Market Trends of Embedded CPUs in China - A Chat with Han Yirong, Sales Director for iSuppli Corporation, China Region

By Jane Lin-Li, MBA, Associate Editor, Embedded Intel Solutions

As the world progresses further toward an information-based digital society, embedded systems are taking center stage of the IT arena in the 21st Century. They are, after all, the core component of this technological advancement. As the world's IT equipment manufacturers continue to move and expand operations in China--investing further in the efficiency and scale of their production capabilities-the demand for embedded systems in China is witnessing a market growth rate that has never before been seen. Recently, Embedded Intel® Solutions (EIS) caught up with Mr. Han Yirong, Sales Director for iSuppli Corp.'s China Region, for an in-depth look at the recent and future trends of the Chinese embedded-CPU market.

EIS: From the overall CPU-market standpoint, what are the differences and growth-potential areas for general-purpose and embedded CPUs?
Mr. Han: In general, there are no strict definitions for embedded CPUs. In relation to general-purpose CPUs, the embedded CPUs typically target the non-PC application areas and are 32 bit and above. And unlike MCUs, embedded CPUs are used to support the operating system. General-purpose CPU market growth trails behind the PC markets, which--in more recent years--are seeing a slow-down in growth rates. Additionally, the maturing and stable supplier base further softens the demand. The overall general-purpose CPU market therefore seems to be reaching a plateau in terms of its growth curve. On the contrary, embedded CPUs continue to find new ground in application areas that are increasingly becoming more important. As embedded CPUs infiltrate product sectors, the growing and changing demand for them will only deepen the market dynamics, triggering rapid market growth.

EIS: So what does the market growth for embedded CPUs in China look like in the near future?
Mr. Han: For some time now, China has been one of the key global producers of electronics and communications equipment. As such, it has had a growing demand for embedded CPUs. Further fueling this demand is the recent surge of popularity of applications in the 3G, NGN, WLAN, DTV, digital-home, and automotive- electronics areas in the country. The rapidly growing traditional market segments as well as new segments will push the demand for embedded CPUs in China to double the year-over-year growth rate in the second half of the decade compared to the first half. For instance, sales of embedded CPUs in China grew an average of 14.9% year over year from 2000 to 2004--from 6.69 million units to 11.66 million units. The projection for sales from 2005 to 2009 is estimated to grow from 13.22 million units to 36.38 million units, representing an annual growth rate of 28.8%.

EIS: In terms of application areas, how will the embedded-CPU market look in five years compared to today?
Mr. Han: Up until now, network-communications equipment has commanded a lion's share of China's embedded-CPU market, dominating the market by 49.7%. In the next five years, network equipment will continue to maintain its dominance. Yet it will most likely share its market leadership with interactive clients whose market share is predicted to grow rapidly to 30.2% by 2009. At that time, network equipment is expected to lead the market by a mere 2.4% at 32.6% of the overall embedded-CPU application market. Similarly, the market share of today's second-place winner, IPC, is expected to drop from 14.2% in 2004 to 8.1% in 2009. It will finish fifth behind digital security surveillance and automotive electronics--both of which are projected to increase slightly by 2.4% and 1.6%, respectively. Worth noting is the growing importance of print imaging in the demand for embedded CPUs in China. Expected to grow from 0.7% to 4.2% of the overall market in the same five-year period, the growth of the print-imaging segment will be triggered by the optimistic market outlook for digital-photo printers and therefore the printers' increased production in China.

EIS: What factors are contributing to the drastic shifts in the applications of embedded CPUs in the next five years?
Mr. Han: The key contributing factors to the shifts in application areas for embedded CPUs in China include the continued expansion of electronic-product manufacturing, the advancement of product technology, the ongoing pursuit of creativity around newer and better application ideas and uses, maturity of these new markets, and the numerous large-scale construction projects around the country. Looking just at the interactive-client application, its share is projected to grow as high as 50.4% year over year in the next five years--almost doubling the 27.7% from the first five years of the decade. In general, the reasons behind interactive clients' rapid surge are the increasing importance of online banking systems and the push toward regulating taxation schemes across cities via automated systems. The growth of digital security surveillance, on the other hand, is a reflection of a rise in the society's overall awareness of security and anti-terrorism. It also highlights the resulting opportunities that these sentiments bring in preparing for the 2008 Olympics in Beijing and the 2010 World Expo in Shanghai. Automotive electronics will also fare very well in the next few years, given the continued expansion of automotive production in China and consumers growing sophistication in vehicle safety, comfort, and recreational uses.

EIS: From an architecture standpoint, what does the future look like for embedded CPUs?
Mr. Han: Until now, embedded CPUs have largely been x86 and Power PC architectures. As the needs for lower-power-consumption, reduced-form-factor, and high-performance CPUs increase, the RISC architecture will soon dominate this territory--growing from 26.5% in 2004 to 46.0% in 2009. However, the x86 architecture will continue to be important and grow slightly due to the vast availability of application software supporting it. Its share is expected to be around 39%.

EIS: In the next five years, what will the picture look like for the various form factors of embedded application cards?
Mr. Han: The dominating form factor today continues to be proprietary. It represents 61.9% of all form factors and is used largely in network communications, interactive clients, and automotive electronics. But as IPTV, 3G, and NGN-related projects take off, CompactPCI and AdvancedTCA will become more commonly used than they have been. We are expecting CompactPCI to become 20.7% of the market by 2009, doubling what it is today. AdvancedTCA is expected to grow from 0% today to 5.2% in 2009. This growth is going to come at the expense of all existing form factors today. All of these different form factors will continue to demand higher performance from microprocessors.

EIS: From what we just discussed, embedded CPUs can expect to see a tremendous future in China in the next few years. What limiting issues should our readers be aware of?
Mr. Han: There are four issues that can greatly impact the embedded-CPU market. First, as opposed to hardware, software development is relatively slow. Because parallel progress in both areas is an important element to market expansion, the slower development of software is a market inhibitor. Secondly, the highly customized nature of the embedded space will render the market unable to scale for maximum efficiency, thus affecting the bottom line. In addition, the continuous development of new standards, which will result from the expanded use of embedded CPUs, will make interoperability a challenge. Market growth will therefore be affected. Lastly, while the creative use of embedded CPUs is in itself a great market motivator, the lack of mature business models will counter how quickly the overall market can move forward.

iSuppli Corp., http://www.isuppli.com, is a leading market research company monitoring the status of the electronics-industry value chain. It also is continuously updating a score of self-consistent databases, such as contract terms and conditions, pipeline inventories, and component pricing. iSuppli works with OEM, EMS, ODM, and component suppliers to strategically and tactically reduce cost and improve chain performance. Mr. Han Yirong is located in Beijing, China. He can be reached at Rhan@isuppli.com.