Market Insight

STMicroelectronics to discontinue STB and home gateway SoC research & development as part of a restructuring move

February 12, 2016

John Kendall John Kendall Associate Director, Research and Analysis, Service Provider Technology

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Geneva-based electronics and semiconductor manufacturer STMicroelectronics will stop developing new set-top box (STB) and home gateway products. This is expected to save approximately $170million annually. STMicroelectronics will focus on automotive technology, industrial and smart home/smart cities products.

Our Analysis:

This is not the first time that STMicroelectronics has had to consider the future of its STB and home gateway business. It closed down its UK home entertainment R&D site in 2013 and proposed a new turnaround plan for its STB and home gateway business in order to boost product adoption. This latest move is a result of the growing competitive pressure across the STB and home gateway supply chain amidst market consolidation throughout the pay TV industry.

The crux of the issue is the cost required to remain competitive in this market climate. STMicroelectronics is feeling this pressure from both a high and low-end perspective. Firstly, competition from Asian SoC vendors such as Ali, HiSilicon and Mediatek has placed downward pressure on the company’s profit margins. Meanwhile, in advanced markets such as the US, the demand for high-end integrated circuits (IC), integrating the latest video, broadband and home networking technologies, drives up R&D costs.

STMicroelectronics has succeeded in winning major deals for next generation STB designs: most recently at Sky UK, for its Sky Q STB family; and General Satellite, for its UHD decoders, but fundamentally STMicroelectronics has been unable to grow amongst the competition. It’s the second largest STB system-on-chip (SoC) maker behind Broadcom, but has experienced declining revenue since 2011, with its STB SoC and home gateway business’ performance and prospects being the least auspicious. It reported a loss of $250 million, in its STB and home gateway products in 2015, down 36.9% from 2014 year previous, a gross margin that’s about half the average of STMicroelectronics' other product lines.

It’s not clear whether STMicroelectronics will sell its STB and home gateway business, but this situation is familiar. Chipset vendor Entropic also underwent restructuring in 2014, discontinuing STB SoC development to focus on its core connectivity products and three months later was wholly acquired by MaxLinear. Much like STMicroelectronics, Entropic had several upcoming design wins however, weak performance of legacy SoCs compounded by operators’ evolving demands as they transition to advanced IP-based offerings resulted in lower than anticipated revenue.  It is unlikely that STMicroelectronics would be acquired as a whole given its competences in other areas, but selling off its STB and home gateway business makes strategic sense. The business line could be attractive to companies such as Qualcomm or Intel, who have both been vying for a bigger presence in the connected home.   

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