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DSPs in 2003: Looking Good, but not Great

While chipmakers are preparing to sweat out another tumultuous year in PC and server sales, one group is forecasting better growth for specialized semiconductor firms in 2003.

Analysts with Forward Concepts Tuesday said the market for digital signal processors will not be an "above normal" year, but should achieve 20 percent growth.

DSPs are specialized, programmable computer chips designed to perform speedy and complex operations on digitized waveforms, usually audio or video signals. A DSP-based modem uses a DSP for analog and digital modem communications. The DSP-based modem is programmable for easy upgrades.

In line with other analysts' 2003 predictions, the Tempe, Arizona-based group is forecasting an overall semiconductor market growth of 15 percent, even if the Iraq problem is resolved peaceably. Much of the data is attributed to a report released last week by San Jose, Calif.-based World Semiconductor Trade Statistics (WSTS).

"Wireless will continue to be the DSP market driver for 2003", Forward Concepts analyst Will Strauss said in his briefing to subscribers. "We believe that 2004 will be a recovery year for wireline (telecom) applications, with VoIP coming to the fore, and UMTS and EDGE cellphones will be shipping in volume then, kicking growth up to the 33 percent level that year, and dropping to a more sedate level thereafter."

The analyst group is currently predicting the worldwide programmable DSP chip market will reach $5.8 billion in 2003, up from its 2002 estimate of $4.9 billion. Forward Concepts says 2004 will see the DSP market rise to $7.7 billion. Given the firm's 23.8 percent compound annual growth rate, DSPs should nearly double; blossoming into a $14.9 billion industry by 2007.

Demand for these specialty chips is already on the rise. According Strauss, shipments in December ballooned to the highest monthly figure in two years. The net effect was that it raised overall DSP revenue growth to 14.1 percent for the year, to the $4.86 billion level.

"The scary thing is that January shipments, usually a slow month anyway, will probably drop quite a bit more than normal - that is, unless December shipments were a precursor to a sharp ramp-up in the biggest DSP market - cell phones," said Strauss.

The market has also shown a slight shift in the past six months. Forward Concepts says Texas Instruments continues to be the dominant company in DSP, increasing their market share by a few points. However, the most dramatic change is that Motorola displaced Agere for the No. 2 spot in 2002; a position that Agere and it's earlier incarnations (as AT&T Microelectronics and Lucent Microelectronics) held on to since 1992.

"That's not to diminish Motorola's accomplishment, since they grew DSP revenues by an impressive 33.6 percent over 2001. Much of that growth is attributable to the parent company's increase in cellphone market share and the fact that the parent company was using more of Motorola's own DSP chips, rather than purchasing large quantities from other DSP houses, as they have in the past," Strauss said.