is still little way to ensure that those that use their product have paid for it). Business models
are just starting to evolve to support the legal download of music and video over the Internet.
Though it presents challenge for content owners, MP3 technology has actually been a boon for consumer electronics
providers, as MP3 moved from software run on PCs to stand-alone hardware in the form of digital audio/media
players. These players originally were limited by the high price of memory used for content storage. However, falling
prices for NAND flash and availability of high capacity consumer drives has enabled the market to take off.
The next frontier is clearly video. MP3 players are evolving into full portable media players (PMPs) that can add photo
and video functionality. Apple’s video iPod and Microsoft’s recently launched Zune player are high profile, high
volume examples of this trend. The content ecosystem—both legal and illegal—for video is following closely behind
that of the music industry. It is still unclear how successful content owners will be in monetizing consumption of video
relative to the music industry, but they are clearly trying to learn from the mistakes of their music counterparts in
approaching this trend.
356
MP3
MP3 and
and Portable
Portable Media
Media Players
Players
MP3/PMP Unit Forecast MP3/PMP Suppliers

CAGR, from 140 million units in 2005 to
215 million units in 2010. Apple
26 %
•Flash players should grow at an 11%
CAGR, representing 93% of the market in
2010; increasing capacities, declining costs,
appealing form factors, and suitability for
emerging markets are driving growth.
Creative
•HDD players currently sit at the high end 7%
and incorporate video; over time we expect Others
60 %
iRiver/
flash to incorporate video, eating into the Reigncom
3%
HDD segment; HDD units should decline at Samsung
a 6% CAGR to just 7% of units in 2010. 2%
SanDisk
250,000 2%
Jukebox (HDD) players
Flash players
200,000
Flash Player HDD Player

Apple Apple
150,000
Creative Creative
iRiver/Reigncom iRiver/Reigncom
100,000
Samsung Thomson
50,000
Sandisk Rio Audio
Microsoft (Zune)
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
MP3/Portable Media Player Unit Forecast: 2005 was a particularly good year for MP3 players, with units roughly
tripling vs. 2004. The ramp of flash-based players was the big growth driver with shipments increasing from just 33
million in 2004 to 120 million in 2005; HDD based players also saw nice growth, up 67% YoY. We forecast continued
growth at a 9% CAGR, with units rising from 140 million units in 2005 to 215 million units in 2010.
Flash-based players should grow at an 11% CAGR to represent 93% of the market in 2010. Flash players are
benefiting from increasing capacities, declining costs, and appealing form factors, which are helping drive consumer
adoption and replacement rates. Flash players are also the primary seller in emerging markets.
HDD based players currently sit at the high-end and incorporate video. HDD players should decline at a 6% CAGR
(with a peak in 2007) to represent just 7% of the market in 2010. HDD should lose ground to flash as NAND prices
continue to fall and as these players begin to incorporate video.
MP3/Portable Media Player Suppliers: Flash and HDD-based MP3 players are two distinct products, but most of
the top volume suppliers participate in both segments. The largest supplier in 2005 was Apple, with 26% share and
the top position in both flash (17% share) and HDD (72% share) based players. Creative was No. 2 overall and in
each segment and held 7% total share. Other major vendors include iRiver/Reigncom, Samsung, and SanDisk
(Microsoft’s Zune only hit the market in 2006). Note that the “other” category represents more than 60% of units,
derived from hundreds of marginal flash player suppliers, mostly in emerging markets.
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MP3
MP3 and
and Portable
Portable Media
Media Players
Players
The sound processor and

Interfaces with the This ASSP or DSP is a microcontroller use DRAM
headphone jack to Converts the digital specialized MP3 player device and flash memory for This block can include either
produce the audio signal to analog that performs digital audio processing and storage a Bluetooth or wireless LAN
decompression and processing chipset (or both)
Bluetooth/ Interfaces with the

Antenna USB, FireWire, or
WLAN Block serial cable to connect
up to the PC
Audio D/A Sound
Headphones Processor Interface Interface
Amplifier Converter
(ASSP or DSP) Controller Cable
Memory DRAM
Flash MCU Video
Card Block In video-enabled PMPs, a
Flash video co-processor
performs video decode
OR
Small Form Factor Power
Hard Disk Drive Battery
Management
LCD Readout
A microcontroller runs the

system and manages Power management
memory, power, output, ICs control and
and interface optimize the use and
delivery of power
• Sound Processor: This DSP or ASSP decompresses MP3 files. Increasingly, MP3 SoCs are built with a sound
processor DSP with microcontroller, analog audio, and power management functions integrated around it.
• Audio Digital-to-Analog Converter (DAC) and Audio Amplifier: The DAC converts digital output from the
sound processor to analog audio, while the amplifier drives the sound over the headphone wire. In practice,
either a single analog ASSP performs these functions or else they are integrated into the sound processor SoC.
• Microcontroller: A microcontroller runs the system and manages memory, power, output and interface.
Discrete MCUs are used only at the high-end; most mainstream players integrate them into the sound processor.
Note that clickwheel-enabled players will often have a separate controller just for this function.
• DRAM/Flash: The DSP and microcontroller use DRAM and flash memory.
• Power Management: Power management ICs control and optimize the use and delivery of power in the MP3
player and manage the battery.
• Interface Controller: This IC enables the interface for PC connectivity, usually over USB or Firewire.
• Video Co-processor (not shown in diagram, only used in video-enabled PMPs): In video-enabled PMPs, a
specialized co-processor performs video decode. Audio and video decode will likely be integrated into a single SoC
in the near future.
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MP3
MP3 and
and Portable
Portable Media
Media Players
Players
MP3/PMP MP3/PMP Semiconductor

Semiconductors Forecast Competitors
•We expect MP3/PMP ICs (ex. flash) to ALi
Others
6%
grow at a 6% CAGR, from $1.2 billion in Samsung 2%
2% SigmaTel
2005 to $1.7 billion in 2010. Sony 23 %
•Video co-processors and integrated
3%
Wolfson
audio/video ICs should grow at a 49% 4%
CAGR, to 22% of revenue in 2010. Broadcom
• Audio-only SoCs should remain 4%
dominant at the low end. Telechips

5%
•Emerging feature chipsets should grow
to 32% of total in 2010; these include TI PortalPlayer
FM radio, Bluetooth, WiFi, satellite radio, 9% 18 %
image sensors, and mobile TV.

$1,800
NXP/Philips
I/O, DAC, and
DSP/MCU 11 % Actions
$1,600
Emerging Feature 12 %
Chipsets
$1,400 Video Co-processor
and Audio+Video SoC
Flash Player HDD Player

Audio SoC
$1,200
$1,000
SigmaTel PortalPlayer
$800
Actions NXP/Philips
$600 Telechips TI
$400 PortalPlayer Broadcom
$200
Samsung Wolfson
SigmaTel
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
MP3/Portable Media Player Semiconductor Forecast: We expect MP3/PMP semiconductors to grow at a 6%

CAGR, from $1.2 billion in 2005 to $1.7 billion in 2010. The market should peak in 2007 due to moderating unit
growth, pricing pressure, and integration. Note that ASP pressure for individual ICs should be quite severe, but the
rising penetration of video capability should mitigate this somewhat.
By device, we expect video co-processors and integrated audio/video ICs to grow at a 49% CAGR. Audio-only SoCs
should see a decline as they give way to these integrated decoders, though audio-only will remain dominant at the
low end. Emerging feature chipsets should ramp from a low base to 32% of total in 2010; these include FM radio,
Bluetooth, wireless LAN, UWB, satellite radio, image sensors, mobile TV, and DVR capability.
MP3/Portable Media Player Semiconductor Competitors: The top three supplier of MP3 silicon in 2005 were all
digital audio IC pure-plays. SigmaTel, the leader in flash-based players and the supplier for Apple’s iPod Shuffle, was
No. 1 with 23% revenue share. PortalPlayer followed with 18%; PortalPlayer supplies the audio IC for Apple’s video
iPod and supplied the Nano until 2006. Actions, a Chinese start-up focusing on the low end, was No. 3 with 12%.
Rounding out the top five were NXP/Philips and TI, derived from power management and HDD audio decode ICs.
Other key vendors include Korean IC vendor Telechips, which serves the low end; Broadcom, which supplies Apple’s
video co-processor; Wolfson, which supplies Apple’s audio codec; Sony, which supplies internally; and Samsung,
which supply internally and also began supplying the audio IC for the Apple Nano in 2006.
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MP3
MP3 and
and Portable
Portable Media
Media Players
Players
MP3/PMP Semiconductor Market Trends

•The low end market is consolidating around ASSP vendors that
can offer low cost and integration.
•Discrete codecs, MCUs, and power management chips could be
integrated out in next generation players.
•Support for digital rights management schemes like Play4Sure
will be critical in winning future audio decode designs.
•Video capability has arrived; MP3 players are beginning to
evolve into true portable multimedia players (PMPs).
•Video co-processors should soon give way to integrated
audio/video SoCs.
•Video is captive to HDD players today; as NAND prices decline
and densities rise we will see flash players incorporate video.
•OEMs will look to add new features to differentiate their
products:
•Bluetooth, wireless LAN, UWB
•FM, satellite Radio
•Mobile TV, DVR
•Camera, video capture
• The low end market is consolidating around ASSP vendors that can offer low cost and integration.
OEMs are moving away from more costly DSP+analog solutions and have flocked to dedicated MP3 ASSPs in the
market from a multitude of competitors. Note that the SoC trend is also eroding the opportunities for discrete
audio codecs and power management ICs, as most new SoCs integrate these features.
• Support for digital rights management schemes like Play4Sure will be critical in winning future
designs. Though Apple seems to be sticking with its AAC format for DRM, most other players are adopting DRM
schemes like Janus (DRM 10) to be compliant with the Microsoft-led Play4Sure initiative. IC vendors will have to
offer hardware and software solutions to support DRM to remain competitive in the developed geographies.
• Video capability has arrived. Though for years some player manufacturers have sought a niche by offering
video in their MP3 players, the market got its big push with Apple’s video iPod. At present, these players tend to
use one IC for MP3 and one for video, though these are likely to move to a single audio/video SoC in short order.
• Video should move from HDD to flash. As NAND prices dropped in 2005, major vendors like Apple switched
from HDD to flash for audio-only players. As pricing continues to decline, flash players should incorporate video.
• OEMs will look to add new features to differentiate their products. These include Bluetooth, wireless LAN,
and UWB, FM and satellite radio, mobile TV and DVR, and camera/video capture capability.
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Video
Video Game
Game Consoles
Consoles
The video game console market has consolidated with

just three suppliers: Sony, Nintendo, and Microsoft.
Sony - Sony is the market leader in game consoles

with the PS2 and has just launched its updated version,
the PS3, in late 2006. The PS3 is the most advanced
gaming system on the market, and includes a Blu-Ray
drive and advanced networking features. Sony is also
No. 2 in handheld gaming market with its PSP.
Nintendo - Nintendo lost much of its glory in the console

market and predominantly serves the Japan market along
with younger gamers worldwide. Nintendo launched the
Wii in 2006; a key distinguishing feature is its motion
sensitive controller. Nintendo leads the handheld
segment with its DS and GameBoy product lines.
Microsoft - Microsoft entered the gaming market in 2001

with the Xbox, and was able to cut time-to-market using
standard PC components. Xbox 360 launched in 2005; the
new platform employs a more custom design. Xbox and
Xbox 360 primarily target adult (18-34) gamers.
The video game market has come into its own in the past few years, with console and handheld sales in excess of 60
million units in 2005 and software revenues exceeding movie industry revenue. The market has consolidated to three
players: Sony—which derives a huge chunk of its corporate profits from gaming; Nintendo—the pure-play that helped
develop the market in the 1980s; and Microsoft—attempting to leverage its software capabilities in a new market.
Sony’s game console is the PlayStation 2, or PS2, which followed the wildly popular PlayStation and dominated sales
to all major segments of the market. The PS2 is a highly specialized device with an extremely elegant design; nearly
all components are designed in-house by Sony. The PS3 launched in late 2006; the PS3 includes technology from IBM
and NVIDIA and includes a Blu-ray drive, Bluetooth, wireless LAN, and Ethernet connectivity. On the handheld side,
Sony entered the market late in 2004 with the PSP, a high-end device that also plays movies.
Nintendo lost much of its glory in the console market and now predominantly serves the Japanese market along with
younger gamers with its lower-cost GameCube console. This may change as Nintendo ramps its Wii console in late
2006. A distinguishing feature of the Wii console is its motion sensitive wireless controller and the system’s
affordability. In handhelds, Nintendo is by far the market leader with its GameBoy Advance and DS platforms.
Microsoft entered the gaming market in 2001 in a bid to diversify its revenue base and leverage its software
competencies. Microsoft used PC components to speed time-to-market for the Xbox, but has moved away from that
model with the Xbox 360, which launched in late 2005 and has seen solid traction in 2006.
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Video Game Consoles
Sony PlayStation 2 Sony Playstation 3
With an installed base of Sony introduced the PS3 in

nearly 110 million units, late 2006. The core of the
Sony’s PS2 is the best-selling console is the “Cell” processor
game console ever. Sony jointly designed with IBM and
designed all components in- Toshiba, with graphics by
house. Software support is NVIDIA. PS3 includes a Blu-
top-notch with a number of ray and HDD drive, plus
exclusive franchises. PS2 memory slots and networking
should ship in the millions of features like USB, wireless
units for years to come. LAN, Bluetooth, and GigE.
Microsoft Xbox (No Longer in Production) Microsoft Xbox 360
With an installed base near Xbox 360 launched in late

25 million, Xbox has been a 2005 and has an installed
moderate success. Microsoft base near 11 million. It uses
used PC components to speed a PowerPC CPU from IBM and
time-to-market, including an graphics from ATI/AMD. An
Intel Pentium 3 CPU and HDD is included only in the
graphics chipset from higher end version. USB
NVIDIA. The Xbox was the ports and memory card slots
first console to ship with a are included; wireless LAN is
hard disk drive. external via a dongle.
Nintendo Gamecube Nintendo Wii
Gamecube launched at a Launched in late 2006, the

lower price point than PS2 Wii uses a PowerPC CPU from
and Xbox, and has been IBM with graphics from
successful with younger ATI/AMD. Wii’s differentiator
gamers. Nintendo also has a is its motion sensing
loyal following in Japan. A controller. Bluetooth and Wi-
custom IBM CPU drives the Fi are included.
system; the GPU is also by
IBM, designed with ATI/AMD.
Video Game Handhelds

Nintendo Gameboy Advance Nintendo DS
Nintendo’s Gameboy has Nintendo’s newest handheld

dominated the handheld includes two screens, one of
segment for years; and its which has a unique pen
current GBA platform has interface. Positioned at the
shipped >75 million units to high end, the DS has a retail
date. It remains a big seller price double that of the GBA.
for the mainstream gamer. It has shipped nearly 30
million units to date.
Sony PSP Nokia N-Gage QD
Sony’s PSP has gained some Nokia’s N-Gage and follow-on

significant share and has N-Gage QD incorporated
shipped >20 million units to gaming functionality with a
date. PSP plays premium GSM/GPRS handset. It has
games as well as movies, and failed to gain traction.
includes embedded WLAN.
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Video
Video Game
Game Consoles
Consoles
Video Game Hardware Video Game

Unit Forecast Hardware Suppliers
•The video game market is highly cyclical, Console
driven by new product introductions. Nintendo
•Shipments declined in 2003 and 2004 as

9%
the last cycle wound down and the market

waited for new systems. Microsoft
20 %
•A new handheld cycle began in 2004 with
the PSP and DS; 2006 should be the peak.
•A new console cycle is getting under way;
Xbox 360 was early but is now joined by
PS3 and Wii; units should peak in 2008.
•Overall, we expect the market to grow Sony
71 %
from 61 million units in 2005 to 77 million
in 2010, a 5% CAGR. Handheld
90,000
Nokia Others
Handheld game console
80,000 1% 0%
Videogame Console
70,000
60,000
50,000 Sony
38 %
Nintendo
40,000
61 %
30,000
20,000
10,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Video Game Hardware Unit Forecast: The video game market is highly cyclical, driven by new console
introductions. Shipments declined in 2003 and 2004 as the last cycle wound down and the market waited for new
systems. Shipments rebounded sharply in 2005 (up 30% YoY) driven by the start of a new handheld cycle (PSP and
DS) and a PS2 product refresh (slimmer version). The new game console cycle kicked off in 2005 with the Xbox 360,
and is getting under way more significantly in 2006-2007 with the PS3 and Wii.
Overall, we expect the market to grow from 61 million units in 2005 to 77 million in 2010, a 5% CAGR. The mix
between consoles/handhelds should fluctuate from 45% to 55% based on timing of new hardware introductions. The
near term peak should come in 2008 at 77 million units; this will represent the heart of the console cycle and should
also see a new handheld introduction (or two, or three).
Video Game Hardware Suppliers: Sony is the market leader in game consoles, with PS2 garnering 71% units
share in 2005, strong in all regions. Microsoft was No. 2 with 20% share; Microsoft is strong in the U.S. and Europe
but has a minimal presence in Japan. Nintendo was No. 3 with 9%; Nintendo is No. 3 in the U.S. and Europe but is
actually a strong No. 2 in Japan. These figures could change markedly based on the success of the new consoles.
On the handheld side, Nintendo held 61% share in 2005, down significantly from the prior year (where it held over
90% share) as Sony ramped the PSP. Introduced in late 2004, Sony garnered 38% share in 2005. Nokia’s N-Gage
never took off and slipped to 1% of the market in 2005.
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Video
Video Game
Game Consoles
Consoles
Memory used DRAM is used to run
for boot-up game software and to Processor used to generate
instructions generate graphics graphics; usually serves also
High-performance CPU to run
as a north bridge with Converts the digital video
the system and game software;
interface to main memory signal to analog and
newer consoles all use custom
sends it to the TV over
PowerPC CPUs from IBM
RCA/component cables
Performs system
timing and buffering
DRAM
Flash
Video Provides the HDMI
DAC Video Out digital video and
Graphics audio interface
Processor
Microprocessor Clock HDMI HDMI Out (PS3 only)
The I/O ASIC incorporates I/O
controller functions for the controller ASIC Audio
interface, USB, memory card, amd
DAC Audio Out
remote sensor; it also includes Converts the digital sound
audio generation and provides the signal to analog and
interface to the DVD/game reader, Controller sends it to the TV/audio
networking, and HDD blocks WLAN Interface system over RCA or
optical cables
SoC SATA
Memory
Controller
Bluetooth Card
SoC
DVD/Game USB
Hard
Ethernet Reader
Drive
Controller Block Remote
Sensor
Newer consoles include
Ethernet, wireless LAN, RJ-45
and Bluetooth connectivity Ethernet This block includes devices used Some of the newer Enables the interface
embedded in the system to read video game media or other
Cable video content like DVD or Blu-
game consoles include for the HDD
a hard disk drive,
Ray, usually contained within a usually detachable
separate drive assembly
Note: The diagram above displays a block diagram for a typical game console. Handhelds are more
focused on cost and power consumption rather than performance, and typically use more integrated ICs
operating under a custom architecture. They tend to lack the add-on features like DVD and HDD support
and most networking features (aside from wireless LAN), though they will include additional ICs for the
LCD display and battery management.
Today’s video game consoles have evolved into full-featured multimedia computing platforms, essentially specialized
PCs optimized to run high-quality video and graphics. They have microprocessors, memory, graphics and I/O
processors, hard disk drives, DVD drives and memory slots for storage, and networking functionality. One major
difference between a game console and a PC, however, is that most of these components are custom-designed for the
platform and do not leverage open standards given the inflexibility inherent in game console design.
Processing and Memory

