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STMicro Exits TV Decoder Chips in the Midst of Set-Top Box Disruption

STMicroelectronics is discontinuing the development of chipsets for digital set-top box (STB) devices, the market it helped kick-start two decades ago. Europe's largest chipmaker has also announced it's closing its troubled Digital Products Group and has reorganized semiconductor business around three product groups: automotive and discrete, MCUs and digital ICs, and analog and MEMS.

The set-top box or STB used to be a simple channel-hopping device for satellite and cable TV services. It was the MPEG decompression technology that transformed it into an interactive programming device capable of handling sports events and paid TV applications. STMicro's predecessor SGS-Thomson made a risky bet on the MPEG decoder chips that eventually paid handsomely when the STB market took off during the mid-1990s.

ST's exit from STB market: A case of innovator's dilemma?

The Franco-Italian firm first supplied MPEG-2 decoder chips to Hughes Electronics for DirecTV set-tops, and by the early 2000s, ST had captured nearly 70 percent of the market share for digital STB chips. However, in a matter of a decade, ST had come down to a tie position with Broadcom in the STB chipset market ranking. What happened?

Apparently, Broadcom was able to offer complete reference designs along with security certifications and software support. Meanwhile, the STB and TV businesses continued to converge and collide in a new era of innovation where over-the-top video devices like Roku are enabling apps and services using the power of the cloud.

Then, in May 2015, came the bombshell when ST's chief operating officer Jean-Marc Chery hinted about "exploring other options" for the underperforming digital products division that he also headed. It's worth noting that STB chips have traditionally made up nearly 80 percent of the digital group's revenues.

Set-Top Box Disruption

The market for STB components has also been in the doldrums amid the slow take-off of ultra high-definition (UHD) TV products. A testament to the slowing digital STB market came in July 2015 when Cisco Systems sold its TV set-top business for $600 million.

It's probably a coincidence that ST's announcement to exit from the STB chipset business came at around the same time when the Federal Communications Commission (FCC) vowed to open up the pay-TV market by allowing multiple systems and apps to access pay-TV programs. That could end STB hardware's long reign over paid TV content.

The set-top box industry is at a crossroads.

ST's call to stop developing chipsets for the set-top devices makes sense at a time when the FCC is bent on disrupting the STB market all over again. Moreover, the next-generation smart TV platforms—Apple TV, Chromecast, Roku, etc.—are steadily making headway in streaming content over TVs as well as much smaller devices like smartphones and tablets.

Still, it's a setback for ST because the STB chipset market has served it so well and for such a long time. Furthermore, the exit from the STB chip market comes at a time when ST is still facing the repercussions of its disastrous foray into the mobile processors market via the ST-Ericsson venture.
ST is at the crossroads, and it's imperative that the European chip giant gets its act together and does it quickly. For a start, ST has realigned its semiconductor operations around just three business units. Next, according to CEO Carlo Bozotti, the company is narrowing down its focus to high-growth markets such as automotive, industrial and the Internet of Things (IoT).

That seems to be a step in the right direction.

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