Electronics market booming, chip vendors face cost problems

The consumer electronics market is growing strongly, but chip vendors are facing major cost challenges, according to market research firm iSuppli.

The sector is expected to pull in revenue of $259 billion in 2010, a major recovery over sharp declines of over three percent in 2009, which was a year that hit many businesses very hard.

The future also looks good for this sector, with forecasts suggesting a 6.7 percent growth in 2011 and a seven percent growth in 2012. However, this growth is expected to slow down to 1.2 percent in 2013 and contract slightly by 0.6 percent in 2014 when it reaches its peak and market becomes saturated.

Chip revenue in the consumer electronics market is also faring well. It is expected to bring in $57.2 billion this year, a 27.7 percent rise on the $44.8 billion earned in 2009, a year which saw declines as high as 15.7 percent. Revenue in this area is expected to rise further by 2014 to $69.4 billion.

However, all is not is rosy for chip vendors, as costs for developing new chip technologies are  continuously on the rise, making it difficult for smaller companies to keep up. iSuppli forecast that these companies will be forced to leave the market or work with older, higher-cost technology if they wish to keep in the market.

Another problem is a highly fragmented market with immense competition, which, while seemingly beneficial to the consumer, could cause problems in the long term. Only Toshiba has a higher than 10 percent market share, with the second highest being Sony; everyone else has a less than 5 percent share in the market. This lack of a dominant player shows that most companies in the sector are struggling to keep up with costs, which could result in their departure from the market.