• Microprocessor: The central processing unit in a video game console is a high-performance single- or multi-core
microprocessor, which performs system control and runs the game software. The three new game consoles each
use a customized CPU designed by IBM: the Xbox 360 uses the triple-core 3.2 GHz G5 processor, the Wii uses the
IBM Broadway chip, and the PS3 uses the Cell processor designed jointly by IBM, Sony, and Toshiba (the PS3
364
includes a second processor, Sony’s Emotion Engine, to run PS2 games). On the handheld side, Nintendo uses
Sharp for the Gameboy Advance and DS while Sony uses an internal design for the PSP.
• DRAM: Game consoles use DRAM to store program data in use by the console and for graphics processing.
Sony, Nintendo, and Microsoft each use a specialized form of DRAM (GDDR3, XDR, and eDRAM) for their next-gen
consoles, and the quantity used varies by platform. Video game handhelds tend to use a relatively small quantity
of DRAM.
• Flash: Flash memory acts as BIOS, storing and loading boot instructions for the microprocessor.
Video, Sound and I/O

• Graphic Processor (GPU): The graphics processor is a digital processor optimized for producing 3D graphics
images. The GPU in a game console will usually include north bridge functions, interfacing between the CPU and
main memory. Nintendo uses the Hollywood custom GPU ASIC designed by ATI/AMD, the Xbox 360 uses the
“Xenos” custom GPU, also from ATI/AMD, and Sony uses the NVIDIA RSX ASIC for the PS3. On the handheld
side, NEC supplies the graphics IC for the Nintendo DS, while Sony’s design is internal.
• I/O ASIC: Game consoles have an I/O ASIC that acts as a south bridge, interfacing between the processor and
audio, DVD/game reader, networking ICs and hard disk drive subsystems. Like in a PC, this I/O ASIC usually
includes audio generation, though this can be done on an external DSP as well. The I/O ASIC also enables
peripheral systems such as the game controllers, memory cards, USB interface, and remote RF.
• SATA Controller: The interface to the hard disk drive can be enabled by a discrete SATA controller (as in the
PS3) or by controller logic integrated into the I/O ASIC (as in the Xbox).
• Clock: A clock chip, similar to one used in a PC, performs system timing functions. Microsoft and Sony use
timing ICs from IDT and Cypress, Nintendo uses an integrated clock.
• Video D/A Converter (DAC): A video digital-to-analog converter converts the video signal to analog format to
send it to the TV over coaxial or RCA cables.
• Audio D/A Converter (DAC): An audio digital-to-analog converter converts 16-bit stereo samples into left and
right alternating-current audio signals and sends them to the TV over coaxial or RCA cables.
• HDMI Interface IC: The high-end version of the PS3 includes an HDMI (High Definition Multimedia Interface)
interface, which is an all-digital, high-definition standard that supports both video and audio with digital rights
management capabilities. A Silicon Image HDMI 1.3 interface IC supports this interface.
• Microcontrollers, Analog ICs, Power Management (not shown in diagram): Individual peripherals each use a
variety of microcontrollers and analog SLICs to control functions such as the LCD readout, display, game
controller and memory card interface. The consoles also include significant power management content to handle
power flow and battery management in handhelds.
Networking
• Ethernet Controller: The Xbox 360 and PS3 include Ethernet connectivity. The Xbox 360’s Ethernet controller
is embedded in the I/O ASIC, while the PS3’s is embedded in a specialized networking ASIC.
• Wireless LAN SoC: The PS3, PSP, Wii, and Nintendo DS include single-chip wireless LAN solutions. The Xbox360
supports an external adapter to enable wireless LAN functionality, as does the Nintendo DS.
• Bluetooth SoC: The PS3 and Wii include single-chip Bluetooth solutions.
Drives
• DVD/Game Reader Block: This block contains all the components usually found in a PC DVD drive. These ICs
are discussed in the section on optical drives earlier in this document.
• Hard Drive ICs: The Xbox comes loaded with a hard drive, and the Xbox 360 and PS3 each support detachable
HDDs. These ICs are discussed in the section on hard disk drives earlier in this document.
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Video
Video Game
Game Consoles
Consoles
Video Game Video Game Semiconductor

•We expect video game semiconductors ATI/AMD
2%
Others
4%
to grow at a 4% CAGR, rising from $3.4 LSI Logic
billion in 2005 to $4.3 billion in 2010. Nvidia 3 %
•IC revenue should hit a cyclical peak in 4%
Intel
2008 at $6.1 billion. 5%
•Excluding DRAM, semiconductor content IBM
should outpace unit shipments as 5%
Sony
hardware makers ramp the processing 48 %
capabilities of their consoles and add
Sharp
connectivity and multimedia features. 13 %
$7,000
Communications
A/V Interface
$6,000
DRAM/SRAM/PSRAM
Optical Drive ICs NEC
$5,000 Processing, Graphics & Core Logic 16 %
$4,000 Microprocessors Graphics

Sony/Toshiba (PS2, PSP) Sony (PS2)
$3,000
IBM/Sony/Toshiba (PS3) ATI/AMD & NEC (GameCube, Wii)
IBM (GameCube, Xbox 360) ATI/AMD (Xbox 360)
$2,000
Intel (Xbox) NVIDIA (Xbox, PS3)
Sharp (GameBoy, DS) NEC (Nintendo DS)
$1,000
$0 Logic, I/O, Analog, Communications

2002 2003 2004 2005 2006 2007 2008 2009 2010
LSI Logic IDT Broadcom
NEC Cypress CSR
SiS Marvell RF Micro Devices
Video Game Semiconductor Forecast: The video game semiconductor market should grow roughly in-line with
unit shipments over the next few years despite steep price curves for components, as console and handheld makers
drive computing and graphics performance higher and add connectivity and multimedia content. Vendors are trying
to position their consoles at the center of the digital home, and are loading them with features to interface with PCs,
consumer devices, storage devices, and the Internet. Overall, we expect the market to grow at a 4% rate, from $3.4
billion in 2005 to $4.3 billion in 2010 (excluding DRAM, revenue should grow at a 6% CAGR, actually outpacing unit
shipments). IC revenue should approach $6.1 billion in the cyclical peak year of 2008, to our estimate.
In terms of components, 71% of semiconductor content in 2005 was derived from core system processing ICs,
including microprocessors, graphics processors, audio processors, and I/O. Of total revenue, 13% was derived from
main memory, while another 8% was for ICs included in the optical disk drive. Roughly 5% was for communication
devices and 3% was for audio and video interface ICs. Over time, we expect the system processing and
communications ICs to increase as a percentage of total, taking share from memory and A/V interface.
Video Game Semiconductor Competitors: The top supplier of video game ICs in 2005 was Sony with 48% share,
derived from its custom ASICs for the PS2 and PSP. NEC and Sharp, both component suppliers to Nintendo, followed
with 16% and 13%, respectively. IBM followed with 5%; in 2005; IBM supplied CPUs both to Microsoft for the Xbox
360 and to Nintendo for the GameCube; in 2006 IBM began supplying processors for the PS3 and Wii. Intel followed
with 5% share in 2005, though its share has already dropped off as it supplied components only to the Xbox.
366
Other major component suppliers include graphics and I/O suppliers NVIDIA (Xbox, PS3), ATI/AMD (GameCube, Xbox
360, Wii), LSI Logic (PS2), and SiS (Xbox 360); networking IC vendors Marvell (PSP, PS3, Xbox 360), Broadcom
(Wii), CSR (PS3), and RF Micro Devices (Nintendo DS); and clock vendors IDT and Cypress. Excluded from our
market share figures are suppliers of memories as well as standard analog and power management components.
Video Game Semiconductor Summary By Hardware OEM

The video game semiconductor market is specific to each platform. Once a vendor wins a socket, it is unlikely to
change through the life of the console. We provide a list of the component suppliers for the three hardware suppliers.
Microsoft
• While the Xbox was designed similar to a low-end PC, using standard PC components with some ASIC content, the
Xbox 360 employs a more custom (and more powerful) design.
• The Xbox 360 uses an IBM PowerPC-based CPU with three symmetrical cores running at 3.2 GHz each. It includes
1 MB of L2 Cache. IBM and Chartered fab this IC. The Xbox used a 733 MHz Pentium III microprocessor.
• The Xbox 360’s GPU is ATI/AMD’s Xenos processor, a custom process running at 500 MHz with a unified shader
architecture with 48 pixel shader pipelines and 10 MB of embedded DRAM. TSMC fabs this GPU, while ATI/AMD
receives a royalty. The Xbox GPU was NVIDIA’s f-Force, which is a custom version of the nForce IGP north bridge
with integrated graphics.
• The Xbox 360 uses 512 MB of GDDR3. The Xbox used 128 MB of DDR at launch, boosted to 256 MB mid-cycle.
• The Xbox 360’s I/O ASIC is a custom south bridge IC from SiS in Taiwan. The I/O ASIC supports 10/100
Ethernet, three USB 2.0 ports, and two memory slots. The Xbox used NVIDIA’s MCPX, a custom version of the
nForce south bridge.
• The Xbox 360 uses timing devices provided by Integrated Device Technology and Cypress, as did the Xbox.
• The Xbox 360 supports a detachable and upgradeable 20 GB hard disk drive. The Xbox included a hard disk
drive. The Xbox 360 has a DVD drive, as did the Xbox; an HD-DVD drive is sold separately for the Xbox 360.
• A wireless LAN dongle sold separately for the Xbox 360 uses a Marvell chipset.
Sony
• While Sony designed nearly all IC content in-house for the PS2 and PSP, it brought IBM and NVIDIA in on the PS3.
• The PS3 uses the much hyped “Cell” processor, designed by IBM and Sony and to be fabbed by Toshiba and Sony.
The PS2 microprocessor ASIC was the Emotion Engine, designed by Sony and fabbed by Toshiba—a version of this
device is also included in the PS3 in order to play PS2 games. The PSP microprocessor is also a Sony design.
• The PS3 uses an NVIDIA-designed GPU (fabbed by Sony, NVIDIA receives a royalty). The PS2 GPU ASIC is
internally designed by Sony. The PSP microprocessor is also a Sony design.
• The PS3 uses 256 MB of Rambus XDR DRAM and 256 MB of GDDR3. The PS2 used a pair of 128 Mb Rambus
DRAM chips.
• The PS3 I/O controller is custom designed by Sony with Toshiba. A separate SATA controller is supplied by
Marvell. The PS2 I/O controller was designed and fabbed by LSI Logic.
• The PS3 includes a Gigabit Ethernet controller supplied by Marvell and Bluetooth SoC supplied by CSR. A wireless
LAN chipset supplied by Marvell is included in the high-end version of the PS3 and in the PSP.
• The PS3 uses timing devices from IDT. The PS2 and PSP use timing devices from Cypress and IDT.
• The PS3 includes a Blu-Ray DVD drive. The PS2 includes a DVD drive.
• The PS3 supports a detachable 20 or 60 GB HDD supplied by Seagate.
Nintendo
• The Wii microprocessor is IBM’s PowerPC-based Broadway CPU. The Gamecube microprocessor is IBM’s PowerPC
750 microprocessor. The GameBoy Advance and DS use a custom Sharp microprocessor.
• The Wii uses ATI/AMD’s “Hollywood” GPU (ATI/AMD receives a royalty). The Gamecube GPU is also from ATI.
The Nintendo DS also includes a graphics ASIC from NEC.
• The Wii uses 512 MB of GDDR3 from Qimonda, 4-Gig NAND flash from Samsung, 16 MB of SDRAM from Elpida,
and 24 MB of 1T-SRAM from MoSys. Gamecube uses 24 MB of SRAM and 16 MB of DRAM.
• The Wii and Gamecube use a specialized optical drive that plays only Nintendo game media.
• The Wii includes wireless LAN and Bluetooth, both using a Broadcom chipset.
• Wii’s motion sensitive controller uses accelerometer and motion control ICs from Analog Devices and STMicro.
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Video
Video Game
Game Consoles
Consoles
Video Game Console IC Market Trends

•Next generation consoles have some of the most advanced CPUs in the
industry, powered with technology from IBM.
•GPU vendors were able to leverage their positions in PC graphics to
penetrate consoles.
•ASIC suppliers have entrenched positions and remain difficult to unseat;
new entrants have had some success in networking.
•IBM providing custom CPUs for each console; NVIDIA and ATI/AMD
providing custom GPUs.
•Sony, Toshiba, and NEC all remain key ASIC partners.
•Success by merchant vendors centered around networking silicon,
now in all major platforms.
•Connectivity a major factor in new consoles.
•Ethernet LAN for Internet access and PC connectivity.
•Wireless LAN either embedded or external.
•Bluetooth for peripheral interface and wireless controllers.
•Interaction with PC and digital media a key objective but not yet mature.
•New consoles include HDD and flash card storage.
•Blu-Ray vs. HD-DVD war includes battle in the gaming market.
• Next generation consoles have some of the most advanced CPUs in the industry, powered with
bleeding-edge technology from IBM. Sony spent years designing its multi-core “Cell” processor with IBM and
Toshiba, and will cascade the design for other digital media products. IBM’s CPU for the Xbox 360 uses three
cores at 3.2 GHz and will rival the highest-end PC CPUs from Intel or AMD for some time.
• GPU vendors were able to leverage their positions in PC graphics to penetrate consoles. ATI/AMD and
NVIDIA each derive significant revenue from game consoles. NVIDIA supplied a graphics and I/O chipset for the
Xbox and will earn licensing fees for the RSX processor used in the PS3; ATI/AMD earns licensing fees from the
Xbox 360 as well as the Nintendo Wii and Gamecube.
• ASIC suppliers have entrenched positions and likely will be difficult to unseat. Video game consoles are
perfectly suited to the ASIC model: each OEM designs a single platform, which must show a high level of
performance at an acceptable cost level and requires little to no upgrade or scalability support. For years, Sony
has relied on its internal ASIC group as well as partners Toshiba and LSI for the core of its system, only bringing
in IBM, NVIDIA and Marvell with the PS3 (even in the case of the PS3, the devices are heavily custom to Sony).
Nintendo has relied on Sharp, NEC, and IBM. Microsoft deviated from the ASIC model to get to market quicker
with the Xbox, but followed Sony and Nintendo with a more custom design for the Xbox 360. We expect ASICs to
dominate this large market going forward.
368
• Success by merchant vendors centered on networking silicon, now in all major platforms. Probably the
only area where console makers are deviating from the ASIC model is in their sourcing of networking silicon, not
surprising since these ICs are based around open industry standards and thus support multiple suppliers of low-
cost chipsets. Marvell is supplying Gigabit Ethernet, wireless LAN, and SATA components to Sony and a wireless
LAN chipset to Microsoft for the Xbox 360 dongle; Broadcom is supplying wireless LAN and Bluetooth to Nintendo
for the Wii; CSR is supplying Bluetooth to Sony for the PS3; and RF Micro Devices is supplying wireless LAN to
Nintendo for the DS.
• Connectivity a major factor in new consoles. As discussed above, all the new consoles include significant
networking functionality. The PS3 supports Gigabit Ethernet, wireless LAN, and Bluetooth; the Xbox 360 supports
Ethernet and wireless LAN (through a dongle); and the Wii supports Bluetooth and wireless LAN. All consoles also
include multiple USB ports and memory cards.
• Interaction with PC and digital media a key objective but not yet mature. Sony and Microsoft each view
their new consoles as the center of the digital home, and are including the ability to interact with PCs, external
storage, and digital media devices. They can play music and videos and display pictures. The applications are not
yet mature, but will clearly be a focus on the software side following the establishment of an installed base.
• New consoles include HDD and flash card storage. Hard disk drives and memory cards are used for storage
of game data (stats, saved games, etc.) as well as the potential for downloaded add-ins. User content can also be
stored on these drives and played on the console. Note that the Xbox was the first to include an HDD, the Xbox
360 and PS3 support detachable drives. All new consoles support memory cards as mentioned above.
• Blu-Ray vs. HD-DVD war includes battle in the gaming market. With Sony supporting Blu-Ray and
Microsoft supporting HD-DVD, the Blu-Ray vs. HD-DVD war has come to the gaming market. Sony is clearly the
most committed, including a Blu-Ray drive with the PS3. The Xbox 360 includes only a DVD drive, with HD-DVD
an add-on accessory (Blu-Ray is not supported at all).
369
Flash
Flash Memory
Memory Cards
Cards
Flash memory cards are sold as accessories to digital

cameras, handheld devices, handsets, MP3 players, and
other portable digital devices that require data storage.
A multitude of form factors exist, primarily due to the
fragmentation of the consumer electronics market, with
OEMs endorsing a variety of interface standards.
Secure Digital, Memory Stick & MultiMediaCard &

