Electronics buyers can expect prices for digital signal processors (DSP) in 2008 to fall by about 7%, but the market will still grow by 10% because of strong unit demand.

DSP tags fell by about 14% in 2007 because of oversupply, according to researcher IC Insights. DSP manufacturers moved to smaller process geometries in chip production resulting in more chips per wafer.

In 2008, DSP unit demand will grow by about 18% compared to 10% in 2007, according to Brian Matas, vice president of research at IC Insights in Scottsdale, Ariz. At the same time, DSP suppliers are not adding much capacity so there will be less price erosion in 2008.

As a result of strong demand and less price erosion, the global DSP market will grow 10% to $8.7 billion. In 2007, the DSP market declined 5% to $7.9 billion. Global DSP revenue will continue to grow through 2011 when the market will reach $11.4 billion, according to the researcher.

Matas says that DSP suppliers, like other chip suppliers, will have less of a focus on market share and more focus on profitability in 2008. That means they will be less likely to cut prices just to gain market share.

"Semiconductor suppliers and foundries have said they have had enough of this trying to low-ball each other to gain market share," Matas says. "They want to improve profitability."

That is why most chip suppliers will not spend a lot of money on capital equipment for 2008. With weak capital expenditures and strong unit demand, supply and demand will be more in balance in 2008 "and may even favor suppliers in 2009," says Matas.

However, while suppliers try to boost profitability, DSP prices will still fall although not as much as 2007.

"It is about competition," says Barry Stern, DSP marketing manager for Free-scale Semiconductor, headquartered in Austin, Texas. "If you don't have competition you can ask for any price. But we have competition," he says.

Stern says in general OEM buyers want DSP performance to be "doubled or the price should be cut 30–40% for the same performance" every two years.

He says one way Freescale is boosting performance is by using accelerators with DSPs. An accelerator is extra circuitry on a DSP that speeds up a certain function. It is often used in video applications.

But Freescale and other DSP suppliers are also boosting performance and reducing prices by doing die shrinks in chip production.

For instance, Texas Instruments currently uses 90nm process technology to make many of its DSPs, but is transitioning to 65nm technology and has plans to move to 45nm process technology. With each die shrink, more chips per wafer are produced and TI's costs decline, enabling the company to reduce prices. That is one reason why DSP tags will still fall in 2008, albeit not as much as 2007.

Besides reducing cost, die shrinks also enable greater integration which boosts both functionality and chip performance.

"When a product is in production, there are year-on-year price reductions," says Thomas Brooks, senior DSP platform marketing manager for Texas Instruments based in Dallas. At the same time, more functionality is integrated on a chip each year.

"So a buyer may have purchased a DSP from us in 2003 for $35 that had some nice features. Now for the same price the performance of the chip has doubled or tripled and it has more memory," he says. "The buyer may still pay $35, but the chip will do more."

Besides reducing price, die shrinks also reduce power consumption which is important not just to cell phones and other portable electronics equipment.

"Even in infrastructure applications, which plug into the wall, OEMs care about low system power," says Brooks. (see related story p. 28E9). "They want to be able to pack more functionality into the box so they want to get away with not having to use a fan or at least use a smaller one." Fans are often necessary with higher power consuming systems to avoid overheating.

He says that lower power consumption helps reduce the overall system cost and its size. Lower power consumption is important to all the equipment segments that are driving DSP growth including communications, consumer electronics and medical equipment.

One of the fastest growing segments for DSP demand is "anything related to video," says Brooks. "That includes video infrastructure, set-top boxes, portable media players and IP video phones," he says. Much of the video is related to security systems.

"There are cameras everywhere and we have a lot of DSPs going into the cameras and the infrastructure," says Brooks.

DSPs capture the image in the camera, and encode it for compression and transmission to the video infrastructure where it is stored or decoded. Video infrastructure uses multiple-channel, higher-end DSPs while cameras use single-channel lower-end parts.

For instance, last year TI introduced several DSPs for cameras ranging in costs from $10–$22 and two for camera infrastructure. Those DSPs cost about $40.