Last year at this time, we lowered our forecast of programmable DSP chip market growth to 5 percent from our earlier 15 percent prediction. The market continued to track our revised figure until December, when an upsurge in DSP shipments brought the actual market growth up to 14.1 percent for the full year. Maybe we'll see the same effect this year, because Forward Concepts is lowering its earlier 2003 prediction of 20 percent DSP growth to 15 percent. The reasons are several.
We saw continued growth in the first quarter-an unusual situation, since DSP, like most other semiconductor markets, generally exhibits a drop in first-quarter shipments stemming from the "Christmas effect" that becomes evident late in the third quarter and early in the fourth. Vendors tend to ship everything but the kitchen sink in the fourth quarter to improve their annual revenue figures.
But this year, the usual first-quarter slump didn't hit until early in the second quarter, with DSP shipments dropping almost 10 percent sequentially in April.
Asia-Pacific is now the largest market for semiconductors, and China is the largest market for wireless. Since wireless is the largest market for DSP chips (almost 65 percent of shipments last year), market dynamics may be changing. For one thing, Christmas, Hanukkah and Ramadan, seasons of celebration and gift giving in the West, all fall in the fourth quarter of any year. But those are not big celebrations in the Far East, and particularly not in most of China. The Lunar New Year, which occurs in the first quarter, is the gift-giving season all over Asia. And cell phones are gifts, too. As the "sleeping giant" awakens, we may now be seeing a shift in seasonal shipment patterns in more than just chips.
Whether or not there is an overall pattern change, we can attribute part of the second-quarter shipment drop to both SARS and inventory glut. Both have had a negative effect on wireless and DSP revenues. We estimate that severe acute respiratory syndrome caused about a two-month slowing of cell phone sales in China this year, exacerbating inventory problems that were already becoming evident before the outbreak hit. In the West, the stall of third-generation (3G) cellular rollouts in Europe has slowed infrastructure DSP growth.
Our forecast for wireless DSP chip growth in 2003 is 18 percent, to the $3.8 billion shipment level, further increasing this sector's share of the DSP market to an unprecedented 68 percent. Texas Instruments dominates the segment, followed by Motorola, Agere and Analog Devices. (Qualcomm, which actually ranks No. 2 in wireless chip set shipments, after TI, does not report its shipments in the programmable DSP category, and we classify its baseband chips as ASIC DSPs.)
What about the other 35 percent of the DSP market? Consumer markets, which consist mostly of entertainment products, are predicted to moderate after a 190 percent jump in 2002. But this market will still see a healthy growth rate of 17 percent this year for programmable DSPs, rising to the $365 million level.
Note, however, that DSP technology in the bulk of the consumer market is largely implemented in the form of ASICs or application-specific standard products, and is no longer reported as "DSP chips" by vendors like Cirrus Logic, STMicroelectronics, ESS and LSI Logic. And disk drive controllers, which dominate the computer and peripherals DSP market segment, are becoming systems-on-chip (SoCs) too. Here too, the biggest players, Agere and STMicroelectronics, don't report them as "DSP chips" anymore. We predict that the computer segment will be responsible for some $350 million in programmable DSP shipments, down 5 percent from 2002 levels. The shifting to SoCs in disk drive controllers will continue to diminish the computer and peripherals share of the programmable DSP market over the next few years.
There are some indications that the telecom "nuclear winter" is beginning to thaw, if just a little. We predict that this will lead to a modest pickup in wireline DSP shipments this year, after a truly drastic decline in 2001 with only modest recovery since. Wireless-LAN hotspots are leading to a surge in (DSP-based) DSL deployments, while Internet Protocol phones for IP PBX shipments still approach 100 percent growth and some telcos, like Sprint, have finally committed to building out their IP-based packet phone systems. We predict wireline DSP growth of 8 percent, to $372 million, with mid-2004 signaling a more significant upturn.
The dashboard, not the power train, largely dominates the automotive market for DSP. Most shipments are going into AM/FM stereos, digital audio broadcast, navigation and telematics units rather than engine control and braking systems. So, until DSPs begin significant penetration into chassis and power train applications, we view this segment as simply an extension of the consumer market.
The so-called multipurpose market consists primarily of DSPs sold through distributors. Constituting some 10 percent of the market, this segment is dominated by TI and Analog Devices, with Motorola finally pushing DSP sales in this category to augment its much larger MCU sales.
How about 2004 and beyond? We've muted our earlier optimistic 2004 forecast of 33 percent to the 30 percent level, because of the slower-than-expected uptake on 3G cellular. However, we still predict the programmable DSP market to continue outpacing the overall semiconductor market, with a compound annual growth rate of 23.5 percent to $14 billion in 2007. More importantly, DSP, as a technology, continues to be the driver for the overall semiconductor market, because without DSP there would be no access to the Internet, no multimedia, no IP telephony and no digital wireless-applications on which we have all grown to depend.
Will Strauss is president of market research firm Forward Concepts (www.fwdconcepts.com; Tempe, Ariz.).