Doubling of set-top box shipments to benefit contract manufacturers

Worldwide shipments of set-top boxes will nearly double between 2007 and 2012, according to research from iSuppli, providing an "attractive opportunity" for contract manufacturers.

Global set-top box shipments are projected to surge to 215.5mn units in 2012, rising at a compound annual growth rate (CAGR) of 12.8% from 118.1mn in 2007. Shipments in 2008 reached 142.8mn, according to the research.

The percentage of total set-top box manufacturing conducted by contract manufacturers is expected to increase from 67.8% in 2007 to 75.3% in 2012, causing worldwide STB manufacturing to double from 80mn units in 2007 to 162mn in 2012, spurring intensified competition and changes in the industry landscape that will "affect brands, contract manufacturers and component suppliers that operate in the set-top box supply chain".

The major factor driving the expansion of the STB market during the near-term is named as a surge in demand from North America and Western Europe, due their upcoming deadlines for the digital switchover. Once these markets complete the transition in the next couple of years, emerging markets are expected to pick up and fuel continuous growth of the worldwide STB market. While the Chinese digital switchover won't be completed until 2015, iSuppli predicts that the five-year CGR for set-top box shipments in China between 2007 and 2012 will be as high as 40%.

“Although STB brands have already outsourced more than two-thirds of their collective annual unit shipments to contract manufacturers, usage of such outsourced production will continue to increase in the future,” said Jeffrey Wu, Senior Analyst at iSuppli. “Brands believe that the use of contract manufacturing ensures asset flexibility, cuts time to market and allows them to focus on higher-value supply chain activities.”

The two sectors of Electronics Manufacturing Service (EMS) providers and Original Design Manufacturers (ODMs), which together form the contract manufacturing industry, are described as having contributed approximately equally to the STB industry so far. However, the customer bases for EMS and ODM providers are perceived as being very different, with EMS providers primarily serving established tier-one OEMs, while ODMs build set-top boxes for smaller, regional OEMs mostly in emerging economies.

Future developments of these two sectors is predicted to be highly dependent on brand companies’ outsourcing strategies and the competences they will have to develop in the future in order to provide and tailor support to their customers.

Despite the strong expansion for STB shipments during the coming years, the industry’s annual growth rate is forecast to decline from 27.8% in 2007 to single-digit growth rates after 2011, due primarily to a proliferation of new televisions equipped with functions that can only be accomplished through STBs today. iSuppli goes on to say that this means that STB brands and their contract manufacturing partners must "solidify their positions during the next two years while the industry is still undergoing high growth rates" in order to maintain the lead when the STB industry slows.