Making a big bet on a tiny chip
msnbc.com
Texas Instruments is staking its future on the
booming market for digital signal processors
By Renay San Miguel
CNBC
DALLAS, July 26 -As communication gets
faster and the world gets smaller, part
of the credit goes to a breed of tiny
chips. These digital signal processors,
or DSPs, are helping to fuel the
explosion of wireless phones, faxes,
pagers, modems - and devices not yet
even invented. With DSP sales heating
up, Texas Instruments, which has been
in the market since its sleepy
beginnings, is transforming itself -
betting its future on the these little
circuits.
FORTY YEARS AGO, an engineer at TI
first perfected what would come to be known
as the integrated circuit - and modern
electronics would never be the same. TI at
one time was the largest producer of
semiconductors in the world.
The company did a lot of growing,
branching off into other businesses. But now
its going back to its roots, selling off those
other business and restructuring itself to focus
again on making just one kind of chip - the
digital signal processor. And somewhere
within all that DSP circuitry lies TI's future.
DSP has been around for years: it was
originally developed by the military for
handling radar applications. But as these
chips continue to shrink and their speed
increases, they are working their way onto
broad categories of communications and
consumer electronics products. By combining
both the central processor and other related
integrated circuits on a single chip, DSPs are
expected to bring major leaps in performance
and create applications that to date have only
been dreamed of.
There are dozens - maybe hundreds -
of practical DSP applications. Since these
chips process information in real time, they
are at the heart of voice recognition systems,
enabling everything from mouseless surfing
of the Internet or hands-free word processing.
By using various techniques that improve the
accuracy and reliability of digital
communications, DSP technology makes
possible instant language translation or
voice-activated control of a variety of
devices. Or it can help your cellphone talk
back to you - giving you map directions,
stock quotes or flight departures.
Texas Instruments is betting that, with the
explosion in personal communications and
the increasing use of data-intensive audio and
video applications, sales of the tiny chip will
take off. Indeed, it seems to be insinuating
itself more and more into everyday life.
TWENTY USES BEFORE LUNCH
"We estimate the average person may
use a DSP twenty times before they have
lunch - driving their car, logging on their
PC, connecting to the Internet, making a
cellphone call or being paged or paging,"
said Texas Instruments CEO Tom Engibous.
"The number of applications is so broad
(most people) don't realize the impact. And
then there's some fantastic opportunities out
in the future that could have a major impact
on the quality of life, artificial sight or real
feeling in artificial limbs, things like that."
The tiny chips are also
having a big impact on the
semiconductor industry. While
shipments of integrated
circuits grew by just 4 percent
last year; DSP chip shipments
jumped 64 percent.
Worldwide sales of DSP chips now top $3
billion; one market survey has them hitting
$11 billion by next year.
Engibous has his company well
positioned to lead the DSP charge, since TI
now owns nearly half of the DSP market. TI
is also looking to insulate itself against recent
volatility in the computer chip industry.
"We have 15 years of history of DSP
business to look at," said Engibous, "and it is
a much more stable business (than other
chips.) Now the semiconductor industry is
much more cyclical than other industries. But
within this industry this is one of the most
stable, one of the highest margins, one of the
best value plays that we can have."
'(DSPs) could
have a major
impact on the
quality of life
- artificial
sight or real
feeling in
artificial limbs.'
- TOM ENGIBOUS
Texas Instruments CEO
That belief in the value of DSPs
prompted TI to jettison 13 side businesses
over the last two years, including the sale in
June of the company's money-losing DRAM
memory chip unit to Micron Technology and
a restructuring that cut 3,500 jobs.
PLENTY OF COMPETITORS
TI won't have the DSP field all to itself.
Last month, Motorola and Lucent
Technologies announced a joint venture to do
battle for market share. (Together they now
hold about 40 percent of the market. Analog
Devices, another large DSP player, holds
about 12 percent.) And IBM, one of the
world's biggest chip makers, says it will
spend $100 million to get into the DSP
market.
Source: Microsoft
Investor
"It's the fastest growing segment in our
industry and it's a highly lucrative one," said
Engibous, "and it will attract a lot of people
with high ambitions. We just have to
recognize that and continue to use the
strengths we have in each corner of that web
to widen the gap."
TOO BIG A GAMBLE?
But is TI gambling with its future by
putting all its chips into one pile? A.G.
Edwards analyst Chris Chaney says - sort
of, but it's a calculated roll of the dice.
"The one thing that's really key is the
DSP business is growing between 20 to 30
percent for the next year or so," said Chaney.
"When you contrast this to the semiconductor
market, which is probably going to shrink
about six percent this year, it's a pretty large
contrast. The fact that TI has the core
business in DSP's and 45 percent of the
market share, TI has the ability to remain
where they are right now and possible grow
in the next couple of years."
So far, the plan seems to be working. In
its recently completed second quarter, TI's
revenues for DSP chips grew by 25 percent
- more than any of its competitors.
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