Buyers can expect prices for digital signal processors (DSPs) to fall this year as the market grows only 4% in 2002 after falling 33% in 2001. DSP manufacturers say tags should fall 5-10% for the year.

While growth will return to the DSP industry, most of it will occur in the second half of 2002, according to Brian Matas, an analyst with market researcher IC Insights. "Things will start out sluggish in first quarter, but there will be a rebound as the year progresses," he says. For the year the DSP market is expected to grow from $4.1 billion in 2001 to $4.25 billion in 2002.

DSPs are microprocessors that process data in real time. They are used in a wide variety of equipment ranging from washing machines to personal video recorders. However, the wireless market, the single biggest user of DSPs is an important driver of growth and development because each cell phone has a DSP.

While cell phone growth slowed last year, it is expected to rebound in 2002, resulting in more DSP demand. Cell phone handset shipments should increase from 395 million units in 2001 to 425 million in 2002, according to Matas.

"The DSP is the heart of wireless connectivity," says Henry Wiechman, Texas Instruments' DSP product marketing manager for North America. TI is the largest DSP manufacturer with over 40% market share. "The mathematically intensive processing that is required in cellular connections requires DSPs. DSPs are in handsets and base stations," he says.

In a cell phone, the DSP performs modulation. "When you speak into the phone your speech is encoded in a digital format and the DSP helps with that process," says Wiechman. "The DSP then puts that encoding into a format that can go out through the RF (radio frequency) connection through the antenna over the air," he says. "At the base station, as the signal goes into the antenna, that digital stream may have to be remodulated or reformatted and put into the broadband network or infrastructure."

Digital signal processing allows two people to talk normally on cell phones without cutting each other off. In some phones, if two people speak simultaneously, the audio is cut off.

Cell phones are driving DSP innovation. Up and coming next-generation (2.5G and 3G) phones will require greater DSP performance because there will be more mathematical computations that need to be processed.

"With a 3G phone you'll have voice, data and wireless Web browsing that requires even more data to be compressed and encoded," says Wiechman. "With handsets, this has to be done while consuming less power because folks don't want to be recharging their phones every hour."

TI has two families of DSPs for wireless connectivity. The C-5000 family is used in cell phone handsets while the C-6000 is used in base stations.

While cell phones will continue to be an important end market for DSP, other end markets will increase their DSP usage as well. White goods, automotive, medical equipment, industrial controls and instrumentation will use more DSPs in the next several years. "Five to 10 years ago, DSPs were in communications and military systems. Now they are being used in much more," says Jerry McGuire, DSP product line director for Analog Devices.

"Throughout 2001, although revenue saw a decline, design activity was huge. We are seeing a great deal of design activity across all market segments," says McGuire.

Consumer electronics equipment is one product segment that is using more DSPs. DSPs are used to improve audio and video in equipment that allows users to record music and copy from one medium to another. DSPs are also used in personal video recorders, which can allow TV viewers to stop live TV and watch it later.

McGuire says OEMs are trying to innovate and improve their products by using high-performance DSPs.

Although DSPs are being used in more equipment, manufacturers are reluctant to forecast if 2002 will be a year of recovery. "Although excess inventories have been worked off, customers are cautious in their ordering so there aren't many people signing up to take on a lot of inventory just yet," says McGuire.