ADI and Aware in the news from today's IBD:
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Chipmakers east of the Mississippi are hard-pressed to make a name for themselves in
a market dominated by Silicon Valley.
But Analog Devices Inc.'s push into digital signal processors is helping the Norwood,
Mass.-based company stand out.
Analog Devices' sales in DSPs climbed 47.8% to about $365 million in '97, up from
$247 million in '96, says market researcher Forward Concepts Inc. in Tempe, Ariz.
''They've come up the (DSP) curve quickly,'' said Kevin Spoor, financial analyst at
Smith Barney in New York. ''They saw a lot of the DSP specialization coming.''
But Jerald Fishman, Analog's president and chief executive, knows he faces a tough
rival in the DSP market. Dallas-based Texas Instruments Inc. ships the lion's share of
these specialty chips worldwide and holds a commanding lead.
''DSPs are a fragmented market,'' Fishman said. ''There are many applications. (We)
can't and won't compete with TI across the board.''
DSPs are chips that process audio, video and complex math equations more efficiently
than general-purpose microprocessors. They are becoming more popular as
digital-processing use spreads.
Forward Concepts says overall DSP sales grew 29.2% worldwide in '97 to $3.1
billion, up from $2.4 billion in '96. In '98, it expects sales to grow another 30%
worldwide to $4 billion. Forward Concepts has lowered its '98 forecast from 40%
growth because of Asia's economic woes.
TI holds about 45% of the DSP market. Lucent Technologies Corp. of Murray Hill,
N.J., ranks second in DSP market share with 28%. Analog Devices is tied for third
with Motorola Inc. of Schaumburg, Ill. at 12%.
But Analog Devices is prospering by picking its spots carefully, says Will Strauss,
president of Forward Concepts. Its 47.8% growth rate in DSP sales far outgrew those
three rivals. TI was second with a 28.6% growth rate.
Most of Analog Devices' DSP chips are built into computer modems, cellular phones
and consumer electronics products.
U.S. Robotics, a subsidiary of Santa Clara, Calif.-based 3Com Corp., plans to build
Analog Devices' DSP chips into computer modems. Analog Devices expects modem
shipments to kick in the second half of '98.
The modems will transmit data at 56 kilobits per second. That's the top speed for
analog modems being built today.
''The design win with 3Com Corp. was a real coup for them,'' Strauss said. ''But they
won't drive TI off the street.''
Analog Devices has snared other networking vendors as customers, too. They include
Ascend Communications Inc. of Alameda, Calif., and Newbridge Networks Corp. of
Kanata, Ontario, analysts say.
Analog Devices began developing DSPs in '86. The specialty chips now comprise
20% of the company's sales. The company's bread and butter remains its analog chips
- hence the company name.
But its new strength in digital DSPs has helped communications become Analog
Device's fastest-growing business. Chips sold to communications vendors equaled
25% of total company sales in '96, up from 5% in '90.
Still, for the fiscal year ended Nov. 1, Analog Devices' sales only rose 4% to $1.24
billion, from $1.19 billion a year earlier. Earnings per share rose just a penny to $1.04.
TI isn't making it easy for Analog Devices to make inroads in the DSP market. Earlier
this year, TI created a $100 million venture capital fund to support its growing DSP
business.
Both Analog Devices and TI are taking aim at a new breed of computer modem chips
for faster Internet access. Called digital subscriber line, or DSL, this technology
transmits data about 20 times faster than today's 56K modems.
TI is spending about $395 million to buy San Jose, Calif.- based Amati
Communications Corp., which holds key DSL patents. Analog says the price tag may
be too high, since Amati had only $13.2 million in sales for its '97 fiscal year ended
Aug. 2.
''I have a hard time understanding what makes that deal worth almost $400 million,''
said Fishman.
Analog Devices has fired back with its own acquisition. In December, it agreed to buy
Toronto-based MediaLight Inc. Terms of the deal weren't disclosed. MediaLight sells
DSL interface software for personal computers.
Analog Devices also has lined up key customers for its DSL chips. Networking
company Aware Inc. of Bedford, Mass., is using its chips in networking gear.
''In (DSL), TI is still way behind where we are,'' said Fishman.
Fishman, however, says he doesn't underestimate TI's manufacturing strengths. It owns
leading- edge factories in the U.S., Italy, Japan and Asia.
To stay competitive, Analog Devices has invested $140.4 million in a joint venture with
Taiwan Semiconductor Manufacturing Co.
Taiwan Semiconductor is building a new chip plant in Camas, Wash. Analog Devices
owns 18% of the joint venture, called WaferTech.
Chipmakers Altera Corp. of San Jose, Calif., and Integrated Silicon Solutions Inc. in
Sunnyvale, Calif., also are partners in the factory. The facility is expected to start
making advanced chips in late '98.
''This comes at a perfect time,'' said Spoor. ''They (Analog Devices) need more
capacity for DSPs.'' |
