Feb. 18, 2000 (Electronic Buyers News - CMP via COMTEX) -- Silicon Valley- When Intel Corp. acquired wireless-chip maker DSP
Communications Inc. for $1.6 billion last fall, it entertained high hopes of becoming a major force in cell-phone chipsets.
But since the acquisition, DSPC has encountered some unexpected problems, leaving some industry observers to question how long it
will take for Intel's market position to strengthen.
"Intel has a lot of potential in the wireless market, but they won't be an overnight success," said John Barton, an analyst at Prudential
Securities Inc., New York.
DSPC, now part of Intel's recently formed Cellular Communications Division, is revamping its product lineup, sources said. But to date,
DSPC has yet to crack a top-tier account, they added.
Late last year, DSPC lost its sole customer for CDMA chipsets, Kyocera Corp., to Qualcomm Inc.
What's more, several high- level managers at DSPC-including its top executive-recently resigned to join a wireless-modem company,
Vyyo Inc., based in Cupertino, Calif.
But according to Intel executives and some analysts, the recent series of misfortunes represents only a minor setback for the Santa
Clara, Calif., company. Intel, they say, is quietly putting the pieces in place to compete in the cell-phone-chip market against the likes
of Motorola, Qualcomm, and Texas Instruments.
Perhaps the key piece in the puzzle is the long-awaited but still unannounced DSP that Intel is developing with Analog Devices Inc.,
Norwood, Mass. Designed for handsets and other products, Intel is expected to announce the DSP in the first half of this year, sources
said.
Given the potential of this chip-coupled with Intel's strong berth in flash memory for cell-phone applications-the company is well
positioned in the wireless-IC market, according to Edward Snyder, an analyst at Hambrecht & Quist LLC, San Francisco.
"I'm very bullish about Intel [in the wireless-IC market]," Snyder said. "Intel stands a good chance for success."
Snyder is among those analysts who characterize DSPC's loss of the Kyocera contract as a minor glitch. DSPC lost the account when
Qualcomm sold its handset business to Kyocera, which agreed to procure the majority of its CDMA chipsets from Qualcomm, leaving
DSPC and other competitors out in the cold, sources said.
But "Intel has much bigger aspirations than Kyocera," Snyder said. "Long term, they're looking to capture top-tier accounts like Nokia."
Intel officials agreed with this assessment. "You can't look at a single customer" to determine if you're successful or not, said Ronald
Smith, vice president and general manager of Intel's recently formed Wireless Communications and Computing Group.
Based in Folsom, Calif., the group consists of several product lines, including flash, the StrongARM RISC chip, and DSPC products.
"We still have a lot of opportunities in this market," Smith said. "In fact, we already have a lot of activity in this business."
Intel will not break out its cell-phone-chip sales. But in the flash market, the company is scrambling to meet huge demand, especially
from handset OEMs, Smith said. Recently, it announced a major deal to supply flash chips to Ericsson Inc.
To garner more sockets in handsets and related areas, Intel is beefing up its wireless-specific products. For example, at last week's
Intel Developer Forum in Palm Springs, Calif., it announced a deal with PacketVideo Corp., a San Diego-based developer of MPEG-4
software.
Under the terms of the agreement, Intel will integrate the PacketVideo software in its StrongARM RISC chip, enabling the processor to
support real-time video and audio in handsets and other handheld devices, according to Smith.
But perhaps the most important element in Intel's cell-phone-chip strategy is the DSP it is co-developing with Analog Devices, which
was announced last year.
The Intel/ADI DSP will be a fixed-point product for the high-volume hand- set market, according to Will Strauss, an analyst at Forward
Concepts Co., Tempe, Ariz.
"Intel will announce the DSP in the first half of 2000," Strauss said. "If it's a fixed-point DSP, then they're going after the biggest market
for these products-the handset."
Worldwide handset shipments are projected to grow from 240 million units in 1999 to 325 million this year, and to 600 million in 2004,
according to Strategies Unlimited Ltd., Mountain View, Calif.
Intel declined to comment on the specifics of the DSP. "You'll see [the chip] sometime in the year 2000," Smith said. "We plan to use
it in vertically oriented markets like wireless."
The DSP will complement products from DSPC, which sells chipsets based on three digital cellular standards: CDMA, PDC, and
TDMA. "DSPC's roadmap is still on track," Smith said.
However, Intel faces a problem: Nearly 75% of DSPC's chipset business revolves around PDC, a proprietary cell-phone standard in
Japan that is being gradually replaced there by a third-generation standard called Wideband-CDMA.
Last year, DSPC announced a 3G chipset based on a competing standard called cdma2000. But it's unclear whether Intel will continue
to sell the cdma2000 chip or push W-CDMA.
"We'll continue to focus on Japan [with PDC], but we need to expand into other areas," Smith said. "We're looking at 3G. There's a lot
of complex issues involving IP. So we're not ready to make any announcements."
But, overall, Intel remains upbeat about DSPC, despite some of the early problems. "The core engineers [from DSPC] are still here,"
Smith said. "Things are going as planned."
ebnonline.com
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By: Mark LaPedus
Copyright 2000 CMP Media Inc.
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