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SEPTEMBER 8, 2006 BULLETIN

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DSP Bounces Back in 2006 After Temporarily Losing Momentum

Strong cell phone shipments to fuel 15% sales growth after last year’s setback

The digital signal processor (DSP) business will regain some of its lost luster in 2006 by growing at nearly twice the rate as the entire IC market this year thanks to strong demand fo cellular phones, new investments in broadband communications networks, and the spread of digital video applications in consumer products. After dropping 2% in 2005, DSP IC sales are now expected to increase 15% to $8.8 billion in 2006 and are forecast to grow at an average annual rate of 11% in the last half of this decade, according to IC Insights’ mid-year forecast.

Since the early 1990s, digital signal processors have been one of the bright spots in the semiconductor industry, consistently outperforming total IC sales growth until recent years (Figure 1). In 2005, the DSP IC market fell significantly short of worldwide IC market growth mostly due to a buildup of cell-phone inventories in China and signs of saturation in some well-established markets for cellular networks. DSP unit shipments also dropped 2% in 2005.

IC Insights believes the DSP market segment has fully regained its momentum and unit-volume shipments are forecast to climb 21% in 2006. Looking ahead, IC Insights expects DSP revenues to grow at an average rate of 11% per year through 2010, compared to just 4% between 2000 and 2005. In contrast, total IC sales are forecast to average 9% annual growth through the end of the decade, compared to an average of 2% per year between 2000-2005. It is worth noting, however, that in the second half of the 1990s, DSP sales were surging at a CAGR of 29% per year, compared to 7% for ICs.

The cell phone market has been the "killer application" that has fueled DSP sales for about 10 years. However, the DSP segment has become more vulnerable to the laws of supply and demand just like most other IC product categories. About 65% of DSP revenues in 2006 will come from cellular phones and wireless network infrastructure, IC Insights estimates. Low-cost wireless phones in developing countries and new upgrades for more powerful cellular handsets in developed markets are critical factors for DSP growth rates in the next five years. Most major DSP suppliers are also banking on real-time digital video processing as the next major growth engine for digital signal processing in wireless devices, high-definition cameras, digital storage for downloaded movies, and video transmissions over the Internet.

Figure 1

Details about IC Insights’ updated forecast and what’s expected for 2007 and beyond will be presented at the market research firm’s annual Fall IC Industry Forum on Thursday, September 21, at the Radisson Inn Sunnyvale in California. To attend the event, IC Insights clients pay just $195; others, $295. visit http://www.icinsights.com/events/fallforum/fallforum.html.

About IC Insights

IC Insights, Inc., based in Scottsdale, Arizona, is dedicated to providing high-quality, cost-effective market research for the semiconductor industry. Founded in 1997, IC Insights offers coverage of global economic trends, semiconductor market forecasts, capital spending and fab capacity trends, product market details, and technology trends, as well as complete IC company profiles and evaluations of end-use applications driving demand for ICs.

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