Once again, the past year brought many surprises to the technology industry as innovation, competition and market twists and turns kept everybody on their toes.  IHS Technology analysts on the Thought Leaders Council created a list of 56 notable surprises in 2015 and voted on them to identify and rank the top 30 technology industry surprises of 2015.  IHS Technology has posted five surprises each day this week in a countdown to the number one surprise of 2015.  Previously, numbers 30 to 11 were published.  Today we present the top 10!

Enjoy!!!

#10  Apple Dual Sourced their Application Processor Chips

Historically companies have maintained multiple sources as a means of supply guarantees. Most of the dual sourcing has been limited to either commodity products or devices that are somewhat generic in nature. In order to guarantee supply OEMs have traditionally qualified multiple sources for the same products.

With the formation of the Common Platform (manufacturing alliance between IBM, Samsung and GlobalFoundries) three companies extended this strategy into manufacturing. These three companies developed a cross-company manufacturing platform that allowed for dual source manufacturing of the same product within multiple manufacturing sites.

In 2015 Apple took this strategy to a new level by using two companies, TSMC and Samsung, to build a custom product using two distinct technology platforms. This strategy resulted in a differentiation of the end system performance. Although the OEM tried to segregate the chips made by the individual manufacturers due to the difference in performance of the system, users were able to identify chip sourcing. In certain regions consumers preferred to purchase products based on the chip manufacturer. This has resulted in manufacturing order pressure based on regional end consumer demand.

For more information visit, https://technology.ihs.com/Services/424115/mobile-technology-intelligence-service

#9  IoT Cybersecurity and Virtualized & Cloud Security Take Center Stage

In September the FBI published a public service announcement about the cybersecurity risks associated with IoT (https://www.ic3.gov/media/2015/150910.aspx). Industry experts have known about the risks associated with new connected devices (home, cars, critical infrastructure, SCADA/ICS, medical, etc.) for years, but the general public remained largely ignorant.

The FBI finally decided it was time to send out a warning flare for the general public. Government and private sector researchers have been increasingly focused on threats aimed at new connected devices of all types. The rash of successful hacks in the lab and real world events have forced everyone to take notice. The public has now been warned; the great promise of our growing connectivity—homes, cars, factories, public utilities—also brings the possibility of cybersecurity events that were, until recently, only the stuff of TV and movies.

Commercial rollouts of SDN and NFV are ramping in data centers and carrier networks around the globe, and the large enterprises and service providers rolling them out are overwhelmingly selecting cybersecurity as the first network service to virtualize. Public cloud marketplaces from Amazon and Microsoft are littered with a wide range of “click-to-order” cybersecurity solutions, and every major cybersecurity player in the industry has a virtualized/cloud security products available today. 2016 will be the year that virtualized/cloud security solutions are the primary growth driver for revenue in the cybersecurity technology market.

For more information visit, https://technology.ihs.com/Research-by-Market/551540/security-technology

#8  Google Bets Big On Solar Power

As part of its strategy to show a commitment to sustainability, and perhaps embracing the long-term potential dominance of renewable energy, Google invested big in 2015 in solar power. “Going green” is no big surprise at any major corporation these days, but the pace at which Google started to make that switch might have surprised some. As well as investing millions of dollars in solar companies, and major solar power plants, Google as continued to make major advances in powering its own operations and data centers by renewable energy – most notably solar power.  Having already procured more than 2 gigawatts of renewable power, the company is setting the bar even higher with a goal to have 100% of its operations powered by renewable energy and invest a further $2.5 billion in other renewable energy projects.

Unlike many other corporations that have merely dabbled in renewable energy, Google firmly put its stake in the ground in 2015 and made massive commitments to its solar powered future. Given the cost developments that IHS predicted several years ago, it’s no real surprise that Google cottoned on to the fact that investing in solar didn’t necessarily need to mean reliance on subsidies and an uneconomic investment. We’ve been showing cost projections for many years of plummeting prices due to rising volumes, reducing manufacturing costs and higher efficiencies leading to solar being much more cost effective as a mainstream energy source.

For more information visit, https://technology.ihs.com/Services/438743/global-solar-intelligence-service

#7  Technical Leaps Propel PowerfulDrone Launch

Consumer drones have taken a huge technical leap in the last year, allowing for very low cost, highly-capable and mobile remote sensors with a wide range of potential consumer and commercial applications. The technology to create both fixed wing and multi-helicopter forms with load carrying capabilities ranging from a less than a pound to many kilograms has initially allowed drones to flourish as consumer toys and photography aids, and in commercial applications for videography and remote sensing. This has been used for agriculture, building inspection, maintenance and security, as well as for video capture for films and sporting events. In a very short space of time, drones have found many niches, and as connectivity becomes better and remote self-piloting drones become reliable there are many more to follow.

Perhaps the most interesting upcoming use of drones will be in consumer delivery, as trialed by Amazon. These could be deployed in very high volumes and have a wide range of uses delivering physical goods at very low costs, mirroring the kind of step change that occurred with the development of mass postage previously - a physical distribution technology for the information age. Applications to look out for in the near future might include delivering retail, ranging from groceries to electronic goods, medicines, search and rescue, and critical communication back-up. But drones are already proving very contentious in terms of regulations and use - where they can fly, who can fly them and what they can be used for is rapidly being defined and codified in many countries, and this is likely to be a catalyst to the sustainable development of future uses of drones in 2016 and onwards.

#6  Facebook’s Transformation into a Mobile Monetization Machine

The advertising industry was skeptical that Facebook could pivot its desktop-centric advertising business into the mobile-first age. Yet after 23% of the companies’ ad revenues came from mobile in Q4 2012, by Q2 2015, it was 76%, making Facebook the unrivalled global leader in mobile display advertising. While other companies struggle to monetize mobile consumption due to low advertising rates, weak advertising creatives, problematic measurement and oversupply of inventory, Facebook has engineered a different story for itself, partly out of luck, partly due to ingenuity.

By accident, the Facebook Newsfeed came into full force in mobile, allowing advertising that was embedded in the flow of a screen swipe and that did not obstruct the reading experience. Through ingenuity, Facebook has made a range of strategic acquisitions around advertising technology, data processing and targeting that allowed the deployment of personalized, targeted, relevant advertising on mobile devices. Paired with its scale and rapid growth in emerging, mobile-first markets, Facebook has turned itself into a mobile monetization machine.

For more information visit, https://technology.ihs.com/Services/424092/advertising-intelligence-service

#5  Major Companies Make Big Investments in Artificial Intelligence

While we may be a long way from true thinking machines, the rapid development of machine learning and basic artificial intelligence (AI) is already changing the way consumers interact with devices and the world. There is a huge interest in developing AI - there are around 50 projects publicly in process right now - many from major companies such as Amazon (Echo), Apple (Siri), Facebook (Graph Search), Google (Now), and Microsoft (Cortana). These incarnations are currently taking the role of personalization/assistance and recommendations/search, but are set to replace traditional manual search engines and provide huge leaps towards predictive technologies mapping consumer behavior.

AI will be at least as far reaching when deployed in navigation and self-control, ranging from connected cars to drones. AI turns IoT into truly independent and capable devices rather than purely programmable sensors. While it's hard to project when AI will reach that next stage, it is likely in the short-term to create a huge volume of new data which is transferred via data centers housing a centralized AI processor - this is the architecture currently used. This will put huge demands on global data transmission infrastructure as requests and data for learning is rapidly moved around from input/output locations and the center.

#4  China Goes Global in Component Manufacturing

Over the past three decades China has primarily been a world manufacturing hub, offering low cost manufacturing capabilities using components sourced from global companies headquartered in other countries. Chinese companies have imported these components to use in the manufacture of electronics systems that are then exported for sale around the world. This is changing, and changing quickly, as China is now committed to a path to become a dominant global component manufacturing leader, competing with global component manufacturing companies in the US, Europe and Japan.

Recent indications of this trend include some aggressive financial moves to break into the global component manufacturing business. Some interesting developments include Tsinghua Unigroup’s spending of $9.4 Billion USD over the past two years buying stakes in Western Digital Corp and Power Technology Inc.  and recent statements from the CEO of their desire to invest $47 Billion USD, a huge sum, to build a top leadership position in global NAND chip manufacturing. Additional indicators of this trend include Hua Capital Management Co Ltd, acquiring OmniVision Technologies for $ 1.9 Billion USD. Finally, more recently there is speculation that China Resources Holding has placed a competitive acquisition bid to ON Semiconductors existing bid to acquire Fairchild Semiconductors. These are clear indications that we can expect to see big changes in the component manufacturing landscape within the next five years.

For more information visit, https://technology.ihs.com/Research-by-Market/450482/semiconductors

#3  Flexible Displays Make Paradigm Shift On Form Factor

2015 can be recognized as the first year of the flexible display century. We have been talking about this technology for a long time and the official commercialization of real products in 2015 represents the dawning of the new flexible display form factor, not only on smart mobile devices, but also on future consumer electronics devices like signage and TVs.

While consumer electronics devices are fed with conventional and long lasting form factors, flexible displays bring new innovation to the world, especially on the merits of the maximization of “freedom of design”. Samsung launched its new Galaxy S6 Edge Plus smartphone with a flexible OLED, which has become a hot shot in the smartphone market. Apple launched the Apple Watch with a flexible OLED display supplied by LG Display. As more display manufacturers like BOE, Tianma, AUO and JDI join as suppliers of flexible displays, we see the beginning of a new era of flexible displays.

However, the production of flexible displays requires multiple different processes, equipment, and materials compared to conventional FPDs, including flexible substrates, transparent electrodes, thin film transistor (TFT), display modes, and new manufacturing technologies. All these elements are intertwined in a complex manner, meaning that individually optimizing them is a challenge. In 2015 particularly we see several panel makers breaking through these challenges.

