Abstract
Since 2002 international PC vendors such as Dell and HP have been rolling out PCs with Gigabit Ethernet LAN on Motherboard. Similarly, Intel has implemented price cuts on GbE network interface cards in a bid to drive demand, trimming prices down to US$49 in 2002 from US$99 in 2001. Farther up the supply chain, Taiwanese network chipmakers are set to ramp up mass production of integrated GbE controller priced at US$4 to US$5 in the second half of 2003, posing direct competition to major network chipmakers Broadcom, Intel, and Marvell. These movements point to the rapid warming up of the GbE NIC and LOM market, which is poised for marked growth in the second half of 2003.
Positioned at a global center of PC component, peripheral, and system production, Taiwanese players benefit from a high degree of visibility of the three major applications for integrated GbE controller: NIC, motherboards, and notebook PCs. Building on first quarter 2003 shipment data for these three applications, and in comparison with the current Taiwanese network chip industry shipment data, this report will examine the future prospects of the Taiwanese GbE NIC and LOM industry.
In contrast to the competitive environment of 10/100M NIC chips, the LOM market will see intense competition among GbE network chip players. Not only have pure network chip players cultivated deep relationships with motherboard makers and PC OEMs, but players such as Intel enjoy diverse product lines and have a firm hold on PC key component technology, which undermines the ability for pure players to lock-in customers. Maintaining existing customer bases and boosting price competitiveness are thus are the most crucial aspects of pure players' competitive strategy.
As Taiwanese pure players penetrate the GbE LOM market, they can use pin-to-pin compatible designs to build upon their current 10/100M LOM customer bases. Pure players will also need to offer more competitively priced LOM to appropriate market share from earlier entrants. Moreover, some pure players such as Realtek have been working to diversify their product lines, and expect to use such diversification to compensate for their previous inability to offer customers one-stop-shopping.
Compared to pure players, network chipmakers that originate from the chipset industry have a much more solid foundation in terms of motherboard and PC manufacturer relationships, as well as maintain a strong hold on chip application platforms. The high reliance that motherboard makers and PC OEMs have on Intel is expected to present a barrier to Taiwanese makers that desire to penetrate the GbE LOM market. However, Taiwanese players enjoy high chipset adoption rates in the clone market and among second tier motherboard makers, which is anticipated to facilitate penetration into these segments.
In the past Taiwanese network chipmakers used innovations in chip design and production technology to successfully gain share in the worldwide 10/100M NIC chip market. As GbE-to-the-Desktop stands on the cusp of wider penetration, Taiwanese chipmakers have also successfully developed integrated GbE controller, which will begin competing in the market during the second half of 2003. However, with the GbE LOM market taking shape before the GbE NIC market has begun to take off, Taiwanese players face a widely different set of customers and a completely different competitive environment than was the case in the 10/100M NIC chip market. Taiwanese chipmakers hence face a tough challenge in soliciting motherboard makers and PC OEMs.
Although at present integrated GbE controller are predominantly used for GbE LOM, by 2004 or 2005 chipset makers will have integrated GbE MAC into the Northbridge, leaving network chipmakers with only PHY demand from the LOC market. If Taiwanese makers mass producing GbE integrated chips in the second half of 2003 are not offering any PHY chips, they will likely face profit losses.
A vacuum of GbE applications to stimulate consumer demand has always been the main overarching worry of network equipment and chip makers. With an absence of killer applications, prices will be the only driver of GbE NIC and LOM demand, which would not only limit business opportunities, but would also undermine the formation of virtuous competition.