MiniSD, MicroSD Memory Stick Duo RS-MMC
xD Picture Card CompactFlash SmartMedia
Flash memory cards are sold as accessories to digital cameras, handheld devices, handsets, MP3 players, and other
portable digital devices that require data storage. A multitude of form factors exist, primarily because of the
fragmentation of the consumer electronics market, with OEMs endorsing a variety of interface standards.
• Secure Digital: Contains up to four flash chips and an on-board controller. It is the leading form factor in the
digital camera market. MiniSD and SDmicro are the new smaller versions.
• Memory Stick: Introduced by Sony, the Memory Stick contains flash and an onboard controller and has
excellent security and copyright protection features. Memory Stick Duo is the new smaller version.
• MultiMediaCard: Contains flash and an on-board controller and can be used in devices that support SD. Strong
OEM support and lack of royalties have driven adoption. RS-MMC and MMCmicro are reduced size versions.
• CompactFlash: Contains flash memory and an on-board controller IC, which does not allow the host system to
directly access the flash memory. CompactFlash used to be the most successful card type, but has been largely
displaced by other form factors.
• xD Picture Card: Introduced in 2002 by Fuji and Olympus, this small form factor is targeted at digital cameras.
• SmartMedia: SmartMedia cards contain NAND flash memory without a controller IC, making it a lower-cost
option compared with CompactFlash. SmartMedia has seen limited adoption due to capacity limitations.
370
Flash
Flash Memory
Memory Cards
Cards
Flash Card and Driver

Flash Card Unit Forecast
Suppliers
•We expect a five-year CAGR of 25%, with
the market rising from 379 million units in Flash Cards
•Flash cards to grow 27% and USB flash SanDisk
drives to grow 15%. Sony
• Within flash cards, SD and MMC should Panasonic
grow the fastest and represent the bulk of Lexar/Micron
shipments in 2010; Memory Stick should Olympus
grow nicely but will decline as a FujiFilm
percentage of total. Kingston
•Handsets should eventually overtake Toshiba
digital cameras as the No. 1 application USB Flash Drives
driver for flash cards.
1,400,000
SanDisk
USB Flash Drives Lexar/Micron
Transcend
All other flash cards
1,200,000
SD & derivatives
1,000,000
MMC & derivatives
Memory Stick & derivatives
Memorex
I/O Data
800,000
600,000
400,000
200,000
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Flash Card and USB Flash Drive Unit Forecast: Shipments of flash cards and drives totaled 379 million units in
2005, up 28% year over year following 68% growth in 2004. The market was heavily tied to digital cameras, though
handsets and USB flash drives for PCs were significant drivers as well.
In terms of card type, in 2005 80% of units were flash cards, with the remaining 20% USB flash drives. Among the
many flash card types, 30% were SD and mini-SD cards, 17% were Memory Stick and Memory Stick Duo, 15% were
MMC, and other flash cards (including CompactFlash, xD, and SmartMedia) were 18%.
Looking ahead, we expect strong growth, especially from the handset market. In total, we expect the market to grow
at a 25% CAGR, from 379 million units in 2005 to 1.2 billion units in 2010. Flash cards should outpace USB drives
(27% CAGR vs. 15%). Within flash cards, SD and MMC should outperform given their close ties to the handset
market.
Flash Card and USB Flash Drive Suppliers: The flash card market includes both vertically integrated suppliers
who produce their own flash and fabless suppliers who focus on packaging and distribution. The major suppliers in
2005 were Sandisk (strong in both cards and USB flash drives), Sony (a major supplier of Memory Stick products),
Panasonic (a top supplier of SD cards), and Lexar/Micron (strong in all card types and in USB flash drives). Note that
Micron acquired Lexar in 2006. Olympus and FujiFilm (both major suppliers of SmartMedia/xD) and Kingston and
Toshiba were also significant vendors.
371
Flash
Flash Memory
Memory Cards
Cards
Flash Card Flash Card
Semiconductor Forecast Semiconductor Suppliers
•We expect flash card semiconductors to NAND Flash
grow at a 4% CAGR, from $8.7 billion in Infineon/ Qimonda
2005 to $10.7 billion in 2010. Renesas 2 % Micron
2 % Others
•Revenue will be heavily tied to the cyclical
3%
Hynix 1%
NAND flash market; controller/interface 5%
ICs will be more stable and unit driven.

•Price/MB for NAND flash is rapidly SanDisk
declining as manufacturers attempt to 11 %
drive volume and achieve scale. \
•Cards and drives should decline as a Samsung

percentage of total NAND flash as 54 %
embedded applications like MP3 ramp up.

$12,000
Interface IC (analog)
Toshiba
Controller IC
22 %
$10,000 Flash
Flash Card Flash USB

$8,000
$6,000
Controller Controller
Samsung Sony SanDisk/M-Systems
$4,000 Toshiba Silicon Motion LexarMedia
SanDisk Skymedi OTI
$2,000
Micron/Lexar Netac USBest
$0
Toshiba Faisun Prolific
2002 2003 2004 2005 2006 2007 2008 2009 2010
Note: NAND flash market share data is for NAND sold into
Source: WSTS, Dataquest, IDC, CIBC World Markets Corp. cards and drives, and excludes embedded NAND.
Flash Card Semiconductor Forecast: Flash memory card and USB flash drive revenue totaled $8.7 billion in 2005.
The market included more than 65% of all NAND flash sold along with more than $580 million of revenue derived
from specialized controller and interface ICs. Total market revenue increased by about 47% for the year, as steep
declines in ASP/MB were offset by a nice increase in average density per card.
Looking ahead, we expect the market to grow at a 4% CAGR, with revenue reaching $10.7 billion in 2010. Revenue
will be heavily tied to the cyclical NAND flash market and its influence on MB pricing; we expect a mild downturn from
2006-2007 resulting from oversupply (the NAND market should grow again in 2008). Note also that flash cards and
drives should decline as a percentage of total NAND flash as embedded applications like MP3 and handsets ramp up as
consumers of NAND. Revenue from controllers and interface ICs will be more stable and unit driven.
Flash Card Semiconductor Competitors: The primary semiconductor component used in flash cards and drives is
NAND flash, which currently accounts for 90%-95% of the semiconductor bill-of-materials. Samsung was the No. 1
supplier of NAND flash for this application, with 54% share in 2006. Toshiba was second at 22%, followed by Sandisk
at 11%. Other suppliers include Hynix, Renesas, Infineon/Qimonda, Micron, and STMicroelectronics.
Many vendors produce flash controllers, including Samsung, Toshiba, Lexar/Micron, Toshiba, Sony, and M-Systems,
along with pure-play controller IC vendors Silicon Motion, Skymedi, OTI, USBest, and Prolific.
372
Flash
Flash Memory
Memory Cards
Cards
Flash Memory Card Semiconductor Market Trends

•Digital cameras are the largest consumers of memory cards
today, but will eventually give way to handsets, in our view.
•Second and third generation “mini” and “micro” versions of the
major form factors are rapidly replacing larger versions.
•Popularity of USB flash drives has prompted PC vendors to
eliminate floppy disk drives.
•U3 adds code execution functionality to USB flash drives.
•SD and MMC are gaining share, though there will still be a
market for other card types.
•NOR and DRAM suppliers are starting to penetrate the NAND
market.
• Digital cameras are the largest consumers of memory cards today, but will eventually give way to
handsets. New handsets now routinely include an external memory slot, usually with RS-MMC or mini-SD.
• Second and third generation “mini” and “micro” versions of the major form factors are rapidly
replacing larger versions. This is especially important for handsets and small-form factor cameras.
• Popularity of USB flash drives has prompted PC vendors to eliminate floppy disk drives. USB drives are
cheap and easy to use, and offer far more storage than a floppy disk drive.
• U3 adds code execution functionality to USB flash drives. U3 technology allows USB flash drives to execute
software directly on the drive. Hardware is now shipping and applications are being developed to leverage U3.
• SD and MMC are gaining share, though there will still be a market for other card types. SD and MMC are
gaining traction in the handset market causing these products to outperform long-term; SD has also done a nice
job becoming the mainstream device used in digital cameras. Still, there will be a market for other card types.
Memory Stick and SmartMedia/xD have a strong presence in consumer electronics, though they are somewhat
tied to a handful of OEMs (MemoryStick to Sony, and SmartMedia/xD to Olympus and FujiFilm).
• NOR and DRAM suppliers have entered NAND market. Hynix, Micron, and Infineon/Qimonda are all major
DRAM players who have made successful entrances into the NAND market in recent years.
373
Automotive
Automotive
Automotive Electronics Systems

Anti-lock Brakes
Airbags
Remote Entry
Stereo System
Climate Control
GPS/Navigation
System
Engine Control
Dashboard Electronics
The 100+ year old automobile industry appears on the surface to be the epitome of a mature market, with low single-
digit unit growth each year tracking population. Inside the car, however, change is taking place at a sweeping pace.
A key driver has been the increase in electronics content in the car, primarily for engine control, safety and
comfort/entertainment. We estimate that, in the past five years alone, automobile electronics systems content
increased from $1,097 per car in 2000 to $1330 per car in 2005.
Key electronics systems included in modern automobiles include:
• Airbags (drive, passenger and side airbags) • Dashboard instrument cluster
• Antilock braking systems (ABS) • Engine control
• Auto stereo (AM/FM radio, cassette player, CD • Remote/keyless entry
player and changer, satellite radio)
• GPS/navigation system
• Climate control
374
Automotive
Automotive
The number of automotive systems in an average

automobile is seeing a steady increase as safety and
emission standards get tougher and as car
manufacturers look to add comfort and entertainment
features to differentiate their product offerings. The
average car included 8.1 discrete electrical systems in
2005, up from 6.8 in 2000.
Automotive Electrical Systems/Vehicle

8.5 1.6
2000
1.4
2001
8.0
1.2 2002
2003
7.5 1.0
2004
0.8 2005
7.0
0.6
Systems/Vehicle
6.5 0.4
0.2
6.0
-
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ms
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Ai
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5.0
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2000 2001 2002 2003 2004 2005

Da
Source: Dataquest, CIBC World Markets Corp. Source: Dataquest, CIBC World Markets Corp.
As a mature market, automobile units grow at a low single-digit rate annually. Automotive electronic systems,
however, are growing slightly faster than units. One factor has been increased safety and emission standards, which
often require electrical systems to implement them. Another is consumer driven; automotive consumers now demand
advanced comfort, convenience, and entertainment features in their new cars, and automobile manufacturers have
responded with offerings to meet this demand.
Looking at the numbers, the average car included 6.8 discrete electrical systems in 2000. By 2005, this number had
quickly climbed to 8.1, and is expected to rise steadily over the next few years.
375
Automotive
Automotive
Automotive Electronics Automotive Electronics

•We expect automotive electronic
systems to grow at a 4% CAGR, rising
Americas Europe
from 505 million systems in 2005 to 621 Delphi Automotive Robert Bosch
million in 2010. Johnson Controls Siemens VDO
•Comfort/convenience systems and Visteon Continental Auto
safety systems should remain the largest Siemens VDO Magneti Marelli
Lear Denso
categories.
Motorola Johnson Controls
•Navigation systems are the fastest Robert Bosch Becker
growing segment but will remain Eaton Autoliv
relatively small in unit terms. TRW Delphi Automotive
700,000
Other
Magneti Marelli ArvinMeritor
GPS Navigation
Japan Asia
Comfort/Convenience (Dashboard, Climate, Audio)
600,000
Engine Control
Safety Systems (Airbag, ABS)
Denso Clarion
500,000
Mitsubishi Denso
400,000
Pioneer Robert Bosch

300,000 Hitachi Auto Siemens VDO
Sony Alpine Electronics
Aisin Seiki Delphi Automotive
200,000
100,000 Clarion Mitsubishi Electric

Honda Elesys Johnson Controls
-
2002 2003 2004 2005 2006 2007 2008 2009 2010
Alpine Electronics Matsushita/Panasonic
Matsushita/Panasonic Motorola
Automotive Electronics Unit Forecast: With electronics becoming a more important part of automobile design, we
expect the number of electronics systems to slightly outpace the number of cars sold in the next few years. In total,
we expect a 4% CAGR, with the number of systems rising from 505 million in 2005 to 621 million in 2010 (cars sales
should grow at less than a 3% CAGR through this time period).
On a per car basis, this is equivalent to roughly 8.1 systems per car in 2005 rising to 8.7 systems per car in 2010. On
a system-by-system basis, this will be driven by the growth in penetration of a number of key systems: airbags rising
from 1.5 (per car) to 1.7 (per car), ABS from 0.8 to 0.9, climate control from 0.5 to 0.6, remote/keyless entry from
0.6 to 0.7, and GPS navigation from 0.2 to 0.4. Other systems should maintain their ratios, including dashboard
cluster systems at 1.1, engine control at 1.0, and auto stereo at 1.3 (though within auto stereo there should be a shift
from analog to digital).
Automotive Electronics Suppliers: The top suppliers of automotive electronics include Robert Bosch, Delphi
Automotive, Siemens VDO Automotive, Denso, Johnson Controls, Continental Automotive, Mitsubishi Electric, Visteon,
Pioneer Electronic, Lear, and Motorola. Note that market share in each geography is highly skewed toward regionally
located vendors; we display top vendors by region in the slide above.
376
Automotive
Automotive
Automotive Automotive Semiconductor

•We expect the automotive semiconductor Freescale
market to grow at a 8% CAGR, rising from 11%
$13.1 billion in 2005 to $19.2 billion in
2010. Others
Infineon
9%
•Automotive sensors and ASICs/ASSPs 33%
should grow fastest.

•Most systems will continue to be STMicro
implemented with microcontrollers, though 8%
FPGAs and DSPs should become more
Fujitsu
common. 3% Renesas
•Forecast excludes memory, standard Rohm 8%
logic, discretes, and optoelectronics.
3%
Toshiba NXP/Philips
4%
$20,000
Texas NEC 6%
Automotive Sensors Instruments Robert Bosch 6%
$18,000
Analog ICs 4% 5%
$16,000 ASICs/ASSPs
$14,000
Microcomponents Auto MCUs ASIC/ASSP Analog Discretes
$12,000
Freescale STMicro Micrel Infineon
Renesas NXP/Philips National Semi Robert Bosch
NEC Infineon Sanken Rohm
$10,000
$8,000
Fujitsu Robert Bosch NewJRC NXP/Philips
$6,000 TI Freescale Renesas STMicro
$4,000
Infineon TI Maxim Vishay
Intel NEC Intersil OSRAM
Toshiba Toshiba ADI On Semi
$2,000
$0
2002 2003 2004 2005 2006 2007 2008 2009 2010
Samsung SIPEX Intl. Rectifier
Note: Market share includes microcomponents,
Source: Dataquest, CIBC World Markets Corp. ASICs/ASSPs, analog ICs, and discretes.
Automotive Electronics Semiconductor Forecast: The market for automotive semiconductors should remain
quite healthy through 2010 and significantly outpace units shipments. Not only do we expect the number of
electronic systems in the car to increase (as discussed above), but we further expect automotive IC content per
system to increase as well despite normal ASP erosion. This should be driven by both the increasing complexity of
each automotive electrical system and a slight mix shift towards systems with greater semiconductor content, such as
GPS navigation systems and digital stereo systems.
We estimate that the automotive IC market totaled $13.1 billion in 2005, including microcomponents, ASICs & ASSPs,
analog ICs, and automotive sensors. We expect the market to grow at an 8% CAGR through 2010 to $19.2 billion.
Note that if we were to include memory, standard logic, discretes, and optoelectronics, the market would total $17.0
billion in 2005, increasing at a 7% CAGR to $24.1 billion in 2010.
Automotive Electronics Semiconductor Competitors: Automotive semiconductors are supplied primarily by the
large diversified IC suppliers. In 2005, the only >10% share holder was Freescale with 11% total share, including
25% of the automotive microcontroller market and a top five position in ASICs/ASSPs. Infineon, the top vendor of
automotive discretes, was next with 9% share overall, followed by STMicroelectronics, the top vendor of ASIC/ASSP
solutions, with 8% total share. Renesas, NXP/Philips, and NEC each followed with greater than 5% share. Other
suppliers include Robert Bosch, Texas Instruments, Toshiba, Rohm, and Fujitsu.
377
Automotive
Automotive
Automotive Semiconductor Market Trends

•Automobile vendors continue to implement the majority of systems
with microcontrollers, analog ICs, standard logic, and discretes.
•The diversified semiconductor vendors dominate the segment.
•Regional players continue to do well in their home markets (i.e.
Freescale, TI in the U.S.; ST, Infineon, NXP/Philips in Europe; and
Renesas, NEC, Toshiba in Japan).
•Power efficiency is growing in importance.
•Some IC vendors are pursuing module solutions.
• The majority of systems are still based on microcontrollers. ASICs, ASSPs and DSPs continue to gain
traction, but, in general, we do not expect the paradigm to change much over the next few years.
• The diversified semiconductor vendors dominate the segment. This reflects both the standard components
used in automotive systems and the high volume manufacturing required to service the market.
• Regional players continue to do well in their home markets. Examples include Freescale and Texas
Instruments in the U.S.; STMicroelectronics, Infineon and NXP/Philips in Europe; and Renesas, NEC, Toshiba and
Fujitsu in Japan.
• Power efficiency is growing in importance. IC vendors are focusing more on power consumption as their
customers seek to differentiate their systems.
• Some IC vendors are pursuing module solutions. OEMs are open to outsourcing some level of design and IC
vendors are offered the opportunity to maximize their own content.
378
Emerging
Emerging Technologies
Technologies
Key Emerging Technologies:
NAND Cache in PCs Next-Generation