We forecast that Flexible display revenue will increase to $23 billion in 2024 at a CAGR of 43.9% (2014–2024). : Flexible display shipment area will reach 19 million square meters in 2024 at a CAGR of 88.6% (2014–2024).

For more information visit: 

• https://technology.ihs.com/552560/display-dynamics-the-promise-of-flexible-oled-displays
• https://technology.ihs.com/545818/flexible-display-revenue-to-comprise-15-percent-of-total-display-market-in-2024-ihs-says
• https://technology.ihs.com/529872

#2  Extending Global Connectivity

The past year has seen the development of solid momentum behind the goal of providing connectivity where there is currently no connectivity, and providing capacity for advanced services. The main challenges are to provide internet access to the billions of people who don't have access to any type of communications currently, often due to poor local infrastructure in remote and developing regions, and limited international interconnectivity between regions. Major investments are being placed on technologies such as high-altitude near-space vehicles, like balloons and drones, and low-earth orbit (LEO) satellites to provide access network coverage in hard-to-reach areas.

The amount of data delivered globally is expected to grow to 45 ZettaBytes by 2030, with growth ranging from IoT to artificial intelligence (AI) to consumer content and services. This demand will require large-scale global data networks that are much more extensive, varied and with much higher capacity, utilizing the full range of wireline and wireless options available, terrestrial and space, across a range of spectrum and transmission mediums.

For more information visit, https://technology.ihs.com/Research-by-Market/450492/mobile-telecom

#1  Paving the Way to the Autonomous Car

In 2015 the automotive industry woke up to the launch of autonomous car developments by several OEMs (Tesla, Nissan, BMW, Hyundai, etc.) and also from outsiders like Google and Uber. An autonomous car runs completely on its sensors and other electronics and algorithms running inside several electronic control units (ECUs). As a result, semiconductor technology is advancing to enable and support the growing autonomous functions.

This leap towards autonomous cars has created alliances between semiconductor suppliers and autonomous car makers. Some of the noteworthy announcements include:

• Google buying MEMS start-up Lumedyne
• Audi signing up Samsung Electronics to its Progressive Semiconductor Program (PSCP) to supply its cars with semiconductor memory
• Daimler, Hyundai-Kia and Nissan-Renault working with Quanergy’s solid-state LIDAR
• Hyundai investing 2 trillion Won to develop semiconductor chips for autonomous cars

LIDAR is a key addition to the current generation of camera, radar and ultrasonic sensors for realizing a fully autonomous car. Cost, form factor and manufacturability have been the bottlenecks for LIDAR technology. But, Quanergy’s announcement on the development of a low-cost solid-state LIDAR scanner is one of the major breakthroughs for autonomous cars this year.

In addition to the sensors, the autonomous car has to be securely connected to external entities and be thoroughly interactive with the drivers and passengers. The rapidly growing deployment of safety applications in automotive platforms will certainly enhance the need for wireless connectivity and related antennas to allow safe and fast communication between vehicles and from vehicles to the surrounding infrastructure.

With this in mind, several players—like Laird Technologies, Katrein, Harada, Hirschmann (VOXX), Kalearo, Alps, and Mitsumi on the RF side; and Continental, Delphi-Fuba, and Laird among the tier 1—are looking at smart concepts in order to concentrate all RF antenna functions into a single optimized box: a “smart” antenna. Such an approach of smart antennas is full of technical challenges such as signal distortion, noise, and interference, as well as interoperability among different wireless technologies—all of which make this segment fascinating.

For more information visit: 

• https://technology.ihs.com/Research-by-Market/450422/automotive-technology
• https://technology.ihs.com/532908/automotive-semiconductor-impression-160615
• https://technology.ihs.com/532150/automotive-semiconductor-impression-020615
• https://technology.ihs.com/Services/548195/automotive-semiconductor-intelligence-service
• https://technology.ihs.com/Services/484941/m2m-intelligence-service
• https://technology.ihs.com/520251

Information and analysis provided by the following analysts for IHS Technology:

• Len Jelinek - Senior Director
• Bill Morelli - Director
• Ash Sharma - Senior Research Director
• Tom Morrod - Senior Director
• Daniel Knapp - Senior Director of Advertising Research
• Greg Wood - Senior Director
• David Hsieh - Senior Director
• Vinita Jakhanwal - Senior Director
• Jeremie Bouchaud - Senior Director
• Akhilesh Kona - Analyst
• Dale Ford - Vice President of Thought Leadership

Posted on 18 December 2015

Earlier, Alphabet Inc, the parent company of Google announced plans to invest more than $500 million in a cloud data center at the site of Hemlock Semiconductor in Clarksville, TN.

Without a doubt, the Cloud has become an overarching trend, transforming IT organizations and the technology market. The cloud model can help companies reduce upfront capital expenses, increase organizational speed and flexibility and, in some cases, turn IT operations from cost centers to revenue generators. According to IHS research, global spending on public cloud services by enterprises and consumers will grow from about $115 billion in 2012 to approximately $230 billion in 2017. That spending spans every industry segment and almost every region. 

But where should Cloud Service Providers locate their data center for cloud services? Are some regions more attractive than others?

This question is getting harder to answer for enterprises and the cloud providers serving them. People typically think of the cloud as global, but local regulations, security concerns, and infrastructure availability issues require regional data centers to deliver cloud data and applications.

For companies deciding where to break ground on a data center for cloud services, regional, national and local regulatory conditions pose some of the most complex challenges. Market trends, regulatory rules, security factors, and infrastructure conditions vary by region and country, creating operational and strategic implications for companies when they select territories for data centers. Both Cloud Service Providers (CSPs) and enterprise IT managers need to understand those implications and associated risks.

First, regulatory and legislative changes don't move at the speed of technology. As the marketplace clamors for new cloud services, regulators and public policy makers constantly struggle to catch up.

In the European Union, for example, recent legal decisions could usher in dramatically different regulations concerning data exchange and privacy protection. The European Court of Justice (ECJ) ruling on the Safe Harbor principle, which has until recently enabled US companies to self-certify that they adhere to comparable EU policies on data privacy and security, has the potential to further Balkanize the Internet with major implications for CSPs.

Even among EU members, country-specific regulations pop up. For example, data center operators in Germany must adhere to the rule that data belonging to German companies must stay in Germany. In addition, some German data privacy laws apply only to individual consumers, while others apply only to businesses.  

And in places like India, and other developing economies, regulatory frameworks may not be as dependable and/or transparent as they are in more established economies, complicating investment and business decisions.

In addition to regulatory and security concerns, the state of local infrastructure (including telecommunications and energy) deserves close examination by companies choosing a data center location.

In telecommunications, the primary consideration is broadband coverage. High speed broadband may be delivered via cable, DSL or fiber, as well as high-speed wireless (LTE service). Cloud service providers need to know the current broadband situation, plus national upgrade plans for the network, and whether those plans are realistic. Finally, cloud service operators need to know the prices for international connectivity—a relevant question for any service that intends to have a global footprint.

The local electrical grid may pose pricing considerations. In the EU, for instance, energy prices vary by country and region, although the EU aims to normalize prices in the long term. Along with retail cost differences, the CSP or enterprise IT manager needs to understand energy pricing options: retail, wholesale or, in some cases, co-generation—i.e. traded electricity. In Europe, costs for electricity include taxes related to the EU's de-carbonization agenda. As de-carbonization initiatives progress, both network charges and surcharges are increasing.

Along with pricing, country and local regulations may come into play with energy consumption. While the EU aims to create a unified power market, the current situation is neither unified nor harmonized. Relevant regulatory questions include: Is co-generation (wind or solar) permitted? Are there subsidies for energy co-generation efforts? How onerous is the planning and permissions process for grid-connection rights?

When evaluating regions and countries for data center deployments, one reality is that risk assessment is a dynamic process. Without a doubt, Local market conditions, especially security issues and local regulations, require continued and close analysis.

Mike Hartnett is Senior Manager with IHS Economic and Country Risk Consulting
Dr. Jagdish Rebello is a senior Director with IHS Technology 
Posted on 4 January 2016

Despite government and industry efforts to keep counterfeit electronic components out of the supply chain, they continue to be a safety concern for transportation and critical infrastructure or a security concern for military equipment and infrastructure. Additionally companies affected by counterfeit electronic components suffer brand damage and costly product replacement or repairs with overall costs running as high as $7.5 Billion to US semiconductor manufacturers and over $200 Billion to companies affected on an annual basis according to the Semiconductor Industry Association.*

Simply put counterfeit electronic components are substandard or intentionally misrepresented electronic components that can be as simple as recycled components being sold as new, low reliability components being remarked and sold for high reliability end use or even state sponsored fakes. Since counterfeiting is most often a crime of opportunity, the vast majority of counterfeiting is for components that have significant supply constraints while demand remains strong as companies scramble to locate sources of hard to find critical components. In fact, since Jan 1, 2014, two thirds of the reports on counterfeit components are for parts that have already been discontinued by the original component manufacturer.

