An interesting piece of not quite market research came out of the Cogo Group in China this week, as it number dropped (as opposed to name dropped) details of its internal beliefs about the Chinese market vis-‘-vis HDTV.
Cogo is an embedded software provider working with virtually all the major ODMs in China, amounting to 1,500 manufacturers in the telecomms and digital media spaces.
Already, says Cogo, there are 2 million HDTV viewers in China, and this year alone this number will grow three fold to 6 million, on its way to 30 million by the end of 2012. All of this is on the back of both strong consumer demand and aggressive roll-out schedules by pay TV operators, specifically through cable, where 152 million homes are attached in China, and where some 60 million are already on digital cable networks. This is out of a total of around 380 million TV homes, which makes cable pushing on towards half of China’s TV homes.
Cogo doesn’t say where its numbers come from, but is interested in this market because it has a number of design wins with HD set-top manufacturers. Of course sometimes companies buy software licenses ahead of supplying them to customers and they can effectively be over counting, but clearly there is a huge expectation in this market from the set top makers. Cogo says it is working with 20 builders of HDTV set tops and although it doesn’t break out its chip suppliers by product, it is clear that it works with Broadcom and pretty much no other majors who make set top chips, apart from Intel. However the Intel relationship is recent and is centered on the back of the Intel Z6 cellular chips which came out in May, so is unlikely to take in its CE4100 Atom chip aimed at set tops. That suggests that all that upside will go, in chip terms, to Broadcom.
Cogo may only be a $300 million business but if any US chip maker was going to get a big piece of the Chinese market, it could be expected that it’s one that has made its chips there for nearly all of its lifetime, and which dominates set top chips in the West ‘ in other words Broadcom. What we found interesting was the way that western chip makers missed out on the mobile TV push by SARFT back in 2006/7 and now have virtually no presence in China in what it reports to be a 5 million chip market, although of course it may inflate those figures, as opne report suggested this week. We think it’s unlikely that Broadcom would want to miss out again.
What is surprising is that so few US and European set top companies have headed to China over the past few years and made a business there. Does Pace, the largest set top maker in pay TV, in the world, for instance, have a base there? Well yes, it has had an office there since the end of 2008 in Shenzhen, but it only has a handful of employees there, mostly dealing with its supply chain.
What about Motorola? Motorola makes many of its handsets for China, at factories in Beijing and Tianjin. But given that 78% of its set top business is in the US, and that it admits that its next target is Europe, it is unlikely that Motorola will get any part of this business.
We think the same is true for the Cisco set top segment (though it does not break this out) and for most other major European set top builders, leaving this 30 million strong device market almost entirely open to local builder plus imports from Taiwan, Japan and Korea. The scary thing about that is that it will spawn at least one incredibly strong rival to all of them, ready to hit global markets in just about two or three years.