Backplanes
Ultra Wide Band/
Wireless USB Mobile TV
Zigbee GPS
Infiniband IPTV
iSCSI Coax and Phone Line

Networking
This section deals with emerging technologies, those where the market is just beginning to come together and volume
deployments are about to begin or are in the very early stages. It is likely that many of these technologies will move
from this section closer to the front of the document in future updates; in fact, many of these are already mentioned
peripherally in earlier sections.
For each section, we attempt to give just a brief introduction to the technology, its targeted application, and the major
semiconductor players to watch.
379
Emerging
Technologies
NAND Cache in PCs

With the launch of Microsoft’s Vista operating system,
PCs will be able to leverage a high-speed cache
comprised of NAND flash memory. The cache can speed
frequently used applications by using NAND for virtual
memory (Microsoft “ReadyBoost”), and can also speed
read/write from the hard disk drive while decreasing
power consumption (Microsoft “ReadyDrive”).
NAND caching can be implemented within the PC system
itself with a NAND module using Intel’s Robson ASIC. It
can also be implemented with a Hybrid Hard Disk Drive
(HHD) which includes NAND within the drive assembly,
though HHDs cannot support ReadyBoost.
NAND Flash Competitors
Samsung Renesas
Toshiba STMicroelectronics
Hynix Micron
Sandisk IM Flash Technologies
With the launch of Microsoft’s Vista operating system, PCs will be able to leverage a high-speed cache comprised of
NAND flash memory. The cache can speed frequently used applications by using NAND for virtual memory (Microsoft
“ReadyBoost”), and can also speed read/write from the hard disk drive (Microsoft “ReadyDrive”).
At the launch of Vista, NAND caching is being trialed in two forms. A NAND cache can be implemented within the PC
system itself with a NAND module using Intel’s Robson ASIC. It can also be implemented with a Hybrid Hard Disk
Drive (HHD) which includes NAND within the drive assembly. Note that HHDs cannot support ReadyBoost.
NAND Cache Competitors: As NAND flash is a commodity, the same suppliers of NAND for the consumer and
handset markets will likely supply the PC market. In 2005, the leading suppliers of NAND flash were Samsung at 51%
revenue share and Toshiba at 19%. Hynix followed with 12%. Sandisk had 8%, and Renesas had 3%. Other major
NAND flash suppliers include, STMicroelectronics, Micron, and M-Systems. The most recent newcomers to the NAND
market include Qimonda/Infineon, STMicroelectronics (in cooperation with Hynix), Micron, and Intel (the latter two
recently formed a JV called IM Flash Memory Technologies to produce NAND).
Note that to implement a NAND cache in a PC, a special ASIC is required. Intel’s Robson ASIC is the only solution on
the market, though other PC component suppliers could enter later to meet this opportunity. On the hybrid hard disk
drive side, HDD SoC suppliers integrate support for a NAND cache into the hard disk controller logic; the top suppliers
of HDD SoCs include Marvell, Agere, STMicroelectronics, and Infineon.
380
Emerging
Technologies
Ultra Wide Band/Wireless USB

UWB is a next generation short-range wireless
technology. Unlike other radio transmission systems,
UWB does not use a continuous carrier frequency and
instead transmits in extremely short pulses spread over
a large bandwidth. Coupled with OFDM technology, UWB
can achieve data rates in the hundreds of Mbps with less
power consumption than other protocols.
UWB will first hit the market as Wireless USB, which
mimics the 480 Mbps of USB 2.0 wirelessly, with a range
up to 3 meters. Products should ramp in 2007. UWB is
also being developed for in-home video streaming.
UWB Semiconductor Competitors
Alereon Realtek Focus Enhancements Freescale
Staccato Tzero Infineon (DS-UWB)
Wisair Artimi NXP/Philips
Pulse~LINK
WiQuest NEC Kalon
(proprietary)
Intel Sigma Designs
UWB (Ultra Wide Band) is a next generation wireless connectivity technology being pursued by PC and PC component
vendors for short-range peripheral connectivity, as well as by consumer electronics OEMs and component vendors for
video streaming. Unlike other radio transmission systems, UWB does not use a continuous carrier frequency and
instead transmits in extremely short pulses over a large bandwidth. This allows it to achieve speeds in the hundreds
of Mbps with less power consumption than other protocols.
PC connectivity will be the first UWB application to deploy in volume, branded as “Wireless USB” (not to be confused
with the lower speed, proprietary technology of the same name that is promoted by Cypress Semiconductor).
Wireless USB equals the 480 Mbps transmission speed of USB 2.0, with range up to 3 meters. Note that the IEEE,
which drives the Wireless USB, selected the WiMedia Alliance standard for Wireless USB, thereby eliminating suppliers
of competitive technologies (like Freescale’s direct sequence technology) from supplying Wireless USB-branded
solutions with their chipsets.
Like Bluetooth, UWB won’t be an equipment type per se and will instead be embedded in computing, communications,
and digital consumer applications. UWB is expected to ramp with PC dongles in early 2007 and embedded in PCs later
in the year. Peripherals that require high speeds (e.g., external HDDs, MP3 players, home video servers) will likely be
the first devices to use UWB for connectivity in the home. Consumer electronics with UWB should appear in 2008,
likely for video streaming applications. Handsets could also adopt the technology later in the decade.
381
UWB Semiconductor Competitors: Because of the huge volume potential in UWB, the market has attracted a
number of the large incumbent PC and handset component vendors along with several well-funded start-ups. Though
we can’t name them all, we include below a list of the major efforts currently under way to supply UWB chipsets.
Alereon – Austin, TX-based start-up focusing on the PHY and RF for PCs (partnering with MAC suppliers), while
supplying the complete solution for embedded applications.
Staccato – San Diego, CA start-up focused on a single-chip CMOS solution out of the gate.
Wisair – Israeli start-up (affiliated with the RAD Group) offering two-chip MAC/PHY and RF IC.
WiQuest – Dallas, TX area start-up providing end-to-end solution including software drivers for PCs.
Intel – The PC processor and component leader is heavily invested in bringing UWB technology to the PC market.
Intel currently supplies a MAC solution for the PC and is partnering with others for the PHY and RF, though in the
future Intel could pursue a full solution.
Realtek – A major supplier of Ethernet, audio codec, and timing devices for PCs, Realtek has a mature PHY/RF solution
and will likely offer a complete solution including MAC down the road.
Tzero – Silicon Valley start-up focused exclusively on consumer electronics applications—particularly video distribution
in the home. Solution implements the full WiMedia MAC but won’t be Wireless USB.
Artimi – U.K. start-up focused on the portables market, including PC peripherals, consumer devices, and handsets.
NEC Electronics – The diversified semiconductor supplier is providing a Wireless USB MAC. NEC is partnering with
other vendors for the PHY.
Sigma Designs – The supplier of MPEG decoders for set-top boxes and digital TVs acquired Blue7, and now offers a
baseband and RF to both the PC and consumer electronics markets.
Focus Enhancements – This supplier of digital media ICs is now targeting UWB.
Infineon – Infineon currently offers an RF solution for UWB, and plans to have a single-chip CMOS device
incorporating MAC, PHY and RF transceiver by mid-2007.
NXP/Philips – NXP/Philips currently offers a WiMedia-compliant MAC targeted at the portables market.
Freescale – Freescale was an early adopter of UWB but championed direct sequence technology in opposition to
WiMedia. Freescale still offers its solutions but has no play in Wireless USB at the moment as a result of the decision
of the standards body to go with WiMedia.
Pulse~LINK – Southern California start-up pursuing video distribution over UWB using a proprietary technology (not
WiMedia compliant).
382
Emerging
Technologies
Zigbee
Zigbee is a next generation wireless connectivity
standard that is targeted for low power
applications, particularly in industrial and consumer
electronics markets. It also has potential to
become a replacement for infrared in consumer
electronics and other areas. Zigbee supports data
rates of 250 Kbps with a range of 70 meters.
Zigbee Semiconductor Competitors

Zigbee Chipset/RF Microcontroller/
Texas Instruments/Chipcon Atmel Platform
Ember STMicroelectronics NEC
Freescale Integration Renesas
Jennic RadioPulse Silicon Labs
Oki Microchip
Zigbee is a next generation wireless connectivity standard that is targeted for low power applications, particularly in
industrial and consumer electronics markets. It also has the potential to become a replacement for infrared in
consumer electronics and other areas. Zigbee supports data rates of 250 Kbps with a range of 70 meters.
Zigbee Semiconductor Competitors: The leading Zigbee chipset/transceiver vendors include Texas Instruments
(through its acquisition of Chipcon), Ember, Freescale, Jennic, Oki, Atmel, STMicroelectronics (partners with Ember),
Integration, and RadioPulse.
A number of microcontroller vendors have also embraced the Zigbee market with platform solutions utilizing their
MCU with a third party transceiver. These include NEC, Renesas, Silicon Labs, and Microchip.
383
Emerging
Technologies
Infiniband
Infiniband is an interconnect technology used for ultra-
high-speed connections in the data center. Host
Channel Adapters (HCAs) installed in servers or storage
arrays can achieve speeds of 10 or 20 Gbps over CX4
copper cable—40 Gbps and 80 Gbps is on the roadmap.
Infiniband enables low-cost, high speed clustering, and
are also targeted to replace Ethernet or Fibre Channel
within the data center. Most server OEMs now offer
Infiniband on some high end platforms, and storage
OEMs are also beginning to offer Infiniband ports on
their arrays. Switches are available from a number of
start-ups as well as major OEMs including Cisco.
Infiniband Semiconductor Competitors
Mellanox Fujitsu
QLogic Agilent
IBM
Infiniband is an interconnect technology used for ultra-high-speed connections in the data center. The technology
uses a client-adapter-and-switch architecture similar to Ethernet or Fibre Channel, but runs at much faster speeds and
is not specific to either data or storage. Host Card Adapters (HCAs) installed in servers or storage arrays connect up
to dedicated Infiniband switches and can achieve speeds of 10 or 20 Gbps over CX4 copper cable. Forty Gbps and 80
Gbps is on the roadmap. Initially targeted for clustering, Infiniband systems are targeted to replace Ethernet or Fibre
Channel for interconnect between the most critical compute and storage platforms within the data center.
Most server OEMs now offer Infiniband on some high end platforms, particularly for clustering. These include IBM,
Sun, HP, Dell, and Fujitsu. In some cases this replaces proprietary interconnects; in others it replaces Gigabit
Ethernet. Storage OEMs are also beginning to offer Infiniband ports on their arrays as an alternative to Fibre
Channel. Switches are coming to market from major OEMs including Cisco.
Infiniband Semiconductor Competitors: The leading Infiniband semiconductor vendor is Mellanox, which has the
dominant share of merchant IC designs and a strong presence in HCA card solutions. QLogic has also made two
significant acquisitions (Pathscale and SilverStorm) and will likely emerge as a major merchant vendor. ASIC vendors
IBM, Fujitsu, and Agilent also participate.
384
Emerging
Technologies
iSCSI
iSCSI is a storage protocol that leverages the Ethernet
data network for transport of storage traffic between
arrays and servers. iSCSI retains the slim upper layer
overhead structure of SCSI but packages storage traffic
in Ethernet-like packets. Instead of a dedicated Fibre
Channel network, iSCSI HBAs and storage arrays plug
right into the LAN, and storage traffic is switched by
Ethernet switches alongside data packets.
Most iSCSI HBAs are built for Gigabit Ethernet line
rates, making them slower than the mainstream 2 Gbps
Fibre Channel. 10 Gbps iSCSI is forthcoming.
iSCSI Semiconductor Competitors
QLogic Alacritech
Adaptec LSI Logic
Emulex Broadcom
Intel Astute Networks
iSCSI is a storage protocol that leverages the Ethernet data network for transport of storage traffic between storage
arrays and servers. iSCSI retains the slim upper layer overhead structure of SCSI that is ideal for storage traffic, but
packages storage traffic in Ethernet-like packets. Instead of a dedicated Fibre Channel network, iSCSI HBAs and
storage arrays plug right into the LAN, and storage traffic is switched by Ethernet switches alongside data packets. It
therefore offers the advantages of a switched architecture for storage without the extra costs of Fibre Channel
switches (and the cost of maintaining them).
Most iSCSI HBAs are built for Gigabit Ethernet line rates, making them slower than the mainstream 2 Gbps Fibre
Channel. Ten Gbps is forthcoming.
iSCSI Semiconductor Competitors: iSCSI systems are enabled both with discrete iSCSI ICs as well as with
intelligent Ethernet NIC controllers which incorporate iSCSI with Ethernet. The leading semiconductor vendors include
storage IC incumbents QLogic, Adaptec, Emulex, Intel, and LSI Logic, as well as start-ups Alacritech and Astute
Networks. Broadcom also has a presence, though it is targeting a more integrated multi-function enterprise
connectivity device with its C-NIC (converged NIC) product.
385
Emerging
Technologies
Next-Generation Backplanes
With an increased focus on increasing backplane
interconnect speeds while reducing cost and complexity
in next-generation infrastructure, OEMs are beginning to
adopt next-generation standards-based switching
technologies in place of proprietary schemes used today.
Chief among these are ASI, which is based on PCI-
Express; RapidIO, which utilizes the XAUI interface
common in other 10 Gbps systems; and Gigabit
Ethernet, which is widely used in the LAN. Note that the
adoption of ATCA systems should accelerate this trend.
Next Generation Backplane Semiconductor Competitors
PLX Technology Freescale
Tundra NEC Electronics
Intel Texas Instruments
IDT Broadcom
Stargen Marvell
With an increased focus on increasing backplane interconnect bandwidth while reducing cost and complexity in next-
generation infrastructure equipment, OEMs are beginning to move away from proprietary backplane interconnect
technologies, and are adopting next-generation, standards-based switching technologies.
One of the leading technologies in this emerging area is ASI (Advanced Switching Interconnect), which is essentially
an extension of the PCI-Express standard that is now standard in servers and performance PCs. ASI includes
congestion management, protocol agnostic switching, broadcast/multicast support while reusing the physical and link
layers of PCI Express. ASI scales in increments of 2.5 Gbps (like PCI-Express) with x64 speeds achievable today.
RapidIO is a high-performance, packet-switched interconnect technology designed for passing data and control
information between systems and sub-systems within an electronic device. It can be used chip-to-chip and also
board-to-board. RapidFabric is an extension to RapidIO that adds a serial physical layer, flow control, multicast,
protocol encapsulation/internetworking and high-end traffic-management capabilities.
A third alternative is Gigabit Ethernet, which is widely used in the LAN. Components are mature and widely available
and the technology is well understood. Note that the adoption of ATCA systems should benefit GigE for backplanes.
ASI/PCI-Express, RapidIO, and Gigabit Ethernet Backplane Semiconductor Competitors: The leading
semiconductor vendors for next generation ASI/PCI Express and Rapid I/O backplanes include PLX Technology,
Tundra, Intel, IDT, Stargen, Freescale, NEC, and TI. Broadcom and Marvell are the incumbents in Gigabit Ethernet.
386
Emerging
Technologies
Mobile TV
Mobile TV has started to gain traction, with service
launches in the South Korea, Japan, Western Europe,
and the US. Though business model issues, content
ownership, and spectrum are still hurdles, the
technology is mostly ready. DMB, ISDB-T, MediaFlo,
and DVB-H should all see meaningful adoption.
Note that mobile TV standards are all broadcast
technologies, and support only one-way
communication. They therefore use specialized tuners
and demodulators but do not require a baseband.
Mobile TV Semiconductor Competitors
Texas Instruments STMicroelectronics Maxim
Qualcomm Freescale Microtune
NXP/Philips Infineon Newport Media
Analog Devices Frontier Silicon Imagination Technologies
Broadcom Siano Mobile Silicon RF Magic
DiBcom Sharp SiRF/Truespan
The promise of delivering TV services to a mobile handset has been anticipated for some time. 2006 was a year when
anticipation turned into reality, with significant progress made toward the construction of several mobile TV terrestrial
networks and the launch of services in the U.S., South Korea, Japan, and Western Europe. Though business model
issues, content ownership, and spectrum are still hurdles, the technology pieces are mostly ready.
The various mobile TV standards include DMB (digital multimedia broadcast), ISDB-T (integrated services digital
broadcasting-terrestrial), MediaFlo, and DVB-H (digital video broadcast-handheld). They are all expected to see
meaningful adoption over the next few years.
Note that mobile TV standards are all broadcast technologies, and support only one-way communication. They
therefore use specialized tuners and demodulators but do not require a baseband.
Mobile TV Semiconductor Competitors: Though the market is still in the early stages, the leading mobile TV
semiconductor vendors include wireless handset IC incumbents Texas Instruments, Qualcomm, NXP/Philips, Analog
Devices, Broadcom, Sharp, STMicroelectronics, Freescale, Infineon, and Maxim; established tuner suppliers Microtune
and ALPS; and a number of start-ups, including DiBcom, Frontier Silicon, Siano Mobile Silicon, Newport Media,
Imagination Technologies, RF Magic, and SiRF/Truespan.
387
Emerging
Technologies
GPS
GPS technology allows satellites to track the location
of individual electronic devices, and with the addition
of software, to direct it to a desired location. In
addition to the obvious application in automotive
navigation systems, GPS is seeing success in portable
navigation systems and is starting to see penetration
in handsets. Operators are anxious to ramp GPS
functionality in their subscriber bases to enable
location-based services to drive additional revenue.
GPS Semiconductor Competitors
Garmin (IP & systems) Nemerix Maxim
Trimble (IP & systems) Atmel SiGe Semiconductor
SiRF Technology Epson u-Nav
Qualcomm Sony HiMark
Texas Instruments Freescale u-blox
Global Locate Infineon Prolific Technology
NEC NXP/Philips GloNav
STMicroelectronics CSR/NordNav/CPS
GPS (Global Positioning Service) technology allows satellites to track the location of individual electronic devices, and
with the addition of software, to direct it to a desired location. In addition to the obvious application in automotive
navigation systems, GPS is seeing success in portable handheld navigation systems.
GPS is also making its way into handsets, where it allows subscribers to determine their location as well as to
download maps and information about the area, including public transportation and restaurant data. Operators are
anxious to ramp GPS functionality in order to enable location-based services to drive additional revenue.
GPS Semiconductor Competitors: The leading semiconductor vendors include GPS equipment leaders Garmin and
Trimble, both of whom own significant IP to drive their systems; GPS pure play SiRF Technology; wireless IC
incumbents Qualcomm, Texas Instruments, NEC, Freescale, Infineon, NXP/Philips, STMicroelectronics; and a host of
start-ups including Global Locate, Nemerix, SiGe Semiconductor, u-Nav, HiMark, u-blox, Prolific Technology, and
GloNav. Consumer electronics OEM and IC maker Sony, high performance analog leader Maxim, and ASIC/ASSP
vendors Atmel and Epson also participate. Note that Cambridge Silicon Radio also recently entered the market
through its acquisitions of NordNav and CPS.
388
Emerging
Technologies
IPTV
With the rise of broadband access, telecom carriers now
have the capability to provide premium video services,
which historically have been provided by cable and
satellite operators with purpose-built video networks.
IPTV uses the data network to deliver digital video,
compressed with advanced video codecs and sent out
over the data network, to be decoded by specialized IP
set-top boxes. Operators in Asia and Europe already
have sizable footprints, and AT&T plans a major roll-out
in the U.S. using Microsoft technology.
IPTV Set-Top Box Semiconductor Competitors
Sigma Designs Broadcom
Analog Devices Conexant
NXP/Philips Texas Instruments
STMicroelectronics Freescale
With the rise of broadband access, telecom carriers now have the capability to provide premium video services, which
historically have been provided by cable and satellite operators with purpose-built video networks.
IPTV uses the data network to deliver digital video, compressed with advanced video codecs and sent out over the
data network. Video packets are passed from the broadband modem to specialized IP set-top boxes, which decode
the video stream and display it the same way that cable and satellite set-top boxes do (the codecs are similar, though
not compatible). At present, telecom service providers are looking to mimic cable and satellite video offerings, but
down the road the use of IP opens the door for a truly differentiated offering by incorporating intelligent features.
Operators in Asia and Europe already have sizable footprints, and AT&T plans a major roll-out in the U.S. using
Microsoft technology. Verizon has opted not to deploy IPTV at this time, instead offering TV service similar to cable
using the RF overlay of its BPON/GPON network (the set tops are similar to cable set-tops).
IPTV Set-Top Box Semiconductor Competitors: As IPTV codecs are not compatible with cable or satellite codecs,
the chips used in set-tops are different than those in cable and satellite set-tops. Sigma Designs is the leader in the
space at present, leveraging mature IPTV decode IP and a close partnership with Microsoft. Few others have material
volume at present, though a multitude of set-top box IC and DSP vendors are working on solutions for this market,
including Analog Devices, NXP/Phillips, STMicroelectonics, Conexant, Texas Instruments, and Freescale.
389
Emerging
Technologies
Coax and Phone Line Networking