Although the source of Counterfeit Electronic components comes from countries in Asia, Africa and the Middle East, over 53% of the substandard or counterfeit electronic components continue to come from China.** Since Jan 1, 2014 the most often counterfeited electronic component device types include the highly dynamic memory and programmable logic or the higher priced core circuit devices like Microprocessors& Microcontrollers. Although all component device types have had some reports on counterfeit activity as evidenced by the associated pie chart 

Much has been done to try to avoid counterfeit components by governments, industry and companies since the problems have materialized over the past decade. The US government issued a rule and supplement by the Defense Acquisition Regulations System concerning Detection and Avoidance of Counterfeit Electronic Parts,  (DFARS Case 2012-D055) effective on May 6, 2014. Among other items, this rule encourages companies to establish a “Trusted” Supplier list and encourages distributors to provide component traceability back to an authorized source. Lacking traceability, the rule encourages  quality testing and inspection of components procured outside of an authorized source. Similar guidance standard have been published by standards organizations such as DIN, IEC, BSI and most notably SAE with publication of the AS5553A, AS6081, AS6462A and AS6301 standards designed help companies put in place policies and practices to limit the risk of exposure to counterfeit electronic components

These counterfeit avoidance publications indicate that the best way to avoid substandard or counterfeit components from getting into a company’s products is to always buy directly from an authorized distributor for the manufacturer. Careful product life cycle planning coupled closely with timely procurement purchasing can help insure critical component inventory quantities are available to produce the products to fill customer orders. A good information resource such as the part solutions products provided by IHS, allow access to a good source for component EOL and obsolescence events and good information on current authorized distributions which helps with planning to avoid counterfeits.

Of course it’s a great idea in theory to only buy from authorized distribution sources but in practice inevitably companies get surprised by component discontinuance or shortages and companies are forced to take their chances acquiring components from the gray market. Once a procurement professional finds themselves in this situation the best advice is to buy from a “trusted” stocking distributor and insure the components have traceability back to the authorized distributor. Lacking traceability the next best alternatives are to investigate reputable aftermarket manufacturing companies for alternatives parts made to original specifications. In the end, if forced to buy from an unknown supplier insure that through component testing and inspection is utilized to avoid the obvious fakes. 

In summary, counterfeit electronic components in the supply chain remain a significant challenge to OEMs, contractors and companies throughout the supply chain. Adopting an avoidance strategy based on government and industry best practices can not only save money, but potentially can save lives as well.

* Source: http://www.intercomp.com/14-ways-to-spot-counterfeit-components/

** Source: http://www.connectorsupplier.com/challenging-the-counterfeit-connectors-hult-110513/#.UoU025G6LoB

*** Source: IHS CAPS+4D Parts Database

Greg Wood is a Director in the Electronic Parts business at IHS 
(Contributor: Praveen Hiraskar)
Posted on 6 January 2016

Netflix has switched on its service in 130 countries including India. However, IHS doubts this is going to create an immediate impact to the Indian over-the-top (OTT) market.

Firstly, the broadband household and smartphone penetration are rather low. According to IHS, the broadband household penetration of India is 6.1% and smartphone penetration is 14.9% in 2015. Both metrics are still considered low by the regional standard.

Secondly, Netflix’s local content is scarce. From Bollywood to cricket, the Indian TV market sure has a high demand for local contents. Though Netflix has been investing heftily in original programming and international shows like Orange is the New Black and House of Cards have gained much popularity; it lacks Hindi general entertainment contents – the most-watched genre in the country.

Furthermore, Netflix’s cheapest plan is priced at Rs 500 (US$7.50) per month while its existing rivals in the market offer monthly plan ranging from free to an average of Rs 300 (US$4.50), not to mention the ubiquity of piracy in India.

Netflix is competing with international OTT players including HOOQ and Spuul as well as anticipating the arrival of China-based LeTV early this year. In order to win the game, it is important for Netflix to beef up its local content library, either by acquisition or partnership to create original programming.

Vinita Jakhanwal is a senior director for IHS
Posted on 11 January    

With the second largest developer community, rapidly growing enterprise IT market and an economy that is growing at heathy rate of 7% per year, India is quickly becoming an attractive market for all the major global Cloud Service Providers (CSPs).  In September 2015, Microsoft announced the launch of three Azure cloud data centers in India, while IBM announced the launch of its first SoftLayer cloud data center in India in October 2015. IHS believes that Amazon Web Services will also launch its own cloud data center in India in 2016..

For CSPs, choosing where to locate their data center for cloud services is becoming an extremely important strategic question.  Market trends, regional, national and local regulatory conditions, security factors, and infrastructure conditions vary by region and country, creating operational and strategic implications for companies when they select territories for data centers.

CSPs evaluating India for data center facilities need to understand the demand for cloud services in the world's largest democracy, as well as regulatory and infrastructure considerations, including telecommunications and energy.

In particular, it's important to consider the political and economic dynamics within emerging markets like India, and how they impact the regulatory environment. Expected to be the world's most populous country by 2050 with 1.6 billion people, India has an enterprise IT market that is being served by data centers that are normally concentrated in cities such as Chennai (Tamil Nadu), Bangalore (Karnataka), Hyderabad (Andhra Pradesh), Mumbai (Maharashtra), and New Delhi.

Regulatory and Security Issues

Cloud service providers face significant regulatory and security issues in India, per IHS Country Risk analysis, which ranks India’s corruption and regulatory burden as "very high." (See Indian Risk Graphic). There's also the possibility of terrorism, due to developments in Afghanistan and Syria and elsewhere in the region. Cyber security threats pose a growing concern in India as they do globally.

Looking ahead, Prime Minister Narendra Modi’s BJP party’s strong political mandate should enable his government to push forward a number of “big bang” and incremental reforms that lower the regulatory burden for businesses.  Due to the Modi government efforts during the last 18 months, India’s rating on the World Bank’s latest ease of doing business rankings improved; India now ranks 130th out of 189 countries (representing a 12-place gain).  Privatization, deregulation, and infrastructure spending should aid economic growth and improve business and consumer sentiment, IHS believes. 

Telecommunications, Energy Considerations

Today, broadband is available to just 20 million of India's 200 million Internet users. Future broadband coverage In India will be achieved via mobile broadband networks. Most of this connectivity is through 2G and 3G wireless, although 4G service is coming onto the market. Notably, Reliance Jio Infocomm Limited (RJIL), an upcoming provider of mobile telephony, broadband services, and digital services, plans to provide 4G services across India using LTE technology starting in March 2016. RJIL's LTE network, which will give 80% of the rural population and 90% of the metro market LTE coverage, represents a sea change in India.

Unfortunately, broadband and other national infrastructure priorities in India have been significantly delayed due to political wrangling. Take India's $15.3 billion Smart Cities Initiative, which seeks to improve living conditions through efficient urban management using digital technology. The government's inability to pass legislation easing regulations around the acquisition of land is likely to undermine its Smart Cities program, in IHS's view. Continued uncertainty about land-acquisition rules mean that Smart Cities projects face risk of delay, protests, and potential cancellation. IHS expects the central government to give state governments more of a hand in passing their own legislation and regulation, meaning that market entrants will need state-by-state regulatory insight.

On the energy front, the continued lack of availability of reliable power supply makes India a less than attractive location for data centers. Presently data centers rely on backup energy sources (typically diesel generators) as they face two to three hours of power shutdown daily. When locating a data center, an enterprise or cloud services provider needs to assess the trade-off between reliability and tariff reforms (leading to a higher cost of power) in a state.  Higher reliability typically comes in states with higher energy costs.

IHS believes India has significant potential for data center growth due to factors such as a skilled labor force, assuming companies find ways to mitigate risks related to power reliability and power cost issues. Additionally, as the Modi government works on power distribution issues, power reliability is expected to increase.

Mike Hartnett is Senior Manager with IHS Economic and Country Risk Consulting
Dr. Jagdish Rebello is a senior Director with IHS Technology 
Posted on 22 January 2016

Each year CES provides an opportunity for companies to place their products and services in the spotlight hoping to capture the attention, interest and, most importantly, purchases of their targeted customers. In years past, the typical CES show highlighted a key product or technology that stood clearly above the rest in advertising, messaging, press promotion, etc. CES 2016 broke from that tradition as there was no single major theme or highlighted product or technology. Perhaps the best word to describe CES this year would be “diverse.”

Coverage of a show this large with this many hot topics is a challenge. Fortunately, IHS deployed nearly 40 analysts from around the world to Las Vegas in order to capture the most comprehensive coverage possible. Coming out of CES, IHS is sharing some of the key highlights and insights from our analyst team in a series of Analyst Insights. 

As our customers use their searchlights to seek out the next important market opportunity, product, service, trend or technology, they will find highly valuable highlights and analysis delivered in over 30 Analyst Insights focused on the following technology sectors:

• Automotive technology
• Automotive displays
• Televisions and displays
• Media
• Telecommunications
• Smartphones, tablets and other mobile devices
• Smart home and consumer electronics
• Drones
• Semiconductors

Time invested in reading and studying the insights shared by the IHS analyst team from CES 2016 will certainly deliver rewards to the readers! Click HERE to access this treasure trove of research and analysis.

Dale Ford is the Vice President of Thought Leadership for IHS Technology
Posted on 28 January 2016

From December 2015 through the first quarter of 2016, the shortage happening in the feature phone display and low-end smartphone display markets is driving up panel prices and shipments.

While the smartphone industry is focusing on higher resolutions and better-performing displays, demand for feature phone and low-end smartphone displays is being reshaped. For resolutions such as WVGA (800x480) or FWVGA (854x480) for low-end smartphones and HVGA (320x480) or below for feature phones , the supply demand started to become unbalanced at the end of Q4’15 and a shortage occurred due to the production adjustments of the display makers. The shortage has been driving panel shipments and the price of displays to go up. Price increases, in particular, are rare in the mobile phone display market.

As all small-to-medium display makers are focusing on LTPS (low temperature poly silicon) TFT LCD technology or AMOLED from now on and targeting the higher-resolution, higher-end HD (720p) and Full HD (1080p) smartphone display, there is less attention being paid to the low-end smartphone and feature phone markets.

There are still good opportunities for these low-end products in emerging economies such as South America and Africa and parts of China. But, many display makers have been retreating from these markets, and this is one factor contributing to the shortage. Panel makers including Tianma, IVO from China, and HannStar from Taiwan increased their display shipments for feature phones and low-end smartphones, pushing mobile phone panel shipments to their highest historical level in December 2015.

