In-Stat in-sights

Electronic News, July 14, 1997 by Emmy Johnson

There has been much hype surrounding the modem market this year with the introduction of 56 kilobits per second (Kps) technology. With each new speed comes the doubts of whether that technology can actually reach its acclaimed offerings. The network that modems operate on is an array of discombobulated wire gauges and bridge tabs that create a treacherous environment for data transmissions. Yet, even with the emergence of ISDN, cable and xDSL modems, analog modems remain the de facto manner in which to access the Internet and intranets.

Although there are many factors that drive the modem market, the primary drivers are the Internet, telecommuting and remote access applications. The inherent bounty of graphic-intensive files associated with the World Wide Web is driving modem users to higher speeds. Meanwhile, telecommuting is on the rise due to demanding work and family schedules; and as more and more workers hit the road for days at a time, the demand for ubiquitous connections to the office is also increasing.

As previously mentioned, the impact that 56Kps modem technology has had on the modem market is notable. The technology is surrounded by confusion as two distinct camps have emerged. On one side is Texas Instruments and U.S. Robotics; on the other is Rockwell Semiconductor Systems and Lucent Technologies. The two competing technologies do not interoperate with each other at the promised 56Kps speed, but do interoperate at 33.6Kps.

The confusion created by these two camps has hurt the 56Kps market. Once a standard is finalized, however, much of the smoke should clear and sales should regain their strength. The ITU recently announced that a global standard for 56Kps will be completed in January 1998. That's good news for the modem market and the modem IC market.

In-Stat expects the modem IC market to peak in 1999 at just under $2 billion. Likewise, the modem retail market will peak in 1998 at $5.6 billion. Of the three segments analyzed, embedded (integrated into the PC architecture at the factory), retail (PCMCIA, external boxes and PC cards) and remote access servers (RAS), the compound annual growth rate (CAGR) from 1997 to 2001 for analog modem ICs in PCs is the highest at 14 percent. 56Kps will drive the growth rate of the modem IC units with a CAGR of 62 percent for the same time.

The modem IC market is dominated by three players, with a combined total of more than 90 percent of the market. Eighty percent of the RAS market is shared by five players, with Ascend Communications leading the market. The retail market is even more fragmented with eight players sharing just 75 percent of the market. U.S. Robotics leads this market.

Overall, the modem market is a dynamic and exciting market. The market will continue to hold surprises as chip makers continue to add more functionality to modems through graphic applications and more refined speeds. In addition, the emergence of software upgradeable modems will add a new twist to the future marketplace. The RAM/flash cores provide a more marketable piece of end equipment than the traditional ROM cores by allowing users to download enhancements without having to replace hardware. Furthermore, the convergence of audio and modem ICs onto one chip as well as the convergence of modem functionality onto host CPU software will add extra challenges for modem IC manufacturers.

For more information, visit the In-Stat Web site at www.instat.com.