With the growth of digital content, set-top box makers
are looking to leverage existing wireline cabling (coax
and phone line) in the home to network their devices.
An important application is multi-room DVR, which
allows communication between DVR and standard set-
tops, so subscribers can watch DVR content on any box
in the home. These technologies are also being used
with video-over-PON implementations, to allow set-tops
to communicate with the broadband router.
The two leading solutions are MOCA, which uses coax,
and HPNA, which uses both phone line and coax.
Coax and Phone Line Networking
Entropic (MoCA)
Coppergate (HPNA)
Coaxsys (proprietary)
Octalica (MoCA)
With the growth of digital connectivity in the home, set-top box makers are looking to leverage existing wireline
cabling in the home to network their devices. Most homes have exiting phone line and coax infrastructure, and new
networking protocols are being designed to leverage this infrastructure for high-speed networking. An application
being targeted is multi-room DVR, which allows communication between DVR and non-DVR set-tops in the home.
With MR-DVR, subscribers can watch DVR content on any networked set-top box throughout the home.
Coax networking is also being used in PON implementations where there is an RF overlay for video. Set-top boxes
use the coax network to communicate with each other and with the broadband router, enabling on-demand services.
The technology can also be used for the distribution of broadband service to multiple dwelling units. In this model, a
high-speed data pipe is terminated at the building, and service is delivered to individual units over coax/phone lines.
The two leading solutions are MOCA and HPNA. MOCA uses coax and is being favored by a number of cable and
satellite set-top OEMs as well as by Verizon for its FiOS service. HPNA, which uses both phone line and coax, was
selected for AT&T’s Project Lightspeed as well as cable and satellite set-top makers.
Coax and Phone Line Networking Semiconductor Competitors: Entropic is the leading vendor of ICs for MOCA;
Octalica is readying a solution as well. Coppergate dominates the HPNA market. Coaxsys supplies a proprietary
technology branded TVnet. A number of broadband IC companies are clearly interested in the technology, including
STMicroelectronics, Kawasaki LSI, Analog Devices, Broadcom, and Texas Instruments.
390
For
For More
More Information…
Information…
Questions?
Comments?
Suggestions?
Allan Mishan
(212) 667-7756
allan.mishan@us.cibc.com
Sam Dubinsky
(212) 667-7348
sam.dubinsky@us.cibc.com
We hope you enjoyed reading our semiconductor primer and welcome your questions, comments, and suggestions.
Please also let us know if you would like additional copies of this document for your colleagues.
391
Company Index
Company Ticker Page Company Ticker Page
2Wire N/A 236 Arris ARRS 232, 257, 284
3Com COMS 172, 173, 183, 184, 229, 258, 283 Artimi N/A 381, 382
Accton 2345 178 ArvinMeritor ARM 376
Acer ACEIF 114, 115, 116, 130, 172, 173, 183, 184, Asahi Kasei ASAA 61, 69, 100
192, 229
ASE ASX 25, 26, 28
Actel ACTL 61, 88, 89
ASM International ASMI 30, 31
Actions ACTS 63, 83, 359
Semiconductor ASM Lithography ASML 30, 31
Adaptec ADPT 62, 202, 203, 207, 208, 385 ASMC N/A 29
Adtran ADTN 258 Astute Networks N/A 385

Advantest ATE 30, 31 ASUS N/A 130, 183, 184
Agere Systems AGR 26, 44, 61, 62, 63, 79, 80, 82, 83, 87, 89, Asyst Technologies ASYT 30, 31
125, 126, 144, 145, 146, 147, 158, 175, AT&T T 220, 226, 240, 332, 389, 390
176, 178, 189, 194, 207, 208, 231, 239,
261, 264, 267, 271, 272, 274, 275, 277, Atheros ATHR 62, 83, 125, 187, 188, 189, 190
289, 290, 304, 305, 306, 314, 315, 380 ATI Technologies ATYT 61, 62, 63, 82, 83, 119, 123, 124, 126, 305,
Agilent Technologies A.N 30, 176, 384 306, 332, 339, 342, 362, 365, 366, 367, 368
Airgo Networks N/A 62, 83, 187, 188, 189 Atmel ATML 61, 77, 78, 89, 99, 100, 307, 383, 388
Airspan AIRN 319 Austria Microsystems DQW 62, 158, 231
Aisin Seiki ASEKF 376 Autoliv ALV 376
Alacritech N/A 385 Avago N/A 31, 61, 62, 69, 105, 106, 152, 158, 175,
176, 207, 208, 307
ALAXALA N/A 278
Avaya AV 258, 283, 284
Alcatel ALU 172, 173, 223, 236, 238, 244, 256, 257,
BATM BVC 178
258, 278, 283, 284, 311, 319
Alereon N/A 381, 382 Bay Microsystems N/A 62, 271, 272
ALi 3041 63, 359 BE Semiconductor BESI 30, 31
Allegro MicroSystem N/A 61, 104 Beceem N/A 322, 324
Allied Telesyn N/A 172, 173, 258 Becker Automotive HAR 376
Systems/Harman Intl.
Alloptic N/A 244
Belkin N/A 183, 184
Alpha Networks 3380 178
BellSouth BLS 220, 247
Alpine Electronics AELEF 376
BenQ BNQZF 150, 192, 301, 306
ALPS Electronics APELY 63, 235, 330, 339
BigBand N/A 232, 257
Altair ALTI 322
Broadcom BRCM 25, 26, 61, 62, 63, 70, 71, 75, 82, 83, 123,
Altera ALTR 26, 61, 88, 89, 272, 315 125, 126, 175, 176, 177, 178, 187, 188,
Alvarion ALVR 319 189, 190, 194, 203, 207, 208, 210, 233,
235, 238, 239, 240, 264, 269, 271, 272,
AMCC AMCC 26, 44, 61, 62, 75, 83, 202, 203, 207, 208, 274, 275, 289, 290, 291, 292, 305, 330,
246, 247, 264, 269, 271, 272, 274, 275, 332, 339, 342, 359, 366, 367, 369, 385,
277, 290 386, 387, 389, 390
AMD AMD 19, 29, 36, 61, 62, 73, 74, 75, 83, 89, 118, Broadlight N/A 62, 246, 247
119, 123, 124, 126, 127, 305, 306, 332,
362, 365, 366, 367, 368 Broadwing BWNG 220
America Online TWX 226, 229 Brocade BRCD 202, 203, 208, 258
Amic N/A 100 Brooks Automation BRKS 30, 31
Amkor AMKR 25, 26, 28 Brother N/A 155, 229
Anadigics ANAD 36, 307, 330 Buffalo 6676 183, 184
Analog Devices ADI 29, 61, 62, 63, 68, 69, 71, 79, 80, 83, 104, Cablevision CVC 226
125, 158, 231, 238, 304, 305, 306, 314, Calix N/A 244
315, 322, 332, 367, 377, 387, 389, 390
Cambridge Silicon CSR.L 62, 83, 125, 126, 194, 366, 367, 369, 388
AOC/Envision N/A 130 Radio
Apple AAPL 73, 74, 114, 115, 116, 123, 130, 140, 183, Cameo 6142 178
184, 192, 194, 229, 344, 356, 357, 359, 360 Communications
Applied Materials AMAT 30, 31
392

Canon CAJ 31, 155, 229, 351 Dune Networks N/A 62, 274, 275
Carsem N/A 28 EADS PEAD 258, 283, 284
Telecom/Aastra
Casio CSIOF 351
Intecom
Catalyst Semi CATS 61, 99, 100 Eaton ETN 376
Cavium N/A 62, 271, 272 Echostar DISH 326, 327, 330
Centillium CTLM 62, 83, 238, 239, 246, 289, 290 ECI Telecom ECIL 236, 257
Changhong N/A 336 Elpida Memory 6665 24, 61, 62, 63, 91, 93, 124, 304, 307, 367
Chartered CHRT 25, 26, 27 eMachines N/A 130
Cheertek N/A 63, 83, 348 Ember N/A 383
Chipcon N/A 383 EMC EMC 202, 203
ChipMOS IMOS.O 28 Emulex ELX 202, 203, 208, 385
Ciena CIEN 256 Enterasys ETS 172, 173, 258
Cirpack N/A 283 Entrisphere N/A 244
Cirrus Logic CRUS 69, 80, 145, 190 Entropic N/A 390
Cisco Systems CSCO 87, 172, 176, 178, 183, 184, 190, 202, 203, Ericsson ERICY 192, 223, 236, 256, 257, 283, 284, 301,
208, 229, 232, 235, 256, 257, 258, 278, 306, 308, 311, 324
283, 284, 310, 326, 327, 330, 384
Erlang Technology N/A 275
Clarion CRILF 376
ESS Technology ESST 63, 83, 348
Clearwire N/A 319
Eudyna N/A 63, 314, 315
Coaxsys N/A 390
Exar EXAR 62, 261, 264, 315
Comcast CMCSA 226
Extreme Networks EXTR 172, 173, 258
Comsys N/A 322
F5 FFIV 258
Conexant Systems CNXT 26, 61, 62, 63, 71, 82, 83, 125, 126, 158,
187, 188, 189, 190, 194, 231, 235, 238, Fairchild FCS 36, 61, 62, 68, 85, 102, 103, 124, 126
239, 246, 247, 289, 290, 330, 332, 389 Semiconductor
Continental Auto N/A 376 Faisun N/A 372
Coppergate N/A 390 FlexLight Networks N/A 244
Corelogic N/A 63, 305, 306 Focus Enhancements FCSE 381, 382
Cortina N/A 62, 83, 261, 264 Foundry Networks FDRY 172, 173, 258
Creative CREAF 62, 125, 126, 357 Freescale FSL 26, 29, 36, 44, 61, 62, 63, 70, 71, 73, 74,
Semiconductor 75, 76, 77, 78, 79, 80, 82, 83, 104, 123,
Credence CMOS 30, 31 158, 194, 207, 208, 225, 231, 246, 247,
Cyberhome N/A 345 261, 269, 271, 272, 289, 290, 304, 305,
306, 307, 314, 315, 324, 330, 377, 378,
Cypress CY 36, 61, 62, 89, 94, 95, 100, 118, 125, 126,
381, 382, 383, 386, 387, 388, 389
Semiconductor 271, 272, 274, 307, 315, 365, 366, 367, 381
Frontier Silicon N/A 387
D&M Holdings 6735 345
Fuji Electric 6504 61, 102, 103, 124
Daifuku DAIUF 30, 31
Fuji Micro 6504 63, 354
Dainippon 7735 30, 31
FujiFilm 4901 351, 370, 371, 373
Datang Telecom 600198 223, 225, 257, 311
Fujitsu FJTSY 27, 29, 61, 62, 63, 75, 76, 77, 78, 80, 82,
Dell Computer DELL 50, 114, 115, 116, 127, 130, 149, 155, 172,
83, 86, 114, 115, 116, 130, 139, 141, 145,
173, 183, 184, 192, 202, 203, 229, 344, 384
146, 172, 173, 176, 183, 184, 192, 223,
Delphi Automotive DPH 376 229, 244, 256, 267, 269, 271, 272, 274,
Delta Design/Cohu COHU 31 275, 278, 284, 314, 315, 319, 322, 324,
330, 332, 354, 377, 378, 384
Delta Electronics 2308 178
Funai FUAIY 345
Denali Software N/A 17
Garmin GRMN 388
Denso DNZOY 63, 376
Gateway GTW 114, 115, 130, 192, 229
Dialog Semiconductor DLGS 63, 306
GCT N/A 322, 324
DiBcom N/A 387
General Instruments MOT 326, 327
Digiwave DGWAY 326
Genesis Microchip GNSS 62, 63, 82, 83, 133, 339, 342
DirecTV DTV 330
Global Locate N/A 388
D-Link 2332.TW 172, 173, 183, 184, 232, 236
Globespan CNXT 190, 239
DongbuAnam 1830 26, 27, 29
GloNav N/A 388
Duetsche Telekom DT 240
Grace Semiconductor N/A 29
393

Haier 1169 336 ITE Tech ITEJF 62, 125
Hewlet Packard HPQ 30, 31, 112, 114, 115, 116, 130, 149, 155, Jazz Semiconductor AQR 27, 29
172, 173, 183, 184, 192, 202, 203, 229,
Jennic N/A 383
258, 344, 351
Hifn HIFN 62, 271, 272 Johnson Controls JCI 376
HighPoint N/A 202, 203 Juniper Networks JNPR 256, 258

