Clearly, the telecom market is still in the dumpster, with virtually zero chance of recovery this year. With telecom titans falling all around us, there is a much smaller population of healthy operators to buy equipment. And that has had a dramatic effect on the digital signal processing market. Shipments of programmable DSP chips to the wireline market dropped an amazing 62 percent in the first five months of 2002, on the heels of a pretty miserable 2001.

Moreover, average selling prices (ASPs) have dropped some 20 percent compared with the same period last year. Consequently, DSP shipments for wireline applications now constitute only 6.4 percent of the DSP dollar market, compared with 11.3 percent for all of 2001. Although there are pockets of telecom growth, like packet-based Internet Protocol PBXes, the big-iron market will have to wait until at least mid-2003 for a sustained recovery.

On the other hand, DSP shipments to the wireless market are up a healthier, albeit still lackluster, 15 percent-moving its share of the DSP market to a record 60 percent. But we project only a 4 percent growth in cell phone unit shipments, to the 405 million level, this year. Wireless-infrastructure growth has stalled, with 2.5-generation and "3G-lite" slowing down and UMTS third generation being pushed out by nine to 12 months. Accordingly, Forward Concepts expects DSP revenue into the wireless-infrastructure market to decline by some 5 percent in 2002.

Meanwhile, the average selling price of DSPs into the wireless market is actually increasing; up some 13 percent for the first five months of 2001. Unfortunately, that increase is the key to most of the revenue growth thus far this year. The ASP increase can be attributed to the increasing DSP- (and RISC)-processing capabilities required for 2.5G (over 2G), in terms of clock speed, additional on-chip multiplier-accumulators, added accelerator cores and additional on-chip memory. With even more processing capabilities and resources required for 3G "heavy," we see ASPs for this segment continuing to rise for at least the next few years before leveling off.

Automotive applications for DSP, mostly for entertainment and telematics equipment, continue to grow at a healthy pace. Shipments of DSP chips to the automotive market are up a whopping 66 percent over last year, when that segment increased its market share by a full percentage point. And it's done it again. The automotive market now constitutes 3.5 percent of the market thus far in the year, up from 2.5 percent for all of 2001.

We see automotive entertainment applications as actually part of the overall consumer market, but the World Semiconductor Trade Statistics organization now categorizes the automotive segment as separate and unique. The mainline consumer market is up a modest 3 percent and constitutes some 7.7 percent of DSP shipments. The consumer electronics market is mostly served by embedded DSP technology, usually reported (to WSTS) as ASICs or microperipherals, rather than as programmable DSPs.

The computer and peripherals market consists mostly of DSPs employed as controllers for hard-disk drives. DSP shipments to that segment are down some 18 percent, thus far. Some of the drop can be attributed to the slow PC market, while the ASP has dropped by some 7 percent compared with the first five months of 2001. Although it is one of the few DSP markets that number over 100 million units annually, the fun has gone out of the market: ASPs are now in the $3.44 range vs. $6.41 for the programmable DSP market as a whole. Cirrus Logic, a pioneer in digital read-channel technology and an early force in the hard-drive controller market, has killed the product line in favor of the more dependable consumer market.

The last segment consists of mostly DSPs sold through distribution to the industrial, instrumentation and military markets-and for many unclassified sockets. The multipurpose segment is down some 26 percent from the same period last year and now constitutes some 11.4 percent of the DSP market. The segment probably best reflects the state of the overall world economy, since it represents tens of millions of chips sold in relatively small quantities to perhaps thousands of vendors.

Dramatic changes have taken place in the geographic makeup of DSP shipments. China and Korea are now the biggest market for DSP chips, while shipments to Japan have fallen 54 percent in the first half, moving the country from a 15 percent market share in 2001 to just over 9 percent. The Asia-Pacific DSP market, on the other hand, has risen from 33 percent in 2001 to an unprecedented 42 percent for the first five months of 2002. The U.S. market share is now down slightly to 21 percent, and Europe (thanks to GSM and 2.5G) has increased to almost 28 percent of the DSP market.

Forward Concepts has lowered its earlier 15 percent DSP market growth forecast for 2002 to 5 percent. Pretty sad, but that's still better than the 31 percent downturn of last year. Because we don't see an early turnaround in wireline, we're muting our earlier 2003 forecast for the segment to 20 percent, from 33 percent initially.

We expect a healthy pickup in 2004 