According to the latest IHS Smartphone Display Shipment Tracker, major panel makers’ panel shipments for mobile phones increased to 221.4 million in December 2015, which is a new record high. The shipments include the LCD module and cell OEM business model. In December 2015, smartphone panel shipments were flat month-over-month at 160.6 million. However, shipments for feature phones increased to 60.7 million, up 28% month-over-month. 5.x” panel shipments continued to rank #1 in total shipments with 96.8 million, a 39% market share. 4.x” panels were #2, with 55 million smartphone shipments. Panel shipments under 3.x” increased sharply due to increasing demand in the feature phone market.

HannStar and IVO provide only cell-type panels to brands and module makers. CPT’s cell shipment share also increased to 93% of the company’s total shipments. In December 2015, HannStar was the #1 ranked panel supplier based on panel shipments with 34 million, up 51% month-over-month. BOE, AUO, and Tianma also recorded double-digit growth due to strong demand for feature phones and low-end smartphones. BOE shipped 32 million in December 2015, followed by Tianma with 28 million, Infovision with 21 million, and Samsung Display with 20.6 million. HannStar, Tianma, and Infovision are the main suppliers of feature phone and low-end smartphone displays, and have benefitted from panel price increases. On the other hand, Samsung Display decreased its AMOLED shipments in December 2015, down 25% month-over-month. However, strong demand is expected in the first quarter of 2016 thanks to Samsung’s new OLED smartphone release.  

David Hsieh is Director of Analysis & Research within the IHS Technology group
Posted on 3 February 2016

The Make in India program launched in September 2014 by the government of India has already attracted US$17 billion worth of proposals for manufacturing electronics in the country within the first year. IHS expects the subsidies and other resources offered under Make in India to provide an attractive investment climate and lower manufacturing costs, thereby providing a boost to domestic manufacturing. The program will particularly benefit the mobile phone manufacturing industry, spurring subsequent investments in other consumer electronics manufacturing in India.

Within the Make in India program, the Modified Special Incentive Package Scheme (M-SIPS) subsidy is offered by the Department of Electronics and Information Technology (DeitY) specifically to attract investment in electronics manufacturing. It provides financial support to prospective companies looking to manufacture electronics in India at one of the 16 electronic manufacturing clusters that are strategically spread across the country and close to trading ports.

The companies that have already responded to this program are domestic and foreign mobile phone manufacturers including Micromax, Lava, Celkon, Samsung and Sony. Each has either invested directly into captive mobile phone manufacturing factories or partnered with EMS/ODMs companies to set up assembly factories in India. For example, Foxconn has set up factories in Chennai, Tamil Nadu and Sricity, Andhra Pradesh, where it is assembling phones for Chinese companies like Xiaomi, Gionee and Oppo, and is likely to do so for Apple as well. IHS believes these mobile phone manufacturers will next utilize the incentives to manufacture other consumer electronics. This is evident from the announcements of Sony’s TV manufacturing and Celkon’s tablet manufacturing investments in India.

Good incentives, initial investments and successes of the first movers, particularly in improving competitiveness due to lower manufacturing costs, and a growing consumption market for electronics in India will likely push other electronic manufacturers to rethink their business strategy regarding manufacturing in India. But despite the initial successes, challenges remain when doing business in India, such as intrusive market regulations, poor infrastructure, inflexible labor market practices and stiff land acquisition rules. It is important that the government address these issues quickly for the continued success of the Make in India program.

For more information, please visit: https://technology.ihs.com/571016/make-in-india-to-boost-domestic-smartphone-manufacturing.

Vinita Jakhanwal is a senior director for IHS
Posted on 8 February 2016

IHS Quarterly interviewed Mike Hartnett about the economic and country risk challenges facing tech companies investing and operating in emerging markets. Mike is Director of Country Risk Consulting for the IHS Economics & Country Risk group.

Last Sunday at Super Bowl 50, the sky was blue, the weather was exceptionally warm, the beer was flowing, and during Coldplay’s halftime show, 71,088 people were shooting photos and video clips to feed their FaceBook page with “See, I was there!”

Well, think about the impact on the wireless infrastructure. Levi’s Stadium DAS (distributed antenna system) vendor JMA Wireless must be very proud of the performance and, to some extent, very relieved that everything went so smoothly. Although I’m certain the user experience was very uneven among fans crammed in the stadium depending on their mobile operator and where they were physically seated, service providers did not miss a chance to brag about their solid performance measured by various tools.

T-Mobile US led the charge with CTO Neville Ray posting a blog that shows T-Mobile’s network slightly superior performance. However, the difference between T-Mobile and AT&T and Sprint is so tiny that it is hardly noticeable on a device. What’s shocking, though, is Verizon’s poor showing in this test! 

But as we know at IHS, this is all about methodology, and on this front things get seriously flawed. T-Mobile conducted the test itself using Ookla (i.e., speedtest.net) instead of a more advanced and up-to-date mobile-specific network test like our RootMetrics tool. And just measuring average LTE (Long Term Evolution) speeds is the other immediate visible flaw for the comparison because a high throughput doesn’t explicitly guarantee the greatest user experience. For example, the distinction between downlink and uplink performance in a particular location is needed, and the signal strength in that particular location is also fundamental because you can have strength but limited bandwidth!

All this is the unabated service provider battle about claiming the best-performing network. But at the end of the day, does this really matter when you are getting a 38Mbps+ throughput? What matters to me is that the wireless infrastructure survived another great moment of tremendous stress and pressure. Let’s look at some staggering numbers:

• AT&T broke another record for on-network data usage by its customers at an event when customers feasted on 5.2TB of data during Super Bowl 50 in Santa Clara, California. The data total is 205% more than what was used at Super Bowl 49 in Phoenix and 882% greater than the average per-game usage by AT&T customers during the 2015 NFL regular season.
• T-Mobile customers at the game blew through 5 times more data streaming, surfing, Facetiming, Facebooking, and Instagramming than they did at the Big Game last year.

Both AT&T and Verizon spent millions of dollars to shore up their networks. While we heard Verizon spent $70 million, AT&T told us they spent $25 million in enhancing their portion of the neutral host DAS at Levi’s Stadium, installing or upgrading DAS at 26 venues throughout the Bay area, setting up 9 COWs (Cells on Wheels) at strategic locations in the region, and activating 39 new or improved cell sites throughout the region.

Now I guess you understand why this world-class wireless infrastructure did the job, but you will likely continue to struggle with a flurry of unabated performance claims. At IHS, our unbiased, independent RootMetrics tool will certainly help you sort this out.

​Stéphane Téral is a Sr. research director, mobile infrastructure & carrier economics for IHS
Posted on 10 February 2016

Two major intertwined telecom events happened this week. First, South Korea's mobile operators shut down Joyn after the service failed to gain traction against OTT (over-the-top) alternatives. And second, 9 major international telecom operators announced they have formed a partnership that appears to be a way for them to tap into the growth potential of major internet and OTT brands.

Back in April 2008 at the IMS 2.0 World Forum that I chaired, I was bullish about the launch of the GSMA-driven Rich Communications Suite (RCS) Initiative. Rebranded Joyn by the GSMA in 2012, the joint effort of leading industry players including, among others, Nokia, Ericsson, France Télécom’s Orange, NTT DoCoMo, SK Telecom, Telefónica, and TeliaSonera had the goal of speeding up and facilitating the adoption of applications and services that provide an interoperable, convergent, and rich communication experience based on IMS (IP multimedia subsystem). At this time, IMS, which is the replication of the PSTN in an IP world, was just being rolled out in fixed networks to enable voice over IP (VoIP) services. It’s only when LTE (Long Term Evolution) deployments started that IMS finally penetrated mobile networks. But in the meantime, as HSPA+ (evolved high-speed packet access) and LTE provided more bandwidth to mobile devices, the quality of services provided by internet companies and OTT players improved dramatically.

Joyn was supposed to be telecom operators' answer to Skype, Viber, WhatsApp, and all the other OTT players that unabatingly steal voice revenue upon which they still depend. However, the reality shows that getting or keeping customers on board takes more than the replication of existing services. Pretty much everyone who launched Joyn has been disappointed so far, including early adopters SK Telecom (who launched Joyn in late 2012), KT Corp, and LG Uplus. And I was there and impressed by the numbers: SK Telecom reached the 1 million user mark in just 50 days. However, that early momentum quickly fizzled out as Joyn could not keep up with KakaoTalk, South Korea’s most popular OTT calling and messaging app.

Now that Joyn is gone and OTTs are get bigger and hungrier, surviving telecom operators have to find something else to maintain their undead status. Back to square 1: BT, Deutsche Telekom, Reliance Jio Infocomm, MTS, Millicom, Orange, Rogers, TeliaSonera, and TIM announced a Partnering Operator Alliance on February 15, 2016. The Alliance portrays itself as "an open network of like-minded operators worldwide with complementary geographical footprints." Its purpose is to exchange best practices on bringing partner offerings to market, jointly identify possible partnerships, and share knowledge on upcoming trends and services. Put another way, let everyone play in on their home turf and report interesting OTT trends and developments to the Alliance, and see if there is any opportunity to turn up new OTT-like services.

Things have changed dramatically since 2008. Internet brands and OTTs have grown fast and piled up huge amounts of cash on hand while telecom operators have seriously weakened. Good thing they don’t carry the level of debt they had in the 2002–2004 time frame because some large European incumbents could have disappeared. Now we’re starting with a new alliance. Will it make a difference? The jury is out.

Stéphane Téral is a Sr. research director, mobile infrastructure & carrier economics for IHS
Posted on 17 February 2016

As the demand for cloud services continues to grow, cloud service providers (CSPs) are increasingly looking to expand the number and reach of their cloud data centers. And as CSPs look more and more to Europe, it’s extremely important for them to be aware that regional, national and local regulatory conditions pose some of the most complex challenges.