Technologies Juno/United Online UNTD 226
HiMARK N/A 388 JVC/Victor Co. of VJAPY 336, 340, 345, 351
Himax HIMX 61, 62, 84, 133, 340 Japan
Hisense 600060 336 Kalon N/A 381
Hitachi HIT 24, 30, 31, 93, 95, 124, 149, 150, 223, 244, Kawasaki Micro 9107 62, 158, 390
336, 344, 376 Kingston Technology N/A 371
Hitachi Global N/A 139, 141, 145, 146, 202, 203 KLA-Tencor KLAC 30, 31
Storage Technology
Kodak EK 350, 351
Honda Elesys HMC 376
Konica Minolta KNCAF 155
Hua Hong NEC N/A 27
Konka KNKBF 336
Huawei N/A 223, 236, 256, 257, 258, 278, 311, 326,
327 Kulicke & Soffa KLIC 30, 31
Humax N/A 326, 327 KYEC/King Yuan 2449 28
Electronics
Hynix Semiconductor HXSEY 27, 29, 60, 61, 62, 63, 91, 93, 94, 95, 96,
98, 124, 126, 307, 315, 372, 373, 380 Kyocera KYO 301
I/O Data N/A 371 Lam Research LRCX 30, 31
IBM IBM 2, 14, 16, 17, 18, 19, 26, 27, 29, 31, 61, 62, Lattice LSCC 61, 88, 89, 315
63, 73, 74, 75, 86, 87, 112, 115, 116, 123, Semiconductor
141, 144, 145, 146, 147, 172, 175, 176, Lear LEA 376
202, 203, 207, 208, 229, 269, 271, 272,
274, 275, 277, 290, 314, 315, 332, 362, Legerity N/A 62, 225, 290
364, 366, 367, 368, 384 Lenovo LNVGY 114, 115, 130, 155, 172, 173, 183, 184,
Ikanos IKAN 62, 83, 238, 239 192, 229
Communications Level 3 LVLT 220
IM Flash Memory N/A 61, 98, 380 LexarMedia LEXR 371, 372
Technologies
Lexmark LXK 155, 229
Imagination IMG 387
Technologies LG Electronics LGEAF 130, 149, 192, 301, 306, 319, 326, 327,
336, 344, 345
Infineon IFX 26, 29, 44, 60, 61, 62, 63, 70, 71, 76, 77,
78, 82, 83, 91, 93, 98, 99, 100, 102, 103, Linear Technology LLTC 36, 61, 63, 68, 69, 124
104, 124, 125, 126, 144, 145, 146, 147, Linksys CSCO 183, 184
194, 225, 238, 261, 264, 289, 290, 304,
305, 306, 307, 309, 314, 315, 372, 373, Lite-On IT/Lite-On LOTGF 124, 150
377, 378, 380, 381, 382, 387, 388 Technology
Inphi N/A 124 Logitech LOGI 192
Integrated Circuit IDTI 62, 125, 126 LSI Logic LSI 17, 26, 61, 62, 63, 82, 83, 86, 87, 144, 145,
Systems 146, 147, 175, 176, 202, 203, 207, 208,
264, 271, 272, 274, 275, 322, 330, 332,
Integrated Device IDTI 36, 62, 85, 95, 118, 124, 125, 126, 225, 348, 366, 367, 368, 385
Technology 261, 269, 271, 272, 275, 290, 315, 365,
367, 386 LTX LTXX 30, 31
Integration N/A 383 Lucent Technologies LU 223, 229, 236, 256, 257, 283, 284, 311
Intel INTC 19, 21, 23, 24, 25, 26, 29, 36, 60, 61, 62, Macronix MXICY 61, 62, 98, 99, 100, 124, 307
63, 73, 74, 75, 78, 82, 83, 91, 92, 94, 95, Magnachip N/A 27, 29, 62, 84, 133, 340
96, 98, 116, 118, 123, 124, 125, 126, 127,
128, 148, 149, 175, 176, 179, 187, 188, Magneti Marelli MGMRF 376
189, 190, 207, 208, 210, 261, 264, 269, Marconi MRCIY 236, 256, 257
271, 272, 274, 275, 277, 290, 304, 305,
Marvell Technology MRVL 25, 26, 61, 62, 63, 71, 75, 82, 83, 125, 126,
306, 307, 315, 322, 324, 330, 344, 366,
144, 145, 146, 147, 148, 152, 153, 158,
367, 368, 377, 380, 381, 382, 385, 386
175, 176, 177, 178, 187, 188, 190, 207,
International Rectifier IRF 61, 62, 63, 68, 69, 102, 103, 124, 377 208, 269, 366, 367, 368, 369, 380, 386
Intersil ISIL 61, 63, 68, 69, 152, 188, 190, 239, 377 Matrox N/A 83, 124
Inter-Tel N/A 258 Matsushita MC 29, 61, 62, 63, 71, 76, 77, 78, 83, 84, 87,
iRiver/Reigncom RGNMF 357 105, 106, 133, 152, 153, 305, 339, 340, 354
Maxim Integrated MXIM 36, 61, 62, 63, 68, 124, 246, 261, 307, 315,
Italtel N/A 283, 284
Products 322, 330, 377, 387, 388
394

Maxtor STX 50, 139, 141, 145, 146 Nokia NOK 80, 192, 257, 301, 306, 307, 308, 310, 311,
324, 362, 363
McData MCDT 202, 203, 208, 258
Nortel NTL 172, 173, 223, 229, 256, 257, 258, 283,
MediaTek MDTKF 25, 61, 62, 63, 71, 82, 83, 152, 306, 342, 284, 311, 319
348
Novatek 3034.TW 61, 62, 83, 84, 133, 340
Melco/Buffalo 6676 244, 319
Novellus Systems NVLS 30, 31
Mellanox N/A 384
NTT DCM 308
MEMC WFR 14
NVIDIA NVDA 25, 26, 61, 62, 63, 82, 83, 118, 119, 123,
Memorex N/A 371 124, 126, 305, 306, 362, 365, 366, 367
Micrel MCRL 63, 69, 377 NXP/Philips N/A 60, 61, 62, 63, 69, 70, 71, 77, 78, 79, 80,
Microchip Technology MCHP 61, 76, 77, 78, 99, 100, 383 82, 83, 85, 99, 100, 102, 103, 104, 124,
125, 133, 145, 158, 187, 190, 194, 304,
Micron Technology MU 26, 29, 36, 61, 62, 63, 91, 93, 98, 124, 126, 305, 306, 307, 314, 315, 322, 330, 332,
371, 372, 373, 380 339, 348, 359, 377, 378, 381, 382, 387,
Micronas MASN 61, 63, 71, 104, 339 388, 389
Microsoft MSFT 87, 128, 148, 149, 161, 163, 166, 188, 190, Octalica N/A 390
226, 332, 344, 356, 357, 360, 361, 362, Oki Electric OKIEF 61, 77, 84, 95, 99, 100, 155, 225, 231, 244,
363, 365, 366, 367, 368, 369, 380, 389 340, 383
Microtune TUNE 62, 194, 235, 387 Olympus 7733 351, 370, 371, 373
Mindspeed MSPD 62, 83, 207, 246, 261, 264, 267, 271, 272, Omnivision OVTI 61, 63, 106, 354
274, 275, 289, 290, 315 Technology
Mitel Systems N/A 258, 283, 284 On Semiconductor ONNN 36, 61, 62, 63, 68, 69, 85, 102, 103, 124,
Mitsubishi Electric MIELY 61, 62, 102, 103, 104, 124, 130, 152, 244, 377
336, 376 Optek Technology N/A 61, 104
MorningStar/Mstar N/A 62, 83, 133 Orion N/A 345
MoSys MOSY 367 OSRAM N/A 61, 62, 63, 105, 106, 152, 377
Motorola MOT 80, 192, 232, 235, 244, 257, 277, 284, 301, OTI 3304 372
306, 310, 311, 319, 323, 326, 327, 330, 376
Pace Micro PCMXF 326, 327
M-Systems Flash SNDK 61, 63, 98, 307, 372, 380
Disk Pioneers Palm PALM 194
Mtekvision MVCLF 63, 305, 306 Panasonic/Matsushita MC 149, 150, 229, 301, 326, 327, 336, 344,
Myson MYSOF 133 345, 351, 371, 376
Passave PMCS 62, 246, 247
Nanya Technology NNYAY 29, 61, 62, 91, 93, 124
Pathscale N/A 384
National NSM 61, 62, 63, 68, 69, 85, 125, 190, 377
Semiconductor Pericom PSEM 85
NCR NCR 116 Semiconductor
Philips PHG 29, 61, 62, 130, 149, 150, 326, 327, 332,
NEC/NEC Electronics NIPNY 29, 60, 61, 62, 63, 69, 71, 73, 75, 76, 77,
336, 344, 345
78, 80, 83, 84, 86, 87, 93, 94, 95, 100, 102,
103, 114, 115, 116, 124, 130, 133, 149, PicoChip N/A 322, 324
150, 152, 153, 158, 172, 173, 183, 184, Pioneer Electronics N/A 149, 150, 326, 327, 336, 344, 376
192, 223, 225, 229, 236, 244, 256, 257,
258, 267, 269, 271, 272, 274, 275, 283, Pixelworks PXLW 62, 63, 83, 133, 339, 342
284, 290, 301, 305, 306, 307, 314, 315, Plantronics PLT 192
327, 340, 344, 348, 365, 366, 368, 377,
378, 381, 382, 383, 386 PLX Technology PLXT 62, 274, 275, 386
Nemerix N/A 388 PMC-Sierra PMCS 26, 61, 62, 73, 75, 82, 83, 158, 207, 208,
246, 247, 261, 264, 267, 269, 274, 275,
Netac N/A 372 290, 315
Netflix NFLX 343 Polycom PLCM 283, 284
NetGear NTGR 172, 173, 183, 184 PortalPlayer PLAY 63, 82, 83, 359
NetLogic NETL 62, 95, 271, 272 Powerchip PWSCF 29, 61, 62, 91, 93, 124
Network Appliance NTAP 202, 203 PowerTech 6239 28
NewJRC/NJR NJR 63, 69, 377 Prolific Technology N/A 372, 388
Newport Media N/A 387 Promise Technology POGYF 62, 202, 203, 207, 208
Nextel FON 220, 323 ProMOS PTGSF 23, 29, 61, 62, 91, 93, 124
Nichia Chemical N/A 61, 62, 105, 106, 152 Pulse~Link N/A 381, 382
Nikon NINOY 30, 31, 351 Qimonda QI 61, 91, 93, 98, 124, 367, 372, 373, 380
Nintendo NTDOY 87, 192, 196, 361, 362, 363, 365, 366, 367, Qlogic QLGC 62, 144, 145, 146, 147, 148, 202, 203, 208,
368, 369 258, 384, 385
395

Quake Technologies AMCC 62 Sierra Monolithic N/A 322
Qualcomm QCOM 25, 26, 61, 63, 70, 71, 80, 82, 83, 194, 196, SiGe Semi N/A 322, 388
295, 304, 305, 306, 307, 308, 314, 315,
Sigma Designs SIGM 330, 332, 342, 381, 382, 389
324, 387, 388
QuickLogic QUIK 61, 89 Sigmatel SGTL 62, 63, 82, 83, 125, 359
RadioPulse N/A 383 Silicon Image SIMG 63, 83, 207, 208, 339, 365
Ralink N/A 187 Silicon Laboratories SLAB 62, 63, 71, 125, 158, 225, 231, 239, 290,
307, 309, 383
Rambus RMBS 91, 367
Silicon Motion SIMO 372
RCA/Thomson TMS 326, 327, 345
Silicon Storage SSTI 61, 62, 98, 124, 126, 307
Realtek 2379.TW 62, 83, 118, 125, 126, 133, 175, 176, 187,
Siliconware Precision SPIL 25, 26, 28
381, 382
Redback Networks RBAK 256 Silverstorm N/A 384
Redline REDL 319 SIPEX SIPX 63, 377
Renesas N/A 25, 29, 60, 61, 62, 63, 70, 71, 73, 75, 76, Sirf Technology SIRF 387, 388
77, 78, 83, 84, 85, 87, 94, 95, 96, 98, 99, SiS 2363 82, 83, 123, 126, 366, 367
100, 102, 103, 133, 144, 145, 146, 147,
Skymedi N/A 372
152, 269, 271, 272, 304, 305, 306, 307,
308, 315, 339, 340, 354, 372, 377, 378, Skyworks SWKS 63, 70, 71, 304, 305, 307
380, 383 Skyworth SWDHF 336
RF Magic N/A 322, 387
SMC 6273 183, 184
RF Micro Devices RFMD 36, 62, 63, 70, 71, 190, 194, 304, 305, 307,
SMIC SMI 25, 26, 27, 29
366, 367, 369
RICOH RICOY 62, 71, 83, 152 Solomon Systech N/A 61, 84, 340
Rio Audio N/A 357 Sonus SONS 283, 284
Robert Bosch BCSHF 29, 61, 63, 71, 104, 376, 377 Sony SNE 29, 61, 62, 63, 71, 78, 86, 87, 105, 106,
114, 115, 130, 149, 150, 152, 183, 184,
Rohm ROHCF 61, 62, 63, 71, 83, 85, 86, 87, 99, 100, 102, 188, 190, 192, 196, 301, 326, 327, 336,
103, 106, 152, 306, 377 339, 340, 342, 344, 345, 348, 351, 354,
Runcom N/A 322, 324 359, 361, 362, 363, 364, 365, 366, 367,
368, 369, 370, 371, 372, 373, 376, 388
Runtop N/A 178
Spansion SPSN 29, 61, 62, 63, 94, 95, 96, 98, 124, 304,
SafeNet SFNT 62, 271, 272 307, 315
Sagem SAGM 192, 301 Sprint FON 220, 295, 319, 323, 324
Samsung SSNLF 24, 25, 26, 29, 36, 60, 61, 62, 63, 77, 78, Staccato N/A 381, 382
80, 84, 86, 87, 91, 93, 94, 95, 96, 98, 124, Communications
126, 130, 133, 139, 141, 145, 146, 149,
Standard Micro SMSC 62, 83, 125, 126, 175
150, 155, 192, 194, 235, 257, 269, 275,
301, 304, 306, 307, 311, 315, 319, 322, Stanely Electric STAEF 61, 62, 105, 106, 152
323, 324, 326, 327, 336, 339, 340, 344, StarGen N/A 275, 386
345, 351, 354, 357, 359, 367, 372, 377, 380
STATS-ChipPAC STTS 26, 28
Sandburst BRCM 274, 275
STMicro STM 26, 29, 44, 60, 61, 62, 63, 68, 69, 70, 71,
SanDisk SNDK 61, 63, 96, 98, 357, 371, 372, 380
76, 77, 78, 82, 83, 85, 87, 94, 95, 96, 98,
Sanken XSK 63, 377 99, 100, 102, 103, 106, 124, 126, 144, 145,
Sanyo 6764 61, 62, 63, 71, 105, 106, 149, 152, 301, 146, 147, 158, 187, 190, 194, 225, 231,
336, 340, 344, 354 238, 303, 304, 305, 306, 307, 308, 314,
315, 322, 330, 332, 340, 367, 372, 377,
Scientific Atlanta CSCO 232, 235, 284, 326, 327, 330 378, 380, 383, 387, 388, 389, 390
Seagate STX 50, 139, 141, 145, 146, 367 Sumitomo SMTOY 244, 257, 284, 319
Seiko Epson 6724 29, 62, 77, 83, 84, 133, 152, 155, 158, 229, Sun SUNW 61, 73, 74, 112, 116, 172, 173, 202, 203,
340, 388 384
Sequans N/A 322, 324 SunPlus 2401 61, 63, 78, 80, 83, 100, 340, 348, 354, 355
Sharp SHCAY 29, 61, 62, 63, 82, 83, 84, 95, 96, 98, 105, SVA N/A 336
106, 124, 133, 152, 155, 229, 235, 304,
306, 307, 336, 339, 340, 345, 354, 365, SwitchCore SWTOF 178
366, 367, 368, 387 Symbol Technologies SBL 183, 184
Shinkawa 6274 30, 31 Tarari N/A 62, 272
Shinko Electric 6967 28 TCL 1000 345
Siano N/A 387 TDK TDK 62, 261
Siemens SI 114, 115, 116, 172, 173, 192, 223, 225, Tekelec TKLC 283, 284
229, 236, 256, 257, 258, 283, 284, 301,
306, 311, 376 Teknovus N/A 62, 246
396

Telechips 054450 63, 83, 359 ViewSonic N/A 130
TeleCIS N/A 319, 322, 324 Vishay VSH 61, 63, 102, 103, 124, 152, 377
Telecom Italia TI 240 Visteon VC 376
Telica N/A 284 Vitesse VTSS 26, 44, 62, 83, 175, 176, 177, 178, 207,
208, 246, 264, 271, 272, 274, 275, 290
Tellabs TLAB 244, 256
VTI Technologies N/A 61, 104
Teradyne TER 30, 31
Wave7 N/A 244
Terawave N/A 244
Wavesat N/A 322, 324
Terayon TERN 235, 284
Weltrend WTRDF 133
Texas Instruments TXN 14, 19, 24, 25, 26, 29, 36, 44, 60, 61, 62,
63, 68, 69, 70, 71, 73, 76, 77, 78, 79, 80, Westell WSTL 236
82, 83, 85, 87, 124, 125, 126, 144, 145, Western Digital WDC 139, 141, 145, 146
146, 147, 158, 175, 176, 187, 188, 190,
194, 233, 235, 238, 240, 271, 272, 274, Wiltel N/A 220
275, 289, 290, 291, 292, 303, 304, 305, Winbond 2344 29, 62, 124, 125, 225, 231
306, 308, 309, 314, 315, 322, 324, 332,
340, 348, 354, 355, 359, 377, 378, 383, Wintegra N/A 62, 269, 271, 272, 277
386, 387, 388, 389, 390 WiQuest N/A 381, 382
Thomson TMS 232, 235, 236, 284, 326, 327, 336, 357 Wisair N/A 381, 382
TiVo TIVO 326, 327 Wolfson WLFMF 63, 69, 359
Tokyo Electron TOELF 30, 31 Xerox XRX 155
Tokyo Seimitsu TMIUF 30, 31 X-Fab N/A 27, 29
Tonic N/A 345 Xilinx XLNX 25, 26, 61, 88, 89, 272, 315
Toshiba TOSBF 25, 27, 29, 60, 61, 62, 63, 69, 71, 73, 75, Yokogawa YOKEF.PK 30, 31
76, 77, 78, 80, 83, 85, 86, 87, 95, 96, 98,
102, 103, 105, 106, 114, 115, 124, 130, Zarlink ZL 62, 63, 267, 274, 275, 290, 330
133, 139, 141, 145, 146, 149, 150, 152, Zettacom IDTI 275
158, 172, 173, 183, 184, 192, 208, 229,
Zoran ZRAN 61, 63, 82, 83, 339, 342, 348, 354, 355
235, 269, 271, 272, 274, 275, 304, 307,
327, 332, 336, 339, 340, 344, 345, 348, ZTE ZTCOF 223, 257, 311
364, 366, 367, 368, 371, 372, 377, 378, 380 Zyxel N/A 236, 257, 284
Tower Semi TSEM 29
Toyota Gosel TM 61, 106
Transcend N/A 371
Transmeta TMTA 76, 123
TranSwitch TXCC 62, 83, 264, 267, 274, 275
Trident TRID 63, 83, 339, 342
Trimble TRMB 388
Truespan N/A 387
TRW TRW 376
TSMC TSM 24, 25, 26, 27, 29
TTE N/A 336
Tundra TUN 62, 269, 274, 275, 386
Tzero N/A 381, 382
u-blox N/A 388
UMC UMC 25, 26, 27, 29
U-Nav N/A 388
Unaxis Management UNAX 31
USBest N/A 372
UTAC N/A 28
UTStarcomm UTSI 229, 236, 244, 257, 283, 284, 311
Vanguard 5347 27
International
Verizon VZ 220, 226, 247, 332, 389, 390
Vestel VSQ 345
Via VIATF 61, 62, 73, 74, 82, 83, 118, 123, 126
397
398
IMPORTANT DISCLOSURES:
Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or
at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein
accurately reflect such research analyst's personal views about the company and securities that are the subject of this
report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii)
no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed by such research analyst in this report.
Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from
revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking
Department within the Corporate and Leveraged Finance Division. Research analysts do not receive compensation based
upon revenues from specific investment banking transactions. CIBC World Markets generally prohibits any research
analyst and any member of his or her household from executing trades in the securities of a company that such research
analyst covers. Additionally, CIBC World Markets generally prohibits any research analyst from serving as an officer,
director or advisory board member of a company that such analyst covers.
In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report,
CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities
discussed herein, related securities or in options, futures or other derivative instruments based thereon.
Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures
set forth below, may at times give rise to potential conflicts of interest.
399
Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered
by CIBC World Markets:
Stock Prices as of 01/12/2007:

