Despite the rapid increase in sales of portable media players and MP3 players, the controller chip market is seeing intense price erosion due to the entry of new competitors including Taiwan's Sunplus Technology Co (
"Sunplus Technology, a leading Taiwan-based supplier [of chips for consumer electronics], is hoping to replicate its strong position in DVD and digital still camera controllers in the MP3 market," iSuppli said in a report on Monday.
The growth and size of the portable media player and MP3 player market has continued to attract new competitors, while leading existing suppliers to increase their marketing efforts, it said.
Global shipments of the players are set to rise to 268.6 million units in 2011, up 23.84 percent from 216.9 million units this year, according to iSuppli's forecast.
The global factory revenues of these gadgets will rise to US$21.5 billion by 2011, growing at a compound annual growth rate of 7.4 percent from US$14 billion in 2005, it said.
Tapping into the sizeable growth, Sunplus has joined competitors including China's Actions Semiconductor Co (炬力集成) and South Korea's Telechips Inc by serving the low-end segment with inexpensive products, iSuppli said.
The newcomers had begun to take market share away from leaders SigmaTel Inc and PortalPlayer Inc, which supplied all of Apple Inc's iPods except the Shuffle until last year, it said.
However, these new entrants -- including Sunplus, Actions and other low-cost suppliers -- have worsened the existing pricing pressures for controller chips.
Average selling prices of controllers dropped by 26 percent to US$3.84 last year, down from US$5.19 a year earlier, iSuppli said, adding that prices would drop by 16 percent through 2011.
Sunplus, which also supplies chips used in the Pleo robotic dinosaur pet, reported a 36.2 percent year-on-year drop in its first-quarter net income to NT$659 million (US$19.7 million), with sales dipping 44.1 percent to NT$2.8 billion.
Earnings per share were about NT$1.28, compared with NT$2.01 a year earlier, the company said on its Web site.
Merrill Lynch Global (Taiwan) Ltd said in a report on Monday that it maintains a "sell" rating on Sunplus.
"Bigger-than-expected losses from its new subsidiaries are the major reason for the earnings dip. It means Sunplus failed to turn around after its reorganization last year," Jonah Cheng (
Merrill Lynch cut Sunplus' earnings-per-share target for this year by 23 percent to NT$4.9 and by 41 percent to NT$3.4 next year.
“The failure to be a turnaround story makes us more conservative for the long-term outlook,” Cheng said.
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