In Europe, as in the rest of the world, market trends, regulatory rules, security factors and infrastructure conditions vary by region and country, creating operational and strategic implications for companies when they select territories for data centers. In addition, regulatory and legislative changes don't move at the speed of technology. As the marketplace clamors for new cloud services, regulators and public policy makers constantly struggle to catch up.

Germany, the largest and wealthiest national economy in Europe, has a robust cloud services sector. But as CSPs evaluate Germany as a home base for cloud data centers, significant changes in data privacy regulations across the European Union (EU) and within Germany need to be actively considered.

Companies like Microsoft are addressing concerns about data security, privacy from U.S. government mass surveillance practices and perceived mistrust of U.S.-operated cloud services by developing new models for cloud data centers. In addition to teaming up with T-Systems, a subsidiary of telco Deutsche Telekom, Microsoft is adopting a “trustee model” for its two new cloud data centers in Germany. Under this trustee model, customers in Germany will be able to choose and trust in how their data is handled and where it is stored.

Like other EU countries, Germany observes two sets of regulations on data privacy and data interchange: its own laws, plus the EU’s broader “Data Protection Directive."  Both levels of regulation must be understood by market participants and monitored over time for changes. The EU's Data Protection Directive is even now under review. In another recent example, a ruling by the European Court of Justice (ECJ) on the Safe Harbor principle has major implications for internet commerce.

The Safe Harbor principle had enabled US companies to self-certify adherence to comparable EU policies on data privacy and security. But in a landmark ruling, the ECJ found the July 2000 “Safe Harbor” decision to be void. The ECJ said the level of protection for personal data in the US is inadequate, because the data of European customers is not sufficiently protected from access by US security agencies. The ECJ's ruling could spur new, EU-wide legislation offering protective mechanisms when data is to be saved outside of Europe.

In the EU, recent legal decisions could usher in dramatically different regulations concerning data exchange and privacy protection. The ECJ ruling on the Safe Harbor principle has the potential to further Balkanize the internet with major implications for CSPs. 

Due to this ruling, a significant, drawn-out struggle looks likely regarding the establishment of universal data privacy principles. This will pit international organizations (the EU), nations (such as Germany and the US), sectors (social media platforms, traditional telecoms, cloud services providers) and companies against one another.

During this struggle, we could see a balkanization of the internet with regard both to the routing of data across the Internet and the storage of that data within geographically defined boundaries.  This balkanization means different regions and countries around the world could establish and implement their own data privacy regulatory frameworks, which CSPs and enterprises would need to address.

Even among EU members, country-specific regulations pop up. For example, data center operators in Germany must adhere to the rule that data belonging to German companies must stay in Germany. And some German data privacy laws apply only to individual consumers, while others apply only to businesses. The good news, from a regulatory standpoint, is that compared to many developing economies, Germany has a much more transparent regulatory and political system. According to IHS, Germany scores low on “regulatory burden.”  

Jagdish Rebello, Ph.D. is a Senior Director for Cloud and Computer Electronics with IHS Technology
Mike Hartnett is a Director for Country Risk Consulting with IHS
Posted on 23 February 2016

Fingerprint sensors will become the new standard feature in premium smartphones in 2016, adding another layer of transaction security to smart devices in a cyber-based economy. But, the market will continue to experiment with iris scans and other forms of biometric scans. In the hypercompetitive smartphone market, meaningful innovations like touch ID are usually short lived, nonetheless their impact can be significant enough to move a market.

Capacitive fingerprint sensors from Apple, Synaptics and Fingerprint Cards dominated the market in 2015. This year, new ultrasonic sensors — which use ultrasonic waves, or sound, to map the structure of the fingerprint and even the internal structure of the finger — will be introduced, transforming the security level of a host of products.

These ultrasonic sensors have interesting capabilities and potential, including:

• Fingerprint resolution up to and greater than 2400 DPI
• Internal finger scanning of capillaries, etc., making it nearly impossible to spoof using a fingerprint
• Less sensitivity to moisture or dirt on fingers
• Pulse rate monitoring
• Working through glass, plastic and even some metals
• Better security for corporations and governments – especially for notebooks, tablets and smartphones sold directly to these organizations

Manufacturer landscape

Companies and groups currently working on or researching ultrasound technology for fingerprint sensors include InvenSense (via a partnership with Swarm Labs), Qualcomm and Sonavation. A recent patent application from Apple mentions the use of ultrasonic sensing as a way to implement active display scanning, implying that Apple is also assessing this technology.

We believe that Qualcomm will be the first supplier to bring ultrasonic sensors to market, with Sonavation in the coming year and InvenSense to follow next year.

The outlook for ultrasonic sensors

If further commercialized, ultrasound has the potential to be the best of all sensor technologies to date. In practice, its major advantage of increased biometric security may not be very valuable if existing technology is considered secure enough and spoofing doesn’t happen very often. Beyond security, ultrasound’s more robust performance in terms of dirty fingers and functionality through various materials should provide an advantage in any case. Finally, novelty and differentiation can act as a useful boost as this technology enters the market.

Ultrasonic technology could experience an increased market pull if there are high-profile security or privacy cases reported in the media, but we think this is unlikely. As a result, we expect ultrasonic sensors to take a minority market share in 2016.

In the near term, ultrasound will need to compete with capacitive on price to be successful. This may prove difficult due to anticipated higher prices, though pricing will vary by manufacturer.

Longer term, ultrasonic sensors will be an interesting technology to watch.

View this infographic to learn more about the expected growth in fingerprint technologies.

Marwan Boustany is a Senior Analyst, MEMs and Sensors, at IHS Technology 
Jamie Fox is a Principal Analyst, LEDs and Lighting, at IHS Technology
Posted on 23 February 2016

Fine pixel pitch technology has opened up new opportunities in indoor applications for LED video displays, making it a viable competitor to rear projection and LCD public displays. Fine pixel pitch technology improves the resolution of LED video displays, which helps create good quality images that can be viewed from a close distance, a prerequisite for indoor use public displays.

This was evident in 2015 when there was an interesting trend of traditional rear projection and LCD public display manufacturers including Samsung, Delta, Panasonic, Planar, Philips, Eyevis, Vtron, GQY, Triolion, Christie, Barco, and NEC launching LED video products to complement their digital signage portfolios. The modular nature of an LED video display enables easier transportation via smaller packaging, customization that enables different shapes, and a seamless, or “bezel-less,” viewing experience. These features set LED video displays apart from other technologies, making LED a natural product line extension for LCD and rear projection brands.

In 2015, the fine pixel pitch LED video segment—defined as displays with <=1.99mm pixel pitch—grew 279% year-over-year in shipments, measured in display area. IHS forecasts a further 78% year-over-year increase in display area shipments in 2016 for this market. Much of the market growth will be led by market share advances made by Chinese LED video display manufacturers who are likely to pursue M&A activities for domestic growth and bring margin improvements by international growth.

Two factors will be key to the continued growth of the LED video market:

• Fine pixel pitch LED video displays need to be priced more competitively with rear projection and LCD public displays
• LED video manufacturers need to create strategies to become total solutions providers

The success of LED video display technology and solutions can then potentially lead to LED reaching a market leadership position in the indoor public display market.  

For more information, please visit:
https://technology.ihs.com/573623/2016-outlook-and-strategies-for-fine-pixel-pitch-led-video

Vinita Jakhanwal is a Senior Director for IHS
Posted on 3 March 2016

In response to recent developments that are expected to prohibit the sale of components by US companies to ZTE, Wayne Lam and Brad Shaffer, top IHS Technology analysts covering semiconductor dynamics in the smartphone and wireless markets, published an article analyzing the impact on key players in the ZTE supply chain. In addition, Wayne and Dan Panzica supported a very helpful article published by Thomson Reuters that can be found here. This article discusses the potential impact on a wide range of component suppliers. Check out the insightful analysis below that builds on the ongoing research of IHS Technology on the smartphone and semiconductor markets.

The US Department of Commerce Bureau of Industry and Security chaired End-User Review Committee (ERC) recently imposed trade restrictions on ZTE Corp. which may make it difficult or impossible for the company to buy products or components from US-based suppliers. The ERC amended the Export Administration Regulations (EAR) entity list to include ZTE for what it determined to be actions contrary to US interests of national security and foreign policy. The entity list is essentially a “blacklist” of individuals and companies on which trade restrictions are placed. The ERC points to two specific documents that highlight ZTE’s forming of “detached” companies in order to allegedly skirt US export control laws and illicitly re-export controlled items to sanctioned countries.

According to the last published IHS Semiconductor Share and Handset OEMs report, ZTE is one of the leading global smartphone suppliers and obtains about 62% of its core handset IC components from US companies such as Qualcomm, Skyworks, and Qorvo. If the US government doesn’t allow these companies to sell product to ZTE for its handset business, it could financially harm both sides as these suppliers generally depend upon sales from a few high volume customers and losing ZTE would increase concentration of other already large clients such as Apple and Samsung.

Suppliers such as those above can generally apply for a license to sell products to companies on the entity list, however the ERC has issued a license review policy with a “presumption of denial” in addition to not issuing any exemptions from the licensing requirement in this case, potentially making it difficult or seemingly impossible for the aforementioned suppliers to conduct business with ZTE.

ZTE was the world’s 8th largest mobile phone supplier in 2015. If the company faces components supply constraints due to the recent ERC ruling, it could derail product launches and lead to a lot of wasted research and development costs as the company wouldn’t be able to obtain components to support devices in various stages of development.

