DSP/Wireless Market Analysis

DSP chip shipments rose to $8.3 billion for calendar year 2006, a 9% increase over the prior year (and 1% under our forecast of 10%). This is slightly above the 8.7% growth of all monolithic integrated circuits. DSP shipments would have been higher if Q4 had at least been flat. Unfortunately, DSP shipments for the quarter were down 6.8% to the $2.01 billion level, attributable mostly to a 6.5% drop in wireless. My interpretations of data from the latest Semiconductor Industry Association report are presented below. Consumer DSP shipments were up 10.3% while catalog and multipurpose DSP shipments were up 1.6%. The dramatic 60% quarterly drop in the relatively small computer segment is attributed to both inventory corrections and reclassification of disk drive controllers (to an ASIC category) in the PC market.

Lackluster wireless in Q4 DSP chips constitute the hart of digital wireless, mostly as digital baseband chips, but increasingly as application processor chips as well. Although cellphone DSP shipments were off 5% for the quarter, wireless infrastructure (mostly for cellular base stations) were down a more worrisome 24.7% (see Figure 1). Moreover, our outlook for wireless DSP shipments in the first quarter of 2007 is relatively flat, with infrastructure still showing the greatest weakness.

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Figure 3: DSP Quarterly Shipment Change Q4 2006/Q3 2006 and DSP Wireless Quarterly Shipment Change Q4 2006/Q3 2006

Consumer DSPs led the pack in 2006 So, what worked well in 2006? Consumer DSP shipments were up 59.2% over 2005 followed by catalog and multipurpose DSPs (mostly off-the-shelf DSPs). Although wireless revenues were up only 5.6%, it remained the overall DSP driver, with 72.5% of the $8.3 billion market. These figures are illustrated in Figure 2.

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Figure 3: DSP Annucal Shipment Change 2006/2005 and DSP Markets: 2006

TI gains market share for 5th consecutive year TI DSP revenues, heavily fueled by its dominance in cellular chip shipments, increased almost 17% in 2006, compared to the overall 9% increase in the DSP market. This brought their market share up from 58% in 2005 to just over the 62% level in 2006. Freescale was the only other major DSP house to gain in DSP revenues, but not enough to increase its market share. Agere, although remaining in third place, continues to ship substantial DSP silicon as ASIC hard disk controllers, which if factored in as "DSP chips" would up their 2006 shipments to just over a billion dollars, barely behind Freescale (See Figure 3). Analog Devices (ADI) saw considerable increases in consumer DSP shipments, but the company's heavy bet on the China 3G (TD-SCDMA) market has yet to pay off. When the Chinese government finally blesses 3G standards, ADI should see a nice bump in DSP revenues later this year.

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Figure 3

2007 DSP forecast: +10% I don't see 2007 as a high-growth year, even for the overall semiconductor industry. In fact, I see Q1 as flat for DSP, with growth picking up in Q2, fueled heavily by both the accelerating adoption of WCDMA in the high-end cellular market and the growing number of new subscribers in India, China, and the third world for the low-end market. As illustrated in Table 1, the DSP market is forecasted to increase by 10% in 2007 to the $9.16 billion level, and a 12% compound annual growth rate of 12% over the next five years.

DSP Chip Shipments, Worldwide (in millions)

'06

'07E

'08E

'09E

'10E

'11E

CAGR

$8,325

$9,158

$10,348

$11,590

$13,096

$14,668

12.0%

Source: Forward Concepts

Long term, silicon based on DSP technology, whether classified as a "DSP chip" or a chip with embedded DSP functionality, will fuel the growth of the semiconductor market. Currently, the biggest market for semiconductors is the personal computer market. But the killer application for PCs is the Internet, not computing per se. Ultimately, communication devices (both wired and wireless) and multimedia devices based on DSP technology will, I believe, supplant the PC as the largest overall semiconductor market.

Multicore Expo With multicore DSP chips becoming more commonplace, you might want to attend the Multicore Expo in Santa Clara, CA on March 27-29 to learn more about such products. I'll be speaking on "The Role of DSP in Multiprocessors" at the Expo. Details are at: www.multicore-expo.com

As always, I invite your comments.

Will Strauss wis@fwdconcepts.com