IMS Research estimates that the average semiconductor bill of materials cost for set-top boxes dropped 37% from 2004 to 2006, going from $59 to $37. This precipitous drop was caused primarily by rapidly falling prices for MPEG-2 core decoders chips in preparation for the transition to MPEG-4 AVC (ITU-T H.264) – both in HD and SD segments. However, IMS Research is forecasting that due to a number of factors, this trend will change, and from 2007-2011 the overall average cost of a set-top box semiconductor BOM will stay near $41.

According to analyst Stephen Froehlich, “Overall spending by set-top box makers is likely to increase as set-top box volumes grow and the product mix shifts to more advanced set-top box designs. Specifically, significant amounts of new spending will go for more hard disk drives in more DVRs and also for no-new wire or wireless network interface modules on many of the boxes being installed in multi-set-top households.”

The newly-published Worldwide Market for Semiconductors and Software in Set-top Boxes – 2007 Edition covers the market for the key hardware and software technologies contributing to the set-top box bill of materials, including core MPEG decoder chips, embedded processors, hard drives, front-ends, operating systems, and interactive middleware.

Other interesting insights from the report include:

• Linux will ship on more than 30% of set-tops by 2011 as increased processor performance eliminates the need for real-time operating systems.
• Open standard middleware will be running on 27% of installed STBs by the end of 2011.
• The rapid growth of Chinese cable and IPTV in 2006 resulted in NDS and other established conditional access vendors loosing market share to Tongfang