Globally, the set top box market has been experiencing strong growth in unit shipments and revenues, with the former reaching 59.0 million units in 2003. Set top boxes have met with considerable success in Europe and North America, and original equipment manufacturers (OEMs) are now looking to repeat this success in other parts of the world.

OEMs are facing increasing pressure from cable TV operators and subscribers for higher interactivity and greater control over the cable TV viewing experience. The development of interactive functions such as video-on-demand (VOD) and personal video recorders (PVRs) is changing the architectural behavior of digital cable set top boxes.

“With cable TV operators trying to introduce new applications such as high definition television (HDTV) and digital video recorder (DVR), the demand for advanced technology that can help implement these applications effectively is rising,” says the analyst of this research service. "The move toward digital television has contributed to much of the growth of the set top box semiconductor market." As the penetration of HDTV in homes increases in line with growing consumer demand for superior quality video content, the challenge for OEMs is to ensure that set top boxes have the required functionality to make this possible. As compression techniques increasingly move toward providing clear digital content, OEMs need to consider implementing MPEG-4 decoding techniques in future set top boxes.

Demand for Advanced Functionality Helps Drive Growth of Semiconductors in Set Top Boxes

The world set top box semiconductor market earned revenues of $1,778.4 million in 2006 and is expected to increase to $4,237.7 million in 2010. Unit shipments are likely to experience high growth rates, with average selling prices declining year-on-year. The emerging trend of replacing mechanical tuners with silicon tuners, already observed in cable modems, is likely to gain ground in set top boxes as well. Silicon chip tuners available today possess the ability to receive both analog and digital video channels, which could help make set top boxes compact. Moreover, silicon tuners offer various advantages such as fewer integrated components, less power consumption, and low heat dissipation.

“As an increasing number of additional functions are integrated into set top boxes, the requirement for silicon tuners is on the rise,” says the analyst. “There is a need for compact and cost-effective silicon tuners to enable additional functions such as picture-in-picture and PVRs.” There is also a rising trend among OEMs to transition from MPEG-2 to MPEG-4 decoders, as they enable set top boxes to deliver higher-quality digital content in a more efficient manner. However, the key challenge that lies in this stage of transition is meeting the requirements of HD.