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TI losing ground in DSP market

After years of gaining share in the market for digital signal processors, Texas Instruments saw its portion shrink in 2000.

    After years of gaining share in the market for digital signal processors, Texas Instruments saw its portion shrink in 2000.

    TI's share of the market for programmable digital signal processors (DSPs), one of the key ingredients in cell phones, dropped to 44 percent last year from 48 percent in 1999, according to a new report from market researcher Forward Concepts. DSPs refine digital signals that represent real-world phenomena such as sound and light, so they can be more efficiently processed by cell phones, digital cameras and digital audio players.

    Forward Concepts analyst Will Strauss attributed the market leader's decline to its dependence on the cell phone market. "When that market dips, you dip too," Strauss said.

    TI's share loss came as rivals Motorola and Analog Devices each gained about 2 percentage points of market share to rise to 13 percent and 10 percent, respectively.

    Lucent Technology's microelectronics unit, the No. 2 maker of programmable DSPs, lost about 2 points of share to fall to 23 percent. Meanwhile, the rest of the pack combined picked up about 3 points of share on the big four makers, Forward Concepts said in its report.

    TI's reliance on the cell phone chip market was one factor in its market share decline. The market for cell phone chips grew 30 percent last year, whereas the overall DSP market grew 40 percent. TI was also hurt by a decline in its share of the market for the chips that power hard-disk drives.

    "We're obviously taking it seriously," TI Vice President Greg Delagi said of the decline. "But we believe we've got the right recipe to gain share over the long term in this market."

    However, Dallas-based TI also may have garnered less of the cell phone market than it had in the past. Forward Concepts reported that TI chips powered 55 percent of all cell phones sold last year, while TI has been touting that its DSPs are in 60 percent of cell phones.

    Delagi said TI's internal numbers show that the company's share of the cell phone market held steady in 2000. The company is not making a projection for 2001, but Delagi said the company expects to be able to maintain its leading position as the wireless industry transitions to the next generation of cell phones and infrastructure.

    For the short term, though, the whole DSP business is poised for a slowdown, according to Forward Concepts. The Tempe, Ariz.-based research company is projecting just 10 percent growth above last year's $6.14 billion in sales. That's quite a slowdown for an industry that saw 40 percent growth in 2000.

    TI executives have said the company witnessed a rapid change in business conditions during the fourth quarter, with a once-strong market deteriorating to one marked by order cancellations and delays.

    The company's stock has also taken a beating recently. Shares now trading around $35, down from the mid-$90s a year ago.

    Last week, TI said it had instituted a hiring freeze and would temporarily close some manufacturing plants amid a slowdown in its chip business.

    "We intend to take control instead of being a victim in terms of the current economic situation," Chief Operating Officer Rich Templeton said at a meeting last week with financial analysts.

    Beyond 2001, Strauss predicts a return to robust growth. Programmable DSP sales are forecast to grow 35 percent in 2002 and at roughly a 33 percent annual rate from 2003 through 2005.

    And while Delagi said he is "not proud" of the latest overall market share numbers, he said the company is well positioned to maintain or expand its share of the market in the coming years.

    "I feel better about our position at the end of 2000 than I did at the beginning of 2000," Delagi said. That's partly because TI has been pushing a number of new uses for its DSPs.

    Some of those new markets experienced huge growth in 2000, such as digital subscriber line modems and equipment, where TI saw a ninefold gain in sales. TI also saw a 400 percent increase in sales of chips for digital cameras and a tripling of sales of chips for digital audio players.

    Despite their fast growth, however, those markets still represent only a small fraction of overall DSP sales.

    Digital audio players, for example, sold around 4 million units last year, compared with hundreds of millions of cell phones. However, Strauss noted that other portable devices are adding the ability to play music downloaded from the Internet.

    "A lot of the MP3 market is moving into devices that already have a DSP like a cell phone or digital camera," Strauss said. "It's certainly adding to the utility of DSP chips that are there."

    Strauss also noted that although handheld computers traditionally use other types of processors, nearly all add-on modules use DSPs. Such add-ons include MP3 players and global positioning system receivers.

    "DSP is becoming more and more pervasive in everything we do," Strauss said.