Competition among companies that supply digital signal processors to the wireless industry is beginning to heat up with new alliances and investments changing the competitive landscape.
IBM Corp.’s Microelectronics division last week announced it will pump $100 million into several new initiatives designed to expand its presence in the custom microchip business. Just one week earlier, Motorola Inc. and Lucent Technologies Inc. formed an alliance to develop next-generation DSP technology and cross-license existing DSP architectures.
“The IBM announcement is one of a number of very exciting events re-shaping the competitive landscape,” said Dale Ford, an analyst with DataQuest. “IBM targeted wireless as a key industry, and it has developed a focus on custom logic.”
IBM has been increasing its presence in the wireless arena. The company historically has focused on front-end components such as power amplifiers that make use of its silicon germanium technology, said Ford. IBM’s February acquisition of CommQuest Technologies Inc., a company that designs semiconductors for wireless communications applications, moved IBM into the baseband area of handsets. And with its latest investment, IBM plans to offer a new chip core that will provide full compatibility with Texas Instruments’ digital SIGNAL processor, which is used in millions of wireless phones and other communications devices.
IBM’s investment in CommQuest, which is focused on a more complete system approach to chipsets, allows it to target second- and third-tier manufacturers, said Ford. The $100 million investment is a second thrust that will allow IBM to target tier-one companies, primarily TI customers like Nokia Corp. and L.M. Ericsson, he said.
Whether IBM is breaching any patents held by TI is unclear.
“I would be surprised if we don’t see legal action coming out of this,” said Ford.
Although IBM said it is not setting out to take customers away from TI, its aim is to provide a second source for vendors to choose from for critical chip parts.
“Customers like Nokia and Ericsson could use it to get price concessions from TI,” said Will Strauss, president of Forward Concepts, a Tempe, Ariz.-based market research firm.
William O’Leary a spokesman for IBM, said, “The wireless opportunity is big. Our thrust, or differentiation, is that we don’t just offer a stand-alone DSP, but we offer a core that can be blended onto a custom chip.”
“TI is not an ASIC company,” said Allen Leibovitch, senior analyst, semiconductor research, at International Data Corp. “It doesn’t make custom products.”
Leibovitch said the IBM announcement actually could benefit TI as it would serve to proliferate TI’s DSP architecture.
IBM competes in a slightly different space than TI and other DSP manufacturers with its focus on Application Specific Integrated Circuits that integrate DSPs and other functions.
Wireless phones contain three main chip components, said Richard Sfeir, director of marketing at CommQuest, which offers to original equipment manufacturers a total systems solution that contains all three pieces.
When a signal comes into a wireless handset, radio integrated circuits digitize the signal from high frequencies used to transmit the signal to zero or near-zero frequency.
The signal then is processed in the baseband, which includes a microprocessor and a DSP. The microprocessor performs mundane functions such as timing, user-interface and debugging, while the DSP performs sophisticated calculations on the digitized signals that in wireless handsets allow for voice communication.
The radio ICs and the baseband functions rely on software stored in memory either separately or within the baseband chipset.
It is the market for DSPs that is heating up. TI is thought to lead the market for stand-alone DSPs with its products currently installed in about half of all handsets. Lucent holds the second-place spot with about 28 percent market share, followed by Motorola and Analog Devices each with about 12 percent market share, according to Will Strauss, president of Forward Concepts, a Tempe, Ariz.-based market research firm.
The new Motorola/Lucent alliance creates a formidable competitor for TI. Separately, Lucent was thought to be strong in DSP but lagging in microcontroller capabilities, while Motorola was strong in microprocessors but needed DSP functionality, according to industry analysts.
The worldwide market for DSP chips last year outperformed other chip segments by growing about 33.6 percent to $3.2 billion, according to Forward Concept’s DSP Market Update published in April. The integrated circuit market suffered from the decline in memory, which was brought on by industry overcapacity.
Memory chip makers, including Hyundai Group and Samsung Electronics Co., reportedly have announced plans to scale back or halt production of memory chips, and TI is rumored to be engaged in talks to sell its memory chip manufacturing operations to Micron Technology Inc.
DSPs also experienced downward pressure on prices, brought on primarily by “severe competition in markets for the technology’s three biggest markets: digital wireless, modems and hard disk drives,” said the report.
Forward Concepts forecasts about 30 percent growth for the DSP market this year and about 36 percent growth over the next five years, reflecting expected improving financial health in Asian markets.
But DataQuest’s Ford said while Wall Street has latched on to the idea of the DSP market, it is important to remember that DSPs are one piece out of many components.