Advanced Micro Devices (AMD-NYSE, US$18.26, Sector Performer)
Agere Systems (AGR-NYSE, US$22.32, Not Rated)
Alvarion (1) (ALVR-OTC, US$6.77, Sector Performer)
Anadigics, Inc. (1, 2a, 2b, 2d, 2f) (ANAD-OTC, US$9.75, Sector Performer)
Applied Materials, Inc. (1, 5a) (AMAT-NASDAQ, US$19.50, Sector Outperformer)
Applied Micro Circuits (1) (AMCC-NASDAQ, US$3.57, Sector Outperformer)
Arris Group (1, 2f) (ARRS-OTC, US$13.10, Sector Performer - Speculative)
ASM International N.V. (1, 2f) (ASMI-NASDAQ, US$21.09, Sector Performer)
AT&T, Inc. (T-NYSE, US$34.73, Sector Outperformer)
Broadcom Corp. (1) (BRCM-NASDAQ, US$32.42, Sector Performer)
Cablevision Systems Corp. (CVC-NYSE, US$28.39, Not Rated)
Cirrus Logic (1) (CRUS-NASDAQ, US$7.86, Sector Outperformer - Speculative)
Cisco Systems (1, 2g) (CSCO-OTC, US$28.92, Sector Outperformer)
Comcast (1) (CMCSA-OTC, US$44.09, Sector Outperformer)
Conexant Systems, Inc. (1) (CNXT-NASDAQ, US$2.09, Sector Performer)
Eaton Corp. (ETN-NYSE, US$74.52, Sector Underperformer)
ESS Technology Inc. (1) (ESST-NASDAQ, US$0.98, Sector Underperformer)
Exar Corporation (1) (EXAR-NASDAQ, US$13.55, Sector Underperformer)
Genesis Microchip (1) (GNSS-OTC, US$9.70, Sector Underperformer)
Integrated Device Technology (1, 2a, 2d, 2f, 3a, 3b) (IDTI-NASDAQ, US$15.53, Sector Outperformer)
Intel Corporation (1) (INTC-NASDAQ, US$22.13, Sector Performer)
Intersil Corporation (1) (ISIL-OTC, US$24.13, Sector Outperformer)
Juniper Networks (1) (JNPR-OTC, US$20.58, Sector Performer)
KLA-Tencor Corp. (1, 5a) (KLAC-NASDAQ, US$52.17, Sector Performer)
Lam Research Corp. (1) (LRCX-NASDAQ, US$54.54, Sector Outperformer)
Level 3 (1, 2a, 2d) (LVLT-OTC, US$6.60, Sector Performer - Speculative)
Linear Technology (1) (LLTC-OTC, US$32.77, Sector Performer)
Marvell Technology (1) (MRVL-NASDAQ, US$20.39, Sector Outperformer)
Maxim Integrated Products (1) (MXIM-OTC, US$33.63, Sector Performer)
MEMC Electronic Materials Inc. (WFR-NYSE, US$45.32, Sector Outperformer)
Microsoft Corporation (1) (MSFT-OTC, US$31.21, Sector Underperformer)
Microtune, Inc. (1) (TUNE-NASDAQ, US$5.13, Sector Outperformer)
Mindspeed Technologies Inc. (1) (MSPD-NASDAQ, US$1.84, Sector Performer)
Motorola, Inc. (2f) (MOT-NYSE, US$18.01, Sector Performer)
Nokia Corporation (NOK-NYSE, US$19.49, Sector Performer)
Novellus Systems, Inc. (1, 5a) (NVLS-NASDAQ, US$32.75, Sector Underperformer)
NVIDIA Corp. (1) (NVDA-OTC, US$35.23, Sector Performer)
OmniVision Technologies Inc. (1) (OVTI-NASDAQ, US$12.89, Sector Performer)
Pixelworks Inc. (1) (PXLW-OTC, US$2.05, Sector Underperformer)
PMC-Sierra Inc. (1, 2g) (PMCS-NASDAQ, US$6.66, Sector Performer)
Qualcomm (1) (QCOM-OTC, US$39.62, Sector Outperformer)
Redback Networks (1, 2f) (RBAK-OTC, US$24.84, Not Rated)
RF Micro Devices, Inc. (1) (RFMD-OTC, US$7.19, Sector Outperformer)
SanDisk Corporation (1) (SNDK-OTC, US$44.03, Sector Performer)
Silicon Image (1) (SIMG-OTC, US$13.55, Sector Outperformer - Speculative)
Skyworks Solutions, Inc. (1) (SWKS-OTC, US$7.48, Sector Outperformer)
Teradyne, Inc. (TER-NYSE, US$16.02, Sector Outperformer)
400
Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered
by CIBC World Markets: (Continued)

Texas Instruments (TXN-NYSE, US$29.06, Sector Outperformer)
Time Warner Inc. (TWX-NYSE, US$22.73, Sector Performer)
Trident Microsystems Inc. (1) (TRID-NASDAQ, US$18.01, Sector Outperformer)
Tundra Semiconductor Corporation (2g, 6a) (TUN-TSX, C$9.15, Sector Performer)
Verizon (VZ-NYSE, US$37.33, Sector Performer)
Vitesse Semiconductor (VTSS-PN, US$0.96, Sector Underperformer)
Zarlink Semiconductor (2f, 2g, 7) (ZL-NYSE, US$2.40, Sector Performer)
Zoran Corporation (1) (ZRAN-OTC, US$14.31, Sector Performer)
Companies Mentioned in this Report that Are Not Covered by CIBC World Markets:

3Com (COMS-OTC, US$4.07, Not Rated)
Accton Technology (2345-TW, [TWD]21.75, Not Rated)
Acer (ACEIF-TW, [TWD]3.91, Not Rated)
ACQUICOR TECHNOLOGY (aqr-AMEX, US$5.45, Not Rated)
Actel (ACTL-OTC, US$18.20, Not Rated)
Actions Semiconductor Co., Ltd. (ACTS-NASDAQ, US$8.36, Not Rated)
Adaptec (ADPT-OTC, US$4.14, Not Rated)
Adtran (ADTN-OTC, US$23.72, Not Rated)
Advantest Corp. (ATE-NYSE, US$54.60, Not Rated)
Agilent Technologies (A-NYSE, US$33.60, Not Rated)
Airspan Networks Inc. (AIRN-NASDAQ, US$4.05, Not Rated)
Aisin Seiki (ASEKF-OS, ¥29.10, Not Rated)
ALi Corporation (3041-TW, [TWD]58.60, Not Rated)
Allianz (ALV-F, €84.48, Not Rated)
Alpha Networks (3380-TW, [TWD]30.85, Not Rated)
Alpine Electronics, Inc. (AELEF-T, ¥14.85, Not Rated)
Alps Electric (APELY-OTC, US$24.60, Not Rated)
Altair Nanotechnologies (ALTI-OTC, US$2.63, Not Rated)
Altera (ALTR-OTC, US$20.42, Not Rated)
Amkor Technology (AMKR-OTC, US$11.28, Not Rated)
Analog Devices (ADI-NYSE, US$33.94, Not Rated)
Apple Computer (AAPL-OTC, US$94.62, Not Rated)
ArvinMeritor Inc. (ARM-NYSE, US$19.27, Not Rated)
Asahi Kasei (ASAA-F, €4.76, Not Rated)
ASML Holding N.V. (ASML-OTC, US$24.71, Not Rated)
Asyst Technologies (ASYT-NASDAQ, US$7.06, Not Rated)
Atheros Communications (ATHR-OTC, US$24.41, Not Rated)
ATI Technologies (ATYT-OTC, US$19.53, Not Rated)
Atmel (ATML-OTC, US$6.25, Not Rated)
Australian Stock Exchange Limited (ASX-AUS, A$35.62, Not Rated)
Austriamicrosystems (DQW-BE, €53.61, Not Rated)
Avaya Inc. (AV-NYSE, US$14.25, Not Rated)
BATM Advanced Communications (BVC-L, p33.51, Not Rated)
401
(Continued)

BE Semiconductor (BESI-OTC, US$6.26, Not Rated)
BenQ Corporation (BNQZF-OTC, US$0.00, Not Rated)
Boliden AB (BLS-TSX, C$25.50, Not Rated)
Bosch (BCSHF-OTC, US$4.85, Not Rated)
Broadwing Communications (BWNG-OTC, US$15.73, Not Rated)
Brocade Communications (BRCD-OTC, US$8.83, Not Rated)
Brooks Automation (BRKS-NASDAQ, US$15.00, Not Rated)
Cameo Communications (6142-TW, [TWD]28.90, Not Rated)
Canon Inc. (CAJ-NYSE, US$54.67, Not Rated)
Casio Computers (CSIOF-PN, US$19.85, Not Rated)
Catalyst Semiconductor (CATS-OTC, US$3.66, Not Rated)
Centillium (CTLM-OTC, US$2.15, Not Rated)
Chartered Semiconductor (CHRT-OTC, US$8.45, Not Rated)
ChipMos Technology (IMOS.O-OTC, US$6.98, Not Rated)
CIENA Corporation (CIEN-OTC, US$29.78, Not Rated)
Clarion Co., Ltd. (CRILF-T, ¥0.00, Not Rated)
Cohu (COHU-OTC, US$20.69, Not Rated)
Creative Technologies (CREAF-OTC, US$6.75, Not Rated)
Credence Systems (CMOS-NASDAQ, US$5.09, Not Rated)
CSR (csr.l-L, p394.25, Not Rated)
Cypress Semiconductor (CY-NYSE, US$17.82, Not Rated)
D&M Holdings Inc. (6735-T, ¥239.00, Not Rated)
D-Link (2332.TW-TW, [TWD]45.50, Not Rated)
Daifuku (DAIUF-T, ¥4.70, Not Rated)
Dainippon Screen Manufacturing Co. Ltd. (7735-T, ¥1050.00, Not Rated)
Datang Telecom (600198-SS, [CNY]12.34, Not Rated)
Dell Computer Corp. (DELL-NASDAQ, US$26.62, Not Rated)
Delphi Corp. (DPH-TSX, Not Rated)
Delta Electronics (2308-TW, [TWD]112.50, Not Rated)
Denso Corp (DNZOY-T, ¥97.00, Not Rated)
Dialog Semiconductor (DLGS-OTC, US$1.25, Not Rated)
Diamond Tree Energy Ltd. (DT-TSX, C$3.60, Not Rated)
Digiwave (DGWAY-KS, [KRW]0.00, Not Rated)
DirecTV Group Inc. (The) (DTV-NYSE, US$24.20, Not Rated)
EADS (PEAD-PA, €22.45, Not Rated)
Eastman Kodak Co (EK-NYSE, US$25.38, Not Rated)
EchoStar Communications (DISH-OTC, US$40.48, Not Rated)
ECI Telecom (ECIL-OTC, US$8.44, Not Rated)
Elpida Memory, Inc. (6665-T, ¥5760.00, Not Rated)
EMC Corp. (EMC-NYSE, US$14.26, Not Rated)
Emulex Corp. (ELX-NYSE, US$18.82, Not Rated)
Enterasys Networks (ETS-NYSE, US$13.92, Not Rated)
Ericsson Inc. (ERICY-TSX, Not Rated)
Extreme Networks (EXTR-OTC, US$4.09, Not Rated)
F5 (FFIV-OTC, US$79.77, Not Rated)
Fairchild Semiconductor (FCS-NYSE, US$18.16, Not Rated)
Focus Enhancements (FCSE-OTC, US$1.44, Not Rated)
402
(Continued)

fONOROLA Inc. (FON-TSX, Not Rated)
Foundry Networks (FDRY-OTC, US$14.95, Not Rated)
Freescale Semiconductor (FSL-NYSE, US$39.99, Not Rated)
Fuji Electric Holdings Co Ltd (6504-T, ¥532.00, Not Rated)
Fuji Photo Film (4901-T, ¥3370.00, Not Rated)
Fujitsu Ltd. ADR (FJTSY-PN, US$41.10, Not Rated)
Funai Electric (FUAIY-PN, US$20.20, Not Rated)
Garmin (GRMN-OTC, US$52.30, Not Rated)
Gateway Inc. (GTW-NYSE, US$2.18, Not Rated)
Haier Electronics Group Co. Ltd. (1169-HK, [HKD]0.17, Not Rated)
Harman International Industries (HAR-NYSE, US$103.01, Not Rated)
Hewlett-Packard (HPQ-NYSE, US$43.53, Not Rated)
HI/FN (HIFN-OTC, US$5.74, Not Rated)
HIMAX Technologies (HIMX-NYSE, US$6.85, Not Rated)
Hisense (600060-SS, [CNY]6.41, Not Rated)
Hitachi Ltd. ADR (HIT-NYSE, US$66.32, Not Rated)
Honda Motor Co., Ltd. (HMC-NYSE, US$38.50, Not Rated)
Hynix (HXSEY-OTC, Not Rated)
Ikanos Communications (IKAN-OTC, US$8.34, Not Rated)
Imagination Technologies Group (IMG-L, p110.82, Not Rated)
Inco Ltd. (N-NYSE, US$74.83, Not Rated)
Infineon (IFX-NYSE, US$14.56, Not Rated)
International Business Machines (IBM-NYSE, US$99.34, Not Rated)
International Rectifier (IRF-NYSE, US$39.91, Not Rated)
ITE Tech (ITEJF-TW, [TWD]0.00, Not Rated)
Johnson Controls Inc. (JCI-NYSE, US$86.20, Not Rated)
KAWASAKI KISEN KAISHA, LTD (9107-T, ¥940.00, Not Rated)
King Yuan Electronics Co. Ltd. (2449-TW, [TWD]27.60, Not Rated)
Konica Minolta (KNCAF-OTC, US$13.35, Not Rated)
Konka (KNKBF-T, ¥0.56, Not Rated)
Kulicke & Soffa Industries Inc. (KLIC-NASDAQ, US$9.09, Not Rated)
Kyocera (KYO-NYSE, US$93.72, Not Rated)
Lattice Semiconductor (LSCC-OTC, US$6.39, Not Rated)
Lear Corp. (LEA-NYSE, US$31.51, Not Rated)
Lenovo Group (LNVGY-PN, US$7.90, Not Rated)
Lexar Media (LEXR-OTC, US$9.49, Not Rated)
Lexmark International (LXK-NYSE, US$70.94, Not Rated)
LG Electronics (LGEAF-OTC, US$66.60, Not Rated)
Lite-On Technology (LOTGF-TW, [TWD]0.00, Not Rated)
Logitech (LOGI-OTC, US$29.27, Not Rated)
LSI Logic (LSI-NYSE, US$10.39, Not Rated)
LTX Corp. (LTXX-NASDAQ, US$5.74, Not Rated)
Lucent Technologies (LU-NYSE, US$2.55, Not Rated)
Macronix (MXICY-OTC, US$3.77, Not Rated)
Magneti Marelli (MGMRF-OTC, €0.00, Not Rated)
Marconi (MRCIY-OTC, US$13.11, Not Rated)
Matsushita (MC-NYSE, US$20.09, Not Rated)
403
(Continued)

McData Corp (MCDTA-NASDAQ, US$6.19, Not Rated)
MediaTek (MDTKF-TW, [TWD]0.00, Not Rated)
MELCO Holdings Inc. (6676-T, ¥2335.00, Not Rated)
Micrel (MCRL-OTC, US$10.53, Not Rated)
Microchip Technology (MCHP-OTC, US$35.86, Not Rated)
Micron Technology (MU-NYSE, US$14.23, Not Rated)
Micronas (MASN-F, €17.40, Not Rated)
Mitsubishi Electric Corp. ADR (MIELY-PN, US$76.05, Not Rated)
Monolithic Systems Technology Inc. (MOSY-OTC, US$9.20, Not Rated)
MtekVision (MVCLF-KS, [KRW]0.00, Not Rated)
Myson (MYSOF-TW, [TWD]0.00, Not Rated)
Nanya Technology Corporation (nnyay-TW, [TWD]0.00, Not Rated)
National Semiconductor (NSM-NYSE, US$23.08, Not Rated)
NCR (NCR-NYSE, US$43.50, Not Rated)
NEC (NIPNY-OTC, US$5.08, Not Rated)
Netflix Inc (NFLX-OTC, US$22.71, Not Rated)
Netgear (NTGR-OTC, US$29.23, Not Rated)
NetLogic Microsystems (NETL-OTC, US$23.41, Not Rated)
Network Appliance (NTAP-OTC, US$39.80, Not Rated)
New Japan Radio (NJR-F, €6.20, Not Rated)
Nikon Corp. ADR (NINOY-OTC, US$106.50, Not Rated)
Nintendo Co. Ltd. (NTDOY-PN, US$26.10, Not Rated)
Nortel Inversora SA (NTL-NYSE, US$13.75, Not Rated)
Novatek Microelectronics Corp. (3034.TW-TW, [TWD]160.50, Not Rated)
NTT DoCoMo (DCM-NYSE, US$16.22, Not Rated)
Oki Electric (OKIEF-PN, US$4.15, Not Rated)
Olympus Corp (7733-T, ¥3480.00, Not Rated)
On Semiconductor (ONNN-OTC, US$8.20, Not Rated)
OTI (3304-TW, [TWD]13.10, Not Rated)
Pace Micro Technology (PCMXF-OTC, Not Rated)
PalmOne, Inc. (PALM-OTC, US$14.15, Not Rated)
Parmalat (PLT-MI, €2.89, Not Rated)
Pericom Semiconductor (PSEM-OTC, US$11.35, Not Rated)
Philips Electronics (PHG-NYSE, US$37.57, Not Rated)
PLX Technology (PLXT-NASDAQ, US$13.53, Not Rated)
Polycom (PLCM-OTC, US$32.12, Not Rated)
PortalPlayer (PLAY-NASDAQ, US$13.48, Not Rated)
Powerchip Semiconductor (PWSCF-OTC, US$6.85, Not Rated)
Powertech Technology (6239-TW, [TWD]133.00, Not Rated)
Promise Technology (POGYF-TW, [TWD]0.00, Not Rated)
ProMOS Technologies (PTGSF-TW, [TWD]17.31, Not Rated)
Qimonda AG (QI-NYSE, US$17.15, Not Rated)
QLogic Corporation (QLGC-OTC, US$21.03, Not Rated)
Quicklogic (QUIK-OTC, US$3.14, Not Rated)
Rambus (RMBS-OTC, US$19.30, Not Rated)
Realtek (2379.TW-TW, [TWD]55.10, Not Rated)
Redline Communications Inc. (REDL-L, p100.00, Not Rated)
404
(Continued)

