Chips For The Post Pc Era
Semiconductors have been Wall Street darlings since shaking off the prolonged slump that started in late 1995. Last year, the chip industry broke all records. Sales hit $149 billion, up almost 19% from 1998, and could jump 23% higher this year. But even that's tame for fast-growing digital signal processors, which have been outgrowing the industry for several years. Now, DSP chips are becoming heir apparent in many applications to Intel Corp.'s microprocessors. In fact, DSP markets are growing so fast that these special silicon "brains" could outsell Intel's chips in 10 years. So predicts Thomas J. Engibous, CEO of Texas Instruments Inc., the longtime king of the DSP business.
That will take some doing. Digital signal processing today is only one-fifth the size of the $21 billion microprocessor business. But microprocessor demand continues to cool, and growth this year could drop into single digits. Meanwhile, every major DSP supplier is launching new technologies that could help spur sales growth into the 30% range for the foreseeable future. Although Intel's chips will never go away, they could suffer an identity crisis. "All microprocessors are becoming DSP chips," says William I. Strauss, president of Forward Concepts Co., a market researcher in Tempe, Ariz. "By 2010, every microprocessor will have DSP."
Chalk this transformation up to what's dubbed the post-PC era. Until recently, the personal computer was the undisputed champ of the electronics industry. But as cellular telephones caught on, and especially since the Internet took off, DSP has been stealing the microprocessor's thunder. "The PC era was all about data processing, but now we're entering the era of signal processing," says William J. McClean, president of market watcher IC Insights Inc. in Scottsdale, Ariz. "That's why TI is looking to be the next Intel."
Digital signal processing chips are engineered to handle enormous streams of real-world information, such as images and sounds, and process them in real time. Converting a steady diet of analog images or sounds into digital bits produces a deluge of data that would choke ordinary microprocessors. It takes clever mathematical algorithms--the real crux of DSP--to prevent digital cell-phone conversations from being punctuated with frequent gaps of silence.
Cell phones are a major DSP application--and a TI stronghold. "Two-thirds of all digital cell phones use our technology," says Engibous. That includes phones from market leaders Nokia and LM Ericsson. TI projects that 435 million digital cell phones will be shipped this year--a 58% jump over 1999, which was up 69% from 1998. New ventures and emerging products are also booming for TI. Including products such as new hearing aids, an electrocardiogram chip that calls help if you have a heart attack, and digital-video editing systems, this category rose 37% last year, to $900 million.
MORE HEAT. But Analog Devices Inc. wants more of that business--and has been coming on like gangbusters. ADI's 42% growth rate last year topped TI's by 25 points. And TI could feel more pressure from Lucent Technologies Inc.'s Microelectronics Group and Motorola Inc. if their latest DSP designs live up to expectations. These four chipmakers control close to 95% of the worldwide DSP market, thanks to proprietary algorithms and software.
Much of ADI's success stems from providing the software, which customers once had to write, to integrate DSP into a product. "We sell approximately half of our DSPs with the necessary applications software," says Jerald G. Fishman, CEO of ADI. "That's the fastest growing part of our business--and why we're outgrowing the market."
In old-line industries, such as kitchen appliances and electric motors, providing a total package "really lowers the barrier to using DSP," says Robert J. Conrad, general manager of ADI's DSP Products Div. Sweden's Electrolux, the world's No. 1 maker of electric motors, wasn't all that keen on DSP motor controls at first. So ADI bought an Electrolux motor and fitted it with a DSP controller that can vary the motor's speed to match a given task--cutting energy consumption by 30% to 50%. Now, energy-efficient motors are a fast-growing business for Electrolux.
To help create new DSP chips for so-called Internet appliances--such as video cell phones that can browse the Net or sprinkler systems that can download the weather forecast to decide whether to water the lawn--ADI recently uncorked a surprise: It teamed up with Intel. "Intel has vast experience in developing new microprocessors, and much of that is just as applicable to DSP," explains Fishman.
Intel has clearly tagged DSP as important to its future. Last year, it acquired DSP Communications Inc., a major player in Japan's digital cellular markets, and it has invested in several DSP-related companies, such as PacketVideo Corp. in San Diego, which specializes in digital-music and digital-video software for wireless products. "DSP has always been a four-letter word at Intel," admits Ronald J. Smith, head of Intel's embedded-chip unit. "But we saw a need, going forward, to develop DSP to serve emerging markets at the convergence of data processing and digital communications."
The ADI-Intel alliance is a "brilliant move for both companies," says McClean of IC Insights. But Strauss of Forward Concepts is more cautious: "The big question is: Can Intel live with the thinner margins of DSP?" The entrenched DSP suppliers also see a tough road for Intel. "For someone coming to DSP from the PC space, it will be a radical change in culture," says John T. Dickson, president of Lucent Microelectronics, the No. 2 DSP house. Motorola's Paul E. Marino agrees. "There's a phenomenal learning curve," says Marino, who heads Motorola's DSP Technology Center in Austin, Tex. For one thing, DSP math wasn't part of computer science or electrical engineering training until recently--only advanced math students could understand the algorithms.
Lucent and Motorola teamed up two years ago to create a fundamentally new DSP "architecture" called StarCore. Both companies expect to introduce their first StarCore-based chips this year. The new designs will offer faster speeds for Internet switching computers and other snazzy applications, or lower energy consumption for wireless phones and portable devices.
Apparently to defuse interest in the new StarCore chips--and a similar new-generation family from ADI, dubbed TigerSharc, also due out this year--TI last month unwrapped its own superfast and low-power designs. When the speed-demon version is available later this year, it will be 10 times faster than anything available now, says Engibous, "and five times more powerful than anything planned publicly for StarCore." And unlike StarCore and TigerSharc, TI's chips will maintain software compatibility with its existing products.
COMPLEX. TI is blowing smoke, says Mario A. Rievas, Motorola's vice-president for DSP operations. Yes, StarCore technology will require new chip-programming tools, but these will provide major benefits for the so-called third generation of digital cellular technology, or 3G, that's coming in Japan next year and in Europe the year after. Besides, the same Motorola development software can be used for both high-performance and low-power applications. "We cover the entire spectrum," says Rievas, whereas TI customers will have to use two sets of programming tools.
This silicon-brain business is getting complicated. TI dreams of becoming the next Intel. Intel is teaming with ADI to go after DSP markets. And Intel's chips seem destined to add DSP modules. No doubt about it, DSP is a winner.