El Segundo, Calif., October 28, 2011—With little room left to maneuver in the tough TV system-on-chip (SoC) market central to the ambitious Google TV initiative, Google partner Intel Corp. is quietly reshuffling resources away from the connected television semiconductor space and redirecting attention to the more profitable arena of chips for mobile devices like smartphones and tablets, according to an IHS iSuppli Digital TV & Set-Top Box Market Tracker report from information and analysis provider IHS (NYSE: IHS).

While Intel is a giant in the semiconductor field, the chipmaker is struggling to compete in the TV SoC space. Dominating the TV SoC market in the first half of 2011 were two Taiwanese players: Mstar Semiconductor Inc., with 39 percent market share; and MediaTek Inc., with 12 percent. A third major player, U.S.-based Trident Microsystems Inc., had 6 percent market share.

The rest of the market was split up between two groups. Approximately 27 percent was held by vertically integrated manufacturers—also known as “captive” suppliers—including Samsung Electronics, Toshiba Corp. and Sony Corp., which make TV SoC chips to supply their own internally produced televisions. A second group comprising independent silicon providers—such as Zoran Corp.—accounted for the remainder of the TV SoC market with 14 percent share. That leaves Intel and others with a scant 2 percent share of market left to fight over.

“In a television semiconductor market characterized by entrenched suppliers and weak near-term growth prospects, Intel was facing enormous challenges in trying to establish itself as a competitor,” said Randy Lawson, principal analyst for display and consumer electronics at IHS. “And with the first-generation Google TV products proving unsatisfactory given their slow sales, it’s no surprise that Intel is moving away from the television SoC market.”

Google TV had been intended to enable a framework supporting the development of so-called Smart TVs. However, clear standards have yet to be defined for the effort, which was jointly announced in 2010 by Intel, Google Inc., Sony and Logitech International.

Smart TVs are defined as televisions that support Internet connectivity and interactive features. This contrasts with the traditional TV model of one-way broadcast transmissions viewed by a passive audience.

To the disappointment of the search giant and Intel, Google TV sales have not yet taken off as expected. To move inventory, Logitech this summer slashed prices of its Google-TV-enabled Revue device to $99, down from $299 at the time of release. Moreover, an upgrade has not materialized as promised by Google, further thwarting Intel’s hopes of providing more chips—and thus deriving greater revenue—for the initiative.

Myriad difficulties will prove difficult for Intel to overcome

Despite robust projections showing Internet-enabled televisions will make up more than 65 percent of global TV shipments by 2015, the Smart TV space remains hampered on several fronts, Lawson noted.

One challenge is the lack of a coherent definition for what exactly constitutes a Smart TV, adding confusion for consumers still grappling with a flood of new television technologies.

A second factor is the pessimistic outlook in the near future for the television market, which presents a significant hurdle for new suppliers like Intel. Already, U.S. semiconductor company Broadcom Corp. indicated it would exit the TV video processing chip market because of the forbidding competitive landscape. Fellow American player Trident Microsystems Inc. also announced it would reduce workforce by 20 percent due to declining sales in the set-top box and TV semiconductor segments.

A third difficulty for Intel is the decelerating consumer electronics (CE) semiconductor market—specifically for televisions. IHS expects zero growth this year in flat-panel TV semiconductor market revenue, due to steep pricing pressures throughout the supply chain because of weak end-market and consumer demand. In particular, the large-sized liquid crystal display (LCD) television industry is suffering a surfeit of supply from panel manufacturers, and a worrisome increase in overall semiconductor inventory levels this year also points to lower shipments and declining revenue.

New Synergies Emerging Between TV and Video

Notwithstanding the slumping TV SoC market, a trend is developing for the adoption of video processing technologies by new mobile CE devices, Lawson observed.

“As video consumption and recording capabilities extend into more handheld CE devices, the video-processing algorithms and techniques used in large-screen, high-definition TV sets are finding their way into portable CE devices like smartphones and tablets,” said Lawson. “In particular, functions like image scaling, frame-rate conversion, resolution and color enhancement, as well as noise and artifact suppression are gaining importance in mobile CE devices—where video playback requirements are becoming more extensive, and where increasing display resolutions even for displays sized smaller than 10 inches is driving the need for higher quality.”

It makes sense, then, that Intel—having garnered little traction in the TV market during the past few years—will now focus more development efforts in the mobile CE application processor space, according to Lawson. Not only are the margins greater here than in the TV SoC industry, the chipmaker also can stake a place in the new field to support the convergence of features between video-processor uses for TV and those for portable media-consumption devices. Intel likewise intends to maintain business development efforts within the service provider/operator set-top box SoC business, where cost pressures are lower and opportunities abound that can improve the consumer viewing and interactive TV experience, given the full gamut of “smart”-enabled features offered by Google TV.

All told, the expansion in sales of smartphones and media tablets—two key CE application markets—is expected to outstrip growth in the traditional CE equipment space held by TVs, set-top boxes and DVD players or recorders. And while Intel plans to continue supporting the CE4100 chip device for the set-top box market, further product development specific to the TV space has been shelved, IHS has determined. Instead, resources are now expected to move to higher-priority projects focusing on smartphones and tablets.