Forward Concepts

2002: December Balloon

The World Semiconductor Trade Statistics (WSTS) released chip shipment numbers for all of 2002 last week and we present highlights of the programmable, general-purpose DSP trends in this bulletin.

First, our earlier forecast of 5% growth in DSP shipments was tracking well until December. But, shipments that month ballooned to the highest monthly figure in two years. The net effect was that it raised overall DSP revenue growth to 14.1% for the year, to the $4.86 billion level. The scary thing is that January shipments, usually a slow month anyway, will probably drop quite a bit more than normal…that is, unless December shipments were a precursor to a sharp ramp-up in the biggest DSP market: cellphones (or "Handys" for our colleagues in Germany). More about that below.

Vendor Ranking Changes

After many interviews with the major DSP chip vendors, Forward Concepts has estimated 2002 market shares as follows:

PROGRAMMABLE DSP CHIP MARKET SHARES

Company	2001 Mkt Share	2002 Mkt Share	Y-Y $ Change
Texas Instruments	*40.0.%	43.2%	23.2%
Motorola	12.0%	14.1%	33.6%
Agere	16.1%	13.9%	-1.5%
Analog Devices	8.2%	8.9%	23.7%
Other	23.7%	19.9%	-4.1%
Total	100.0%	100.0%	N/A
DSP Shipments ($Mil)	$4,256	$4,855	+14.1%

*revised

TI continues to be the dominant company in DSP, increasing their market share by a few points. However, the most dramatic change is that Motorola displaced Agere for the #2 spot in 2002; a position that Agere and it's earlier incarnations (as AT&T Microelectronics and Lucent Microelectronics) held on to since 1992. Unfortunately, when Agere was spun off from Lucent Technologies last year, the new company was saddled with a heavy debt load and a parent (for part of the year) that was thrashing about for a life raft.

That's not to diminish Motorola's accomplishment, since they grew DSP revenues by an impressive 33.6% over 2001. Much of that growth is attributable to the parent company's increase in cellphone market share and the fact that the parent company was using more of Motorola's own DSP chips, rather than purchasing large quantities from other DSP houses, as they have in the past.

Wireless Continues to Grow in Market Share

The continued increase in wireless dominance is illustrated in the following table. Wireline and Computer have exhibited the most dramatic negative shift. Computer is heavily hard disk drive control, a market that has suffered both from declining prices and declining PC sales. Automotive, principally entertainment and telematics (rather than power-train applications), has increased significantly, though from a small base. "Multipurpose" includes off-the-shelf distribution and relatively small quantities to specialty markets, like instrumentation, industrial, and military.

DSP MARKET SHARES BY APPLICATION

Application	2001 Share ($)	2002 Share ($)
Wireless	55.1%	65.8%
Multipurpose	12.8%	10.3%
Computer	11.6%	7.6%
Wireline	11.3%	7.1%
Consumer	6.7%	6.4%
Automotive	2.5%	2.8%
Total	100.0%	100.0%

Major Geography Shift

DSP chips for cellular handsets constitute the largest market and are the real market movers for this year and going forward. The biggest cellular market is now China, and the table below compares geographic shipments for 2001 and 2002.

DSP MARKET SHARES BY GEOGRAPHY

Location	2001 Share ($)	2002 share ($)
Asia Pacific	33.3%	41.9%
Europe	25.4%	25.9%
Americas	26.5%	21.8%
Japan	14.8%	10.4%
Total	100.0%	100.0%

The most dramatic change was that shipments to Japan dropped by 20% (in revenue). We suspect that much of this change was due to Japanese companies moving manufacturing to China. China, of course, dominates the Asia Pacific category, though Korea, Taiwan, and Singapore are well represented.

2003: Looking Good, but not Great

Other analysts have forecast overall 2003 semiconductor shipments to grow, variously, from 11% to 30%. Considering that average semiconductor growth has historically been in the 15% range, we do not see 2003 as being an “above normal” year. Consequently, we are forecasting an overall semiconductor market growth of 15%, even if the Iraq problem is resolved peaceably. For DSP, we are forecasting 20% growth for 2003, the same figure that we gave you in our October, 2002 bulletin.

PROGRAMMABLE DSP CHIP MARKET

(WORLDWIDE, $MILLIONS)

'02	'03	'04	'05	'06	'07	CAGR
$4,855	$5,826	$7,749	$9,918	$12,398	$14,877	23.8%

Source: Forward Concepts

Wireless will continue to be the DSP market driver for 2003. We believe that 2004 will be a recovery year for wireline (telecom) applications, with VoIP coming to the fore, and UMTS and EDGE cellphones will be shipping in volume then, kicking growth up to the 33% level that year, and dropping to a more sedate level thereafter.

As always, we welcome your comments.

Will Strauss

wis@fwdconcepts.com

Contact:

Forward Concepts, Tempe AZ, Will Strauss (480-968-3759), Email: info@fwdconcepts.com ].