Eli Ayalon, is chairman and chief executive officer of DSP Group Inc., a fabless semiconductor company that has proved itself able to grow profitably even while it has undergone a re-organization and while the rest of the industry has struggled with a downturn.
Silicon Strategies: DSP Group was known as the developer of DSP cores available for license but that activity now resides in ParthusCeva. So what is driving your business?
Ayalon: Cordless telephony at 900-MHz, 2.4-GHz and 5.8-GHz; this is our traditional area, based on our ability to make voice-signal DSP chips. We started with just the DSP chip but over the years we have integrated additional functions into the ICs; including ADCs, RISC, RF, baseband.
So for the OEMs instead of buying seven chips from many vendors they are buying one baseband and one RF chip, usually from us.
The increased significance of the IC content and the integration has let us grow at 30 percent CAGR [compound annual growth rate] for the last four years. We were $89 million in 2001, $125 million in 2002 and we are predicting sales of $148 million in 2003.
Silicon Strategies: Cordless phone business has obviously been good but surely it is getting ubiquitous and that means thinning margins?
Ayalon: We see the growth trend continuing through additional operating modes; the transmission of data through Bluetooth and the transmission of video using things like the DECT standard. We didn't sell a DECT solution until now having worked with analog and U.S. digital standards. We've taped out a DECT chip.
Since 1996 we've seen very stable gross margin of 40 percent. This year we improved gross margin to 40 to 45 percent. The reason is that although ASPs [average selling prices] are reducing on individual chips each new product launch jumps us higher to a new descending curve.
Silicon Strategies: Can you name some of your customers?
Ayalon: Panasonic, Uniden, Sony, and the GE brand, which is big in the U.S. but made by subcontractors in Hong Kong
Silicon Strategies: And is it by adding to cordless telephony that you are going to get involved with Bluetooth and voice over IP, which has not really taken off yet?
Ayalon: We're not going to make Bluetooth chips. Those are commodity chips and the margins are already too small. We shall integrate these technologies in places where they can give us a technical edge.
Voice-over-IP hasn't really happened but we are ready if and when it will take off.
Silicon Strategies: As a fabless chip company making mixed-signal devices do you work with one foundry to tune the process technology or many foundries to try and keep them keen on price?
Ayalon: We working with TSMC mainly. We have a very long lasting relationship with TSMC and they have never let us down; always been most professional. We work with them planning capacity and design.
Silicon Strategies: If the consumerization of DSP has been the story of DSP Group so far what is going to be the equivalent technology going forward?
Ayalon: There is one technology we are working on in-house -- it's the insurance policy of the DSP Group -- RF. RF is more art than science and requires a very high degree of expertise and only a few companies worldwide can master RF. We are shipping RF CMOS designs in volume. We've shipped 35 million [RF CMOS] chips -- one in every handset and one in every basestation.
Consumer products will transmit data wirelessly.
Silicon Strategies: And you say you are developing this capability in-house. Is that in Israel?
Ayalon: DSP Group was originally a digital company but in 1999 we acquired a 900-MHz RF group from AMD. We still have our main RF group in Santa Clara, California. We have an additional group in Israel.
Silicon Strategies: Do you need to get into wireless LAN technologies?
Ayalon: We're not going to be into wireless LAN hot spots or cards for PCs. These are commodity markets where the margins are already small. But we may need to integrate these technologies into more integrated domestic base-stations for cordless phones.
Silicon Strategies: You want to use your system knowledge and customer contacts?
Ayalon: Yes, the RF, the baseband, the modem design in silicon and voice algorithms. In the future the cordless basestation will include a lot of technologies connected via cable telephony or telephone line and including a variety of wireless technologies
Silicon Strategies: Is it going to become the home gateway product that a lot of ADSL chipset vendors used to speak about and when will it happen?
Ayalon:The OEMs are speaking to us about that. It's coming but its some way away. It's not a 2004 product. In 2004 you'll see mass production of cordless phone basestations integrating voice, data and video as a security hub.