Reigncom Ltd. (RGNMF-OTC, US$15.47, Not Rated)
Ricoh Ltd. (RICOY-OTC, US$101.50, Not Rated)
ROHM (ROHCF-T, ¥99.00, Not Rated)
SafeNet (SFNT-OTC, US$24.52, Not Rated)
SAGEM (SAGM-PA, €15.53, Not Rated)
Samsung Electronics Co. Ltd. (SSNLF-OTC, US$685.62, Not Rated)
Sanken Electric (XSK-F, €12.25, Not Rated)
Sanyo Electronic Co. Ltd. (6764-T, ¥278.00, Not Rated)
Seiko Epson Corp (6724-T, ¥2980.00, Not Rated)
Semiconductor Manufacturing International Corp. (SMI-NYSE, US$7.76, Not Rated)
Sensient Technologies Corp. (STX-NYSE, US$26.82, Not Rated)
Sharp Corp. (SHCAY-OTC, US$17.05, Not Rated)
Shinkawa (6274-T, ¥3250.00, Not Rated)
Shinko Electric Industries (6967-BE, €20.22, Not Rated)
Sigma Designs, Inc. (SIGM-NASDAQ, US$25.02, Not Rated)
SigmaTel (SGTL-NASDAQ, US$3.77, Not Rated)
Silicon Integrated System Corp. (2363-TW, [TWD]19.35, Not Rated)
Silicon Laboratories Inc. (SLAB-NASDAQ, US$34.46, Not Rated)
Silicon Motion (simo-OTC, US$16.44, Not Rated)
Silicon Storage Technology (SSTI-OTC, US$4.67, Not Rated)
Siliconware Precision Inds. (SPIL-OTC, US$7.99, Not Rated)
Sipex (SIPX-OTC, US$2.02, Not Rated)
SIRF Technology, Inc. (SIRF-NASDAQ, US$28.13, Not Rated)
Sirit Inc. (SI-TSX, C$0.18, Not Rated)
Skyworth Digital (swdhf-OTC, US$0.36, Not Rated)
SMC Corporation (6273-T, ¥13490.00, Not Rated)
Sonus Networks (SONS-OTC, US$7.69, Not Rated)
Sony (SNE-NYSE, US$47.68, Not Rated)
Spansion (SPSN-NASDAQ, US$14.35, Not Rated)
ST Assembly & Test Services (STTS-OTC, US$7.66, Not Rated)
Standard Microsystems (SMSC-OTC, US$29.81, Not Rated)
Stanley Electric (STAEF-OTC, US$14.30, Not Rated)
STMicroelectronics N.V. (STM-NYSE, US$18.97, Not Rated)
Sumitomo Electric Industries (SMTOY-OTC, US$91.00, Not Rated)
Sun Microsystems (SUNW-OTC, US$6.06, Not Rated)
Sunplus Technology (2401-TW, [TWD]38.00, Not Rated)
Switchcore (SWTOF-OTC, US$0.30, Not Rated)
Symbol Technologies Inc. (SBL-NYSE, US$14.98, Not Rated)
Taiwan Semiconductor Manufacturing (TSM-NYSE, US$11.25, Not Rated)
TCL Communication (2618-HK, [HKD]0.42, Not Rated)
TDK Corp. (TDK-NYSE, US$78.65, Not Rated)
Tekelec (TKLC-OTC, US$15.65, Not Rated)
Telechips Inc. (054450-KQ, [KRW]12500.00, Not Rated)
Telecom Italia (TI-NYSE, US$30.83, Not Rated)
Tellabs, Inc. (TLAB-OTC, US$10.36, Not Rated)
Terayon (TERN-OTC, US$1.82, Not Rated)
Thomson (TMS-NYSE, US$23.56, Not Rated)
405
(Continued)

Tivo Inc. (TIVO-OTC, US$5.81, Not Rated)
Tokyo Electron Ltd. (TOELF-OTC, US$66.50, Not Rated)
Tokyo Seimitsu Co. Ltd. (TMIUF-T, ¥30.72, Not Rated)
Toshiba Corp. (TOSBF-PN, US$6.95, Not Rated)
Tower Semiconductor (TSEM-OTC, US$1.87, Not Rated)
Toyota (TM-NYSE, US$130.89, Not Rated)
Transmeta (TMTA-OTC, US$1.02, Not Rated)
TranSwitch Corporation (TXCC-OTC, US$1.49, Not Rated)
Trimble Navigation (TRMB-OTC, US$55.00, Not Rated)
TRW Automotive Holdings Corp (TRW-NYSE, US$26.73, Not Rated)
Unaxis Holding AG (UNAX-S, [CHF]181.00, Not Rated)
United Microelectronics (UMC-NYSE, US$3.49, Not Rated)
United Online, Inc. (UNTD-OTC, US$14.14, Not Rated)
UTStarcom Inc. (UTSI-OTC, US$8.70, Not Rated)
Vanguard International Semiconductor Corp. (5347-TW, [TWD]23.60, Not Rated)
Vestel (VSQ-F, €3.06, Not Rated)
Via Technologies, Inc. (VIATF-TW, [TWD]20.05, Not Rated)
Victor Co of Japan Ltd (VJAPY-PN, US$14.75, Not Rated)
Vishay Intertechnology (VSH-NYSE, US$13.60, Not Rated)
Visteon Corp. (VC-NYSE, US$7.56, Not Rated)
Weltrend Semiconductor (WTRDF-OTC, US$0.35, Not Rated)
Westell (WSTL-OTC, US$2.97, Not Rated)
Western Digital (WDC-NYSE, US$21.04, Not Rated)
Winbond Electronics Corp. (2344-TW, [TWD]12.50, Not Rated)
Wolfson Microelectronics (wlfmf-L, £330.05, Not Rated)
Xerox (XRX-NYSE, US$17.01, Not Rated)
Xilinx (XLNX-OTC, US$24.81, Not Rated)
Yokogawa Electric Corp. (YOKEF.PK-OTC, US$14.00, Not Rated)
Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to
Important Disclosure Footnotes" section of this report.
406
Key to Important Disclosure Footnotes:

1 CIBC World Markets Corp. makes a market in the securities of this company.
2a This company is a client for which a CIBC World Markets company has performed investment banking services
in the past 12 months.
2b CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2d CIBC World Markets Corp. has received compensation for investment banking services from this company in
the past 12 months.
2e CIBC World Markets Inc. has received compensation for investment banking services from this company in the
past 12 months.
2f CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
3a This company is a client for which a CIBC World Markets company has performed non-investment banking,
securities-related services in the past 12 months.
3b CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
4a This company is a client for which a CIBC World Markets company has performed non-investment banking,
non-securities-related services in the past 12 months.
4b CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
4c CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
5a The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common
equity securities.
5b A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a
long position in the common equity securities of this company.
6a The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its
common equity securities.
6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this
company has a long position in the common equity securities of this company.
7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1%
or more of a class of equity securities issued by this company.
8 A partner, director or officer of CIBC World Markets Inc. or any analyst involved in the preparation of this
research report has provided services to this company for remuneration in the past 12 months.
9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company
to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer,
director or advisory board member of this company or one of its subsidiaries.
10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC
World Markets Corp., has a significant credit relationship with this company.
11 The equity securities of this company are restricted voting shares.
12 The equity securities of this company are subordinate voting shares.
13 The equity securities of this company are non-voting shares.
14 The equity securities of this company are limited voting shares.
407
CIBC World Markets Price Chart

For price and performance information charts required under NYSE and NASD rules, please visit CIBC on the web at
http://www.cibcwm.com/research/sec2711 or write to CIBC World Markets Corp., 300 Madison Avenue, 7th Floor, New
York, NY 10017-6204, Attn: Research Disclosure Chart Request.
CIBC World Markets' Stock Rating System

Abbreviation Rating Description
Stock Ratings
SO Sector Outperformer Stock is expected to outperform the sector during the next 12-18 months.
SP Sector Performer Stock is expected to perform in line with the sector during the next 12-18 months.
SU Sector Underperformer Stock is expected to underperform the sector during the next 12-18 months.
NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock.
R Restricted CIBC World Markets is restricted*** from rating the stock.
Sector Weightings**
O Overweight Sector is expected to outperform the broader market averages.
M Market Weight Sector is expected to equal the performance of the broader market averages.
U Underweight Sector is expected to underperform the broader market averages.
NA None Sector rating is not applicable.
**Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada.
"Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues.
***Restricted due to a potential conflict of interest.
Ratings Distribution*: CIBC World Markets' Coverage Universe

(as of 17 Jan 2007) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 318 37.9% Sector Outperformer (Buy) 169 53.1%
Sector Performer (Hold/Neutral) 419 49.9% Sector Performer (Hold/Neutral) 215 51.3%
Sector Underperformer (Sell) 73 8.7% Sector Underperformer (Sell) 35 47.9%
Restricted 15 1.8% Restricted 15 100.0%
Ratings Distribution: Semiconductors & Components Coverage Universe
(as of 17 Jan 2007) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 16 42.1% Sector Outperformer (Buy) 6 37.5%
Sector Performer (Hold/Neutral) 15 39.5% Sector Performer (Hold/Neutral) 3 20.0%
Sector Underperformer (Sell) 5 13.2% Sector Underperformer (Sell) 0 0.0%
Restricted 0 0.0% Restricted 0 0.0%
Semiconductors & Components Sector includes the following tickers: AGR, AMCC, AMD, BRCM, BRLC, CLRK, CNXT, CREE, CRUS,
ESST, EXAR, GNSS, IDTI, INTC, ISIL, LLTC, MPWR, MRVL, MSCC, MSPD, MXIM, NVDA, OLED, OVTI, PDSN, PMCS, PXLW, SFUN,
SIMG, SMTC, SNDK, STEC, TRID, TUNE, TXN, VTSS, ZL, ZRAN.
*Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets do
not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World Markets
has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and sell ratings to
securities rated Sector Underperformer without taking into consideration the analyst's sector weighting.
408
Legal Disclaimer
This report is issued and approved for distribution by (i) in the United States, CIBC World Markets Corp., a member
of the New York Stock Exchange ("NYSE"), NASD and SIPC, (ii) in Canada, CIBC World Markets Inc., a member of the
Investment Dealers Association ("IDA"), the Toronto Stock Exchange, the TSX Venture Exchange and CIPF, (iii) in the
United Kingdom, CIBC World Markets plc, which is regulated by the Financial Services Authority ("FSA"), and (iv) in
Australia, CIBC World Markets Australia Limited, a member of the Australian Stock Exchange and regulated by the ASIC
(collectively, "CIBC World Markets"). This report is provided, for informational purposes only, to institutional investor
clients of CIBC World Markets in the United States and Canada and retail clients of CIBC World Markets in Canada, and
does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such
offer or solicitation would be prohibited. This document and any of the products and information contained herein are
not intended for the use of private investors in the United Kingdom. Such investors will not be able to enter into
agreements or purchase products mentioned herein from CIBC World Markets plc. The comments and views expressed
in this document are meant for the general interests of clients of CIBC World Markets Australia Limited.
The securities mentioned in this report may not be suitable for all types of investors. This report does not take into
account the investment objectives, financial situation or specific needs of any particular client of CIBC World Markets.
Recipients should consider this report as only a single factor in making an investment decision and should not rely solely
on investment recommendations contained herein, if any, as a substitution for the exercise of independent judgment of
the merits and risks of investments. The analyst writing the report is not a person or company with actual, implied or
apparent authority to act on behalf of any issuer mentioned in the report. Before making an investment decision with
respect to any security recommended in this report, the recipient should consider whether such recommendation is
appropriate given the recipient's particular investment needs, objectives and financial circumstances. CIBC World
Markets suggests that, prior to acting on any of the recommendations herein, Canadian retail clients of CIBC World
Markets contact one of our client advisers in your jurisdiction to discuss your particular circumstances. Non-client
recipients of this report who are not institutional investor clients of CIBC World Markets should consult with an
independent financial advisor prior to making any investment decision based on this report or for any necessary
explanation of its contents. CIBC World Markets will not treat non-client recipients as its clients solely by virtue of their
receiving this report.
Past performance is not a guarantee of future results, and no representation or warranty, express or implied, is
made regarding future performance of any security mentioned in this report. The price of the securities mentioned in
this report and the income they produce may fluctuate and/or be adversely affected by exchange rates, and investors
may realize losses on investments in such securities, including the loss of investment principal. CIBC World Markets
accepts no liability for any loss arising from the use of information contained in this report, except to the extent that
liability may arise under specific statutes or regulations applicable to CIBC World Markets.
Information, opinions and statistical data contained in this report were obtained or derived from sources believed to
be reliable, but CIBC World Markets does not represent that any such information, opinion or statistical data is accurate
or complete (with the exception of information contained in the Important Disclosures section of this report provided by
CIBC World Markets or individual research analysts), and they should not be relied upon as such. All estimates, opinions
and recommendations expressed herein constitute judgments as of the date of this report and are subject to change
without notice.
Nothing in this report constitutes legal, accounting or tax advice. Since the levels and bases of taxation can
change, any reference in this report to the impact of taxation should not be construed as offering tax advice on the tax
consequences of investments. As with any investment having potential tax implications, clients should consult with their
own independent tax adviser.
This report may provide addresses of, or contain hyperlinks to, Internet web sites. CIBC World Markets has not
reviewed the linked Internet web site of any third party and takes no responsibility for the contents thereof. Each such
address or hyperlink is provided solely for the recipient's convenience and information, and the content of linked third-
party web sites is not in any way incorporated into this document. Recipients who choose to access such third-party web
sites or follow such hyperlinks do so at their own risk.
Although each company issuing this report is a wholly owned subsidiary of Canadian Imperial Bank of Commerce
("CIBC"), each is solely responsible for its contractual obligations and commitments, and any securities products offered
or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance
Corporation ("FDIC"), the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be
deposits or other obligations of CIBC, (iii) will not be endorsed or guaranteed by CIBC, and (iv) will be subject to
investment risks, including possible loss of the principal invested. The CIBC trademark is used under license.
© 2007 CIBC World Markets Corp. and CIBC World Markets Inc. All rights reserved. Unauthorized use,
distribution, duplication or disclosure without the prior written permission of CIBC World Markets is prohibited by law and
may result in prosecution.
409

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January 17, 2007 Semiconductors & Components

CIBC's Technology and Market Primer 4.0 is an updated version of our

All figures in US dollars, unless otherwise stated. 07-70310 © 2007

Semiconductor Capital Equipment

Electronics Manufacturing Services

This section deals with the basics of

A semiconductor is a solid-state substance that is

A transistor is the basic

The simplest semiconductor devices are comprised

More complex semiconductor devices are built by

Semiconductor devices contain a transistor array,

Front View Back View Interior View

System IP and Standards

Chip vendors design their devices to conform to the

The Evolving Electronics Supply Chain

Semiconductor vendors must maintain relationships

Semiconductor devices are manufactured in specialized

After wafer processing, the

Semiconductor Manufacturing Flow Diagram

Key Steps: Key Steps: Key Steps: Key Steps:

Silicon wafers are produced by heating a mixture of silica

Source: MEMC, CIBC World Markets Corp.

Source (all pictures): MEMC, IBM, Texas

In the pre-metal stage, Oxidation/

order to etch a transistor

are then deposited to Implantation

functionality. Deposited Material Mask

Photoresist Ion Charged- Silicon

Source: CIBC World Markets Corp.

After the transistors are created, they are connected

Passivation Layer 3rd Metal

Source: CIBC World Markets Corp.

After the wafer is processed, a diamond drill is used to

Semiconductor Finished Wafer and

Source: IBM Source: LSI Logic, Denali Software

The individual die are sent to a back end assembly

Die Wire Encapsulation & Final Test

Source: CIBC World Markets Corp.

Once diced, the individual die are then

CMOS (Complementary Metal Oxide

Lithography, also known as geometry or

Smaller transistors mean:

In addition to the doubling of transistor density, each

The continuing advancement toward more advanced lithography,

Wafer size is the diameter of the wafer used in

Source: VLSI Research, Intel. Source: Promos

Integrated Device Manufacturers (IDMs)

Fabless companies design devices themselves but

Foundries and Assembly and Testers are specialized

Front End Manufacturing Strategies

Back End Manufacturing Strategies

Assembly and Test Services

Semiconductor Revenue 17%

The largest geographic centers for semiconductor front

Renesas Intel Infineon Winbond Samsung

Major Toshiba IBM Micro X-Fab TSMC Magnachip SMIC

The semiconductor industry has a large and relatively

Tokyo LTX Others

Source: Dataquest, CIBC World Markets Corp.

This section discusses the semiconductor

As the enablers of electronic hardware, semiconductors

Source: WSTS, CIBC World Markets Corp.

market has grown tremendously in the past 40 years,