The trade restrictions could be disastrous to the ZTE smartphone business. As a result of the decision, ZTE may choose to source more of its components through companies located outside the US such as MediaTek and Tsinghua Unigroup (Spreadtrum). These suppliers already account for about 41% of ZTE’s annual spend on digital baseband according to the IHS report cited above. Being limited to the use of only the suppliers outside of the US would require a significant redesign effort and place ZTE behind in certain market segments, especially at the high-end of the smartphone market.

The ERC ruling, if enacted, would render ZTE’s phone production supply chain inactive as supplies for critical components dry up for effected models using US supplier parts. ZTE has options to appeal the ruling and would likely vehemently fight the ruling through legal channels. The Chinese government will also likely petition in favor of ZTE, potentially forcing a partisan debate on the matter of US and Chinese trade relations. The next week of diplomacy and legal maneuvering will be critical as to how this crisis plays out.

Dale Ford is the Vice President of Thought Leadership for IHS Technology
Posted on 10 March 2016

Yahoo understands that its time is up, at least in the company’s current form. Although FY 2015 revenue was up 8% to $4.9 billion, the increase does not conceal the fact that compared to the 2010 high of $6.2 billion, revenue has been down 21% in aggregate over the past five years. In the same period, Google grew 150% and Facebook skyrocketed 650%. Yahoo is now starting to restructure, to either save the day or prepare for an acquisition beauty contest. In its Q4 2015 results conference call, Yahoo announced it will:

• Cut 15% of its workforce, or 1,700 employees
• Tighten its geographical focus
• Streamline the product portfolio
• Explore the option of “strategic alternatives,” to Marissa Mayer’s plan, de facto opening itself up to acquisition

Yahoo has not adjusted staffing levels to its increasingly marginal role in the online economy. The company is severely overstaffed with 12,000 employees at $4.9 billion revenue. Facebook has 11,000 staff, but makes $15 billion. Yahoo’s announcement that it will cut 15% of its workforce is a first step to address this bloat, but much deeper cuts will be necessary to achieve a healthy revenue-to-employee ratio.

Yet its problems are not just in size, but are structural. Yahoo remains a desktop company in a mobile age. Media consumption is rapidly shifting to mobile platforms, and companies like Twitter and Facebook today generate the majority of their revenue from mobile. However, Yahoo still makes 77% of its revenue from desktop users. We do not see a clear strategy at Yahoo to change this. In fact, what the dial-up internet business is to AOL, desktop users are to Yahoo. It is not a glamourous business, but a solid backbone in the absence of a mobile strategy that it needs to monetize for as long and focused as possible. Yahoo must realize that its main user base today is not the cutting-edge, ever-connected millennial, but the digital laggard.

Relying on desktop users cannot be the only strategy, and Yahoo must continue to build its future. But it needs to change its approach. Yahoo’s Marissa Mayer has been on an acquisition spree to build Yahoo’s future, but these acquisitions have now been entirely written off by investors. Famously, she bought social media firm Tumblr for $1.1 billion, but its revenues are stalling as Yahoo has not invested enough in the platform. Yahoo has made acquisitions in all important future growth arenas such as social, mobile, and video. But, while this looks good on paper, under Mayer the company took a scattergun approach to buying its future, and there is no evidence of new products or synergies coming out of these acquisitions. They have not been properly integrated operationally and do not share an overarching vision.

Despite investor pressure and a gloomy outlook, we believe it is not too late for Yahoo to engineer a turnaround. But the new Yahoo needs to be a much slimmer and more focused company. We see potential in its role in advertising technology. Yahoo has world-leading technology and skills in this area. Consolidating its advertising and analytics capabilities and building a third-party ad network could make Yahoo a compelling alternative for advertisers who do not want to be locked into the Google and Facebook ecosystems.

Yet Yahoo remains an acquisition target and the company’s announcement in its Q4 2015 investor call to look for strategic alternatives make this more likely. We see telecom firms such as AT&T or large media conglomerates such as Disney as potential buyers. Such a deal would mirror the recent AOL acquisition by Verizon, and Comcast’s purchase of leading advertising technology providers. Both telecom and large media firms need to bring a growing part of advertising-related technology and media analytics in-house to improve advertising margins and assert their position towards Google and Facebook. Yahoo’s assets in this area, coming from the Brightroll and Flurry acquisitions, may well prove to be a draw just as AOL’s video advertising firm adap.tv was to Verizon.

Yahoo is still fixable, but whether management and shareholders have the patience to do this is another question. 

Additional insights and analysis on this and other critical topics can be found at IHS Technology Advertising Intelligence Service.

Daniel Knapp is a senior director for advertising at IHS
Posted on 10 March 2016

The Consumer Technology Association (CTA), famous for its CES event in Las Vegas, created a very interesting ranking report in 2015 called the “Innovation Scorecard.” The description of the Scorecard in the executive summary explains that its purpose is to “[rank] 50 states and the District of Columbia across 10 categories related to creating quality jobs, fostering startups and encouraging innovation of every kind.” In its 2016 Innovation Scorecard, the CTA added more categories to its evaluation, which now covers:

1. Right to work
2. Welcomes new business models
3. Tax friendliness
4. Entrepreneurial activity
5. Fast internet
6. Tech workforce
7. Attracts investment
8. Grants STEM degrees
9. Innovation-friendly sustainable policies
10. Supports drones

Each state in the United States is given a score in each of the 10 categories that forms the basis for assigning each state one of the following designations: innovation champion, innovation leader, innovation adopter and modest innovator.

The latest update of the report can be found on the CTA website. In addition to its role in putting on the world’s most important consumer electronics show, the CTA also plays a key role in researching US consumer markets, supporting standards development, etc. In this case, it’s acting as a powerful industry advocate with state governments. These evaluations can form the basis for states to implement policies and legislation that will attract companies and talent that will stimulate the technology economy in their states. The types of jobs and economic benefits associated with the technology industry are highly attractive for any state or community seeking to boost its overall economy and quality of life.

In the 2016 Innovation Scorecard, the following states were recognized as “Technology Champions”:

• Arizona
• Delaware
• District of Columbia
• Indiana
• Kansas
• Massachusetts
• Michigan
• Nebraska
• North Dakota
• Texas
• Utah
• Virginia
• Wisconsin

The data published in the Scorecard provides many avenues for analysis. I took an interest in the correlation, or lack thereof, between the overall innovation ranking achieved by a state and the grade it received in the category “Attracts Investment.” At first glance it would seem that states that have created the most attractive environment for innovation would be notable on the radar of investors looking to find technology investment opportunities with promising return on investment (ROI). However, this does not seem to be the case.

The table below shows the states that received a grade of B+ or better in the category of “Attracts Investment.” It is quickly noted that only 3 of the 13 “Innovation Champions” fall into the top ranks of states for investment attractiveness. In addition, 3 of the companies that only achieved the level of “Technology Adopter” are in the group of top investment attractiveness. In fact, it is possible that without the strong rating in the investment category they could fall into the lowest category of “Modest Innovator.”

Investment Attraction Compared to Innovation Status

ATTRACTS INVESTMENT

INNOVATION CATEGORY

STATE

GRADE

RATING

1

California

A+

Adopters

2

Massachusetts

A+

Champion

3

Delaware

A -

Champion

4

Washington

A -

Leaders

5

Connecticut

B+

Adopters

6

New Hampshire

B+

Leaders

7

New Jersey

B+

Adopters

8

Utah

B+

Champion

The table below shows the complete set of grades for California and Massachusetts, the highest-rated states for technology investment. Certainly it is no surprise that they receive the strongest ratings for investment attractiveness. If anybody had to guess, they would come up with the same 2 states at the top.  However, the only other category in which California receives a grade of B+ or better is for “Fast Internet.” California receives poor marks in many areas of D and below. Massachusetts also scores well in “Fast Internet,” but the rest of its grades are underwhelming. On the other hand, if the grades for the 13 “Innovation Champions” are added together, their overall grade point average (GPA) for “Investment Attractiveness” comes up just short of a “B” at 2.95. So the obvious question is clearly, “Why is there a lack of correlation between states that achieve top ratings for supporting innovation and where investors choose to place their money?” It is an obvious question, but one not necessarily easy to answer.

Innovation Scorecard for Top-Rated States for Investment

California

Massachusetts

CATEGORY

GRADE

GRADE

Innovation Category

Adopter

Champion

Right to work

F

F

Welcomes new business models

C+

B-

Tax friendliness

D-

B

Entrepreneurial activity

B

B

Fast internet

B+

A-

Tech workforce

B

B

Attracts investment

A+

A+

Grants STEM degrees

B-

B+

Innovation-friendly sustainable policies

D

N/A

Supports drones

B

N/A

Some possible answers to the question of why California and Massachusetts are so attractive to technology investors in spite of mediocre-to-poor results on the Innovation Scorecard are:

• Investors have become myopic in their views of where to invest and have become focused on the “traditional” centers of innovation to the exclusion of other attractive locations


• The Scorecard fails to measure the strong synergies between a highly talented workforce, strong technology educational institutions and industry leaders that create an environment that pushes new and current companies to aggressively pursue new opportunities and new markets. Silicon Valley, Southern California, Boston, etc., all fit this description. The vibrancy and resiliency of individuals and companies in these areas make them attractive places for taking risks at the individual, corporate and financial levels.


• The Scorecard is a better predictor of future hot investment areas. While the traditional locations of technology excellence stand out now for investment, they may lose future opportunities to states that aggressively promote an environment that will attract these opportunities. Perhaps there is a coming change where highly talented individuals and exciting companies will choose to move from highly competitive and high-cost locations to areas that offer quality of living benefits along with policies that enable strong support for innovation. Technology itself may enable a more globally distributed, high-tech workforce. However, given the durable track record of places like Silicon Valley, it is hard to bet that they will lose their position in the world of technology and investment.


• Leaders of companies in places like California and Massachusetts have the connections and street smarts to attract and cultivate investors. The close relationships and confidence that has been established over the years between technology leaders and financial institutions will continue to be the most important factor in determining where investments are made.

Other potential explanations could be given to the question of why support for innovation and investment in innovation seem to be disconnected. Given the data set this analysis is focused on the US. However, the questions presented by this data are valuable for investors, local governments, companies and industry leaders to consider.

Dale Ford is the Vice President of Thought Leadership for IHS Technology
Posted on 14 March 2016

Yesterday’s failures and today’s new S-curve opportunities

Part I – Today’s market share relative to direct competitors is no longer an indicator of future competitive success

Battles were once fought with soldiers in a row in the 1700s, with full frontal assaults during the US Civil War, or with trench warfare during WWI. These once common practices are no longer relevant. Armies still have to capture territory, but have moved to more effective strategies, since just moving the front line to capture a bit of ground through attrition is not enough. Corporate warfare has also evolved, and this analysis highlights new business strategies that are vital to future business success.

Traditional market share battles have become antiquated. Today’s market share relative to direct competitors is no longer an indicator of future competitive success. New competitors are attacking from both upstream and downstream, and disruptors from outside the traditional ecosystem are actively targeting peripheral ecosystem opportunities for differentiation and survival.

Consequently, those only fighting for market shares with direct competitors are at risk of being quickly rendered irrelevant by outside forces. Security firm ADT, for example, was focused on its traditional suppliers and competition but now must defend against Apple, Google, Comcast and AT&T. Importantly, we see cases of disruption from outside forces as increasingly common.

Stay hungry. Today’s CEO mindset reminds me of Steve Jobs’ 2005 graduation speech at Stanford, where he exclaimed to “stay hungry,” which in context translates to stoking an effort to search aggressively for the next S-curve. We do see today’s successful business warriors assessing new battlegrounds, not just on defense but on offense as well. This includes connected car, connected home, 5G, over-the-top (OTT), factory automation, Internet of Things (IoT), medical, sensors and new mobile innovations.

Visionary leaders create the new curve, not just jump to one. Successful innovators Apple, AT&T, Amazon, Netflix and Walmart got so far out in front that they defined the market and then leveraged their market power to again define the industry’s direction. For example, Apple leveraged its iPhone power to define the tablet space. Netflix’s primary S-curve jump was the pivot from DVDs via mail to premium subscriptions online. Its unmatched execution continued with expanded rights acquisition, in-house content creation and the recent announcement of its launch in 100+ countries. Next we look at some historical failures, as well as opportunities ahead.

Part II – Learn from historical S-curve failures

Business generals who have focused only on direct competition have met a quick end, as illustrated below.

• Nokia, Motorola and Blackberry were once seemingly unchallengeable giants, until iPhone’s launch and a strong response by Samsung.
• Circuit City once had 567 stores and was focused on direct competitor Best Buy and high-end specialty shops. However it failed to react to the new curves, that Amazon was changing retail or that electronics were increasingly sold by Walmart, Target and Costco. Bankruptcy ensued.
• Sony once dominated consumer electronics, including portable music, but watched its innovation lead evaporate. Mitsubishi and Zenith once controlled TV market shares.
• Sears, the once captain of retail, had its market cap drop 75% in the past five years to $2 billion, as it did not reinvent itself in the wake of more nimble players in its core categories.
• Notebook OEMs failed to jump to tablets. Innovation was driven by outsider Amazon’s eReader and then Apple’s iPad. Big Blue did jump to notebooks early, but now isn’t even in the PC business.
• Broadcast networks ABC, CBS and NBC were once dominant giants focused on a 3-way market share game, but threats materialized in waves outside their control. The slide began with the growth of pay TV and the slow move from 4 channels to 200, which diluted viewership. A second big assault was enabled when high-capacity fiber platforms to access the internet were leveraged to efficiently deliver OTT services.
• Cable and satellite TV growth rates that were once strong and steady are now under pressure from OTT providers and a shift in consumer expectations towards 24/7 mobile viewing.
• Semiconductor firms are creating new business development teams, but unlike the past, they are not being directed to increase market share with current clients. Rather, CEOs are directing their respective innovation teams to “make sure we don’t miss an opportunity” to sell product into emerging applications. This directive will save a few firms from extinction.

Part III – Perspective on future S-curve hotbeds that offer strong growth

To use the old Wayne Gretzky quote, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

In context for your firm, where will the puck be in the future? Below we list some S-curve hotbeds to help your team put this into perspective for your specific business.

• Vizio provides an example of evolving with tangential trends. People expect to watch mobile video on their smartphones and iPads in Starbucks, and on the patio at home. Small screens are now accepted, but consumers are also looking to seamlessly move content accessed via their iPhone 6 or Galaxy 7 to their 50” TVs when entering the living room – whether that’s selfies or a Netflix movie. Vizio’s visionaries have chosen to evolve their TV hardware business toward this tangential trend. They are jumping to a new S-curve by partnering with Google to essentially pre-install Chromecast in their TVs. Their “Google Cast–enabled TV” will allow users to send streaming video and music from Android and iOS devices directly to their TVs with the simple click of a button. One blunt implication is that the Samsung vs. LG battle for proprietary smart TV interfaces no longer matters. Secondly, Google Cast–enabled TVs will further accelerate the shift in consumer viewing habits away from traditional TV channels, even cable. Thirdly, advertising and investments will continue to drift towards new S-curve experiments that promise to mate new technology implementation with consumers’ changing expectations.
• Connected car presenting an ecosystem food fight. Shrinking costs in connectivity, processors, memory and displays are all enabling connected cars to become a reality. Consequently, this presents many opportunities for new S-curves across the entire ecosystem. For example, auto OEMs and tier 1 suppliers will have to incorporate infotainment features that are intuitive and seamless, or vehicle sales will suffer dramatically. Tier 2 suppliers and vendors for LAN, WAN and sensors all have new opportunities to conquer land now as in-vehicle electronic content is rapidly growing. For example, Honda has ramped up to four displays in the Accord, offering opportunity for new innovative suppliers. To this end, we also find that OEMs are now much more interested in cost models for various types of displays. The point is that players throughout this ecosystem surely can’t stand still on their 2016 solutions.
• How can your firm benefit from 512GB of NAND flash in smartphones? In 10 years, the average flagship smartphone will include 128GB to 512GB of embedded NAND flash storage, up from today’s 32GB and 128GB. Our research reveals GB/$ will increase at over a 30% compound annual growth rate (CAGR), which indicates more near-term expansion as well, as average NAND in smartphones doubles over the next 3 years.
  • To put this in perspective, consumers could carry over 100k songs, over 100k pictures and over 100 hours of video at the same time… but there are so many other use cases beyond the traditional top 3. The question for thousands of entrepreneurs is: what do you need to do today to prep for a tomorrow where everyone from 5 to 95 years old will carry 256GB of local storage with them 24/7?
• You will be healthcare’s new connected patient. Information technology, from software to semiconductors, is being applied to healthcare in ways that create one of the most opportunity-laden markets available. One hot area is consumer medical, where real-time vital sign and biometrics monitoring will be easily done at home by patients using peripherals. The data will then be wirelessly transmitted to physicians for automated exception management.
  • Today, 2/3 of every dollar of US health care spending goes to treating people with multiple chronic conditions. To address this unsustainable burden, health systems are searching for models that safely and efficiently manage at-risk patient populations in remote care settings, such as at home. Telehealth solutions already exist, however today they are typically only 60-day programs to get patients back on their feet, after which the proprietary hardware is returned.
  • In the future, real-time health monitoring will be not limited to critical care patients, but rather used by anyone, even healthy people with a smartphone that download an app and purchase low-cost Wi-Fi and Bluetooth-enabled medical monitoring peripherals.
  • Qualcomm Life’s 2Net platform has developed an entire remote patient monitoring solution, including a home hub for collecting and transmitting encrypted medical data, as well as peripherals that measure weight, temperature, blood pressure, heart rate, oxygen levels, activity monitoring and a host of other biometrics. It’s all compatible with Android and iOS devices. Think Fitbit on steroids, times 100. In another example, Google Verily, the life sciences branch of Google, is committed to investing in this needle-moving opportunity. In one example, they developed a contact lens embedded with thin sensors, power, compute and antenna, to sense glucose levels in tears and transmit to another device for real-time monitoring.
  • The bottom line is that consumer medical is yet another industry where tomorrow’s winners and early S-curve jumpers are likely to be from outside the traditional medical stalwarts. We see the entire consumer medical industry as on the precipice of dramatic change as it prepares to offer solutions to actively monitor both sick and healthy patients in a simple, convenient way.
• Prep now for counter-intuitive 5G opportunities. Many new services will be possible given an expected order-of-magnitude improvements in speed, latency and wireless capacity. Jumping early into new service businesses, coupled with the right big data analysis, will surely yield new big winners. For example, overall wireless bandwidth is growing rapidly, but not fast enough to send everything “to the cloud” for analysis. Consequently, edge computing may be needed more than ever to filter what truly needs to be transmitted. Some opportunities may be counter-intuitive, such as more edge computing, while the broader move to the cloud is underway.
• Cisco protects its IoT flank. To not miss the next big thing, Cisco just acquired Jasper, the industry’s leading IoT service platform, which allows connection and management of any device—from cars to jet engines to implanted pacemakers.
• Innovation isn’t a zero-sum game, as OTT services expand the total available market. Today’s consumers expect to be “connected and entertained” 24/7 via their smartphones and tablets. Forward-looking entrepreneurs have 2 key ingredients at their disposal that offer the foundation to satisfy consumer demands for new and compelling OTT offerings. First, Moore’s law is still yielding rapid advances in semiconductor performance at reduced cost. Secondly, software is being developed at an increasingly rapid rate. Combined, these 2 enablers will continue to fuel more unique and sustainable solutions. Past examples include various fixed-line OTT video services, as well as wireless OTT radio streaming and services like Shazam. Looking ahead, we find that assessing the pace and direction of technology can provide an early view into what’s feasible as a future consumer offering.
• What’s different now with regard to cable’s “dumb pipe” label? The existential threat to cable operators is self-aggregation, specifically that consumers will aggregate channels on their own by purchasing the increasingly compelling solutions of ESPN, Netflix, Hulu, Chromecast and Apple TV, while also viewing commercial-free YouTube Red. What’s different now is that these once S-curve experiments are maturing into sustainable businesses, and at the same time stoking another wave of offerings.
• Unintended consequences pressuring cable and satellite TV growth rates. Cable’s rollout of ubiquitous, 2-way fixed broadband pipes, which provided a competitive advantage against satellite, came with unintended consequences. A side effect was that this technology directly enabled new content creators like YouTube, and new OTT distributors like Netflix, to take root and further dilute viewership… and dilute market control. All the ecosystem players are aware of the cannibalization underway. The trick is to efficiently experiment to find the new S-curves.
• Car as a product may become car-as-a-service. New business models like Uber, autonomous vehicles and ride sharing are prompting even traditional firms to spend time and energy making sure they “don’t miss an opportunity.” For example, General Motors just launched Maven, a ride-sharing program, bought a defunct Uber competitor and is developing maps for robo-cars. All this, to keep current on emerging S-curves.

Information about our research-based, partner-level model designed to support your most important decisions can be found at IHS Technology Consulting Services.

Steve Mather is a Director, Subject Matter Expert for IHS Technology
Posted on 24 March 2016

Len Jelinek, Hiroyoshi Takizawa and Jagdish Rebello, Ph.D.

2015 was a tough year for the semiconductor industry. Driven by the slowdown in the growth of the smartphone market and the contraction in the data processing and consumer electronics segments, IHS estimated that the total semiconductor market contracted by 2% to $347.2 billion.

The contraction of the global semiconductor industry in 2015 created another tough year for Japanese semiconductor companies. The challenging market environment, coupled with the 14% depreciation of the Yen, resulted in a less-than-stellar performance for Japanese semiconductor companies. IHS estimates that in 2015, the total revenue for Japanese semiconductor companies dropped by nearly 10% to $36.9 billion, down from $40.8 billion in 2014.

It is clear that the revenue decline for Japanese semiconductor companies has been accentuated by a depreciation in the exchange rate. The dollar-to-Yen exchange rate was 105.79 yen in 2014 and 120.77 yen in 2015. So when measured in terms of the Yen, Japanese companies’ revenue has increased 3% since 2014, with 11 of the top 20 Japanese semiconductor firms (Sony, ROHM, Nichia, Sanken Electric, Sharp, Stanley Electric, Hamamatsu Photonics, Denso, Kodenshi, Hitachi Power and Shindengen) increasing their revenue in 2015 when compared with 2014.

Table 1: Semiconductor revenue of leading Japanese semiconductor companies

Semiconductor companies in Japan have for years focused their products and technologies on Japanese consumers. Japanese companies competed vigorously against each other to position themselves as the leading consumer solutions company. Unfortunately, as the consumer market declined both domestically and globally, the Japanese semiconductor companies failed to react. The result has been an industry caught up in a serious lack of technology, capacity and strategic focus.2015 is not a unique year in terms of poor performance for Japanese semiconductor companies. In fact, when measured in terms of dollars, Japanese semiconductor companies have struggled over the past few years, with Japan being the only region that has seen a continual decline in revenue since 2010.

This has resulted in Japanese semiconductor companies not being able to successfully develop competitive products to address the smartphone, wireless communications and the industrial automation markets — markets that had small positive growth rates in 2016. Japanese semiconductor companies have no presence in the smartphone baseband, application processor and connectivity market segments and very limited presence in the rest of the wireless communications market. So while global wireless communication semiconductor revenue increased 3% in 2015, Japanese companies’ wireless communication semiconductor revenue decreased 11% during this same period.

But looking ahead, IHS expects that the wireless market will enter a period of very slow growth. IHS is not recommending Japanese companies start to pursue this market.

Even in the industrial automation market, Japanese companies — particularly those in the power semiconductor market — are not doing as well as expected despite growth in industrial applications. Japanese companies simply do not have the right products at the right price points and the right performance for these application markets. So while the global industrial electronics semiconductor revenue increased 0.6% in 2015, Japanese companies’ industrial electronics semiconductor revenue decreased 5%.

But there are a few notable bright spots for the Japanese semiconductor industry. Of all the Japanese companies, Sony is the only one that increased its semiconductor revenue in 2015 in terms of USD. Sony’s strong performance was driven by its imaging sensor business, which grew by almost 13% in 2015. Sony is ranked by IHS as the leading supplier of image sensors. Other strong Japanese semiconductor performers in 2015 were Nichia, ranked No.1 in light-emitting diodes (LEDs) with a market share of almost 13%, and Renesas Electronics, which is still ranked No.1 in the microcontroller (MCU) market. However, Renesas has seen its overall semi revenue drop by 16% since 2014.

Can the industry recover? Simply transitioning historical integrated device manufacturers (IDMs) to fabless semiconductor companies by spinning out manufacturing will not save the Japanese semiconductor industry. Japanese semiconductor companies must approach the current semiconductor market with a short-term tactical strategy while developing and executing a long-term strategic roadmap.

It is important to note that Japan has important strengths overall (not just semis) in the automotive and industrial equipment areas. It would make a lot of sense for them to develop strategic partnerships with companies — and especially Japanese companies — to pursue growth in this area. Renesas has a big business in MCUs for automotive. It would be good to look at their positioning in the automotive area and develop analysis that might point the way to a brighter future for Japanese companies in this area.

To be successful in 2016 and beyond, IHS believes that Japanese companies must focus on certain key market segments that are poised for growth and in which these companies can leverage their strengths to establish market leadership positions. In the short term, Japanese companies should focus on winning domestic automotive semiconductor opportunities. With a strong automotive presence in Japan as well as globally, Japanese companies have the ability to sustain a strong market share in the automotive industry. In addition, companies like Renesas and Nichia must leverage their leadership positions in the MCU and LED markets to take advantage of growth in the Internet of Things (IoT) and solid-state lighting markets.

Longer term, the solution for the Japanese semiconductor companies is not as simple. The development of evolutionary consumer electronics continues to be a major challenge. Wireless handsets and mobile PCs have saturated the global market. Japanese semiconductor companies must look toward the development of a longer-term application that will provide a high value-added solution if they are to emerge again as leaders within the semiconductor market.

Japanese companies have a tradition of developing consumer-related products. They understand the dynamics of a fast-changing market. What they must do is harness those skills on adding value to products that will solve not only needs in Japan, but transition easily to other regions in the world. Is IoT the solution? Unless Japanese companies can band together to deliver a common technical solution that is easily adopted across multiple platforms, their solution will look like the current wave of independent offerings that are disappointing the consumer.

Innovation is the key to the future success of the Japanese semiconductor industry, but the innovation must be globally accessible; otherwise, Japanese companies will simply be doing what they always have done — developing exceptional technologies and products that service a very closed market. A focused strategy is critical for the survival of the Japanese semiconductor industry.

Jagdish Rebello, Ph.D. is a Senior Director for Cloud and Computer Electronics with IHS Technology
Posted on 28 March 2016

How foolish can a company be to set up shell companies to circumvent US export control? As this is all about growing and expanding the business, this rule breaking belongs to the same register as the Volkswagen emission cheating case. During my few trips in Africa and the Middle East, and particularly around the so-called Arab Spring of 2011, I was stunned to witness Western companies fleeing unstable areas en masse while the Chinese companies were taking this as an opportunity to reinforce their existing positions or simply move in to conduct and expand business. Iran is a special case: It’s not a war zone but is under tight Islamic control and severe embargo along with Cuba, Sudan, Syria and North Korea.

This is very bad timing for ZTE because the US is expected to lift sanctions on Iran this year, and major companies including Cisco and HP have already begun actively exploring market entry. I would not be surprised to see telecom giants Ericsson and Nokia to follow as well—they’re probably exploring too, but I could not get any quick confirmation.

Now what? Expect severe consequences for ZTE. First, unlike its archenemy Huawei, which remains a private company, ZTE is listed on the Hong Kong stock exchange with a market value of $1.4 billion, and its shares have been suspended from trading after Reuters reported the news on March 7, 2016.

Second, ZTE is the only Chinese smartphone brand with substantial handset sales in the US market. Although many consumers may have not paid attention to this news, the top 4 US mobile operators offering ZTE smartphones—AT&T, Sprint, T-Mobile US and Verizon—may think twice before continuing to support the brand, which in turn has the potential to negatively affect ZTE’s business.

Third, the restrictions essentially bar US companies from supplying ZTE with various components and subsystems, including computers, software, communications platforms and telecommunications equipment. The consequence is enormous and directly affects ZTE’s global business because Broadcom, Intel and Qualcomm are key ZTE suppliers.  Now ZTE needs to consider new sources for key smartphone chipsets and baseband units for radio access networks. In the fall of 2015, the Chinese government made the decision to fund and back up homegrown chipset vendors to develop its secure platform and chipset and cut the dependency on US companies. The question is, how far behind Qualcomm are they?

Finally, this is about to cause significant supply issues for ZTE’s whole business, and those restrictions are not going to improve the current tensions between China and the US. Despite the recent US government decision on March 22, 2016, to lift sanctions against ZTE for now, expect a continued diminishing presence of US companies in China.

The bottom line is very clear: Don’t mess with Uncle Sam—you’ll lose every time!

Stéphane Téral is a Sr. research director, mobile infrastructure & carrier economics for IHS
Posted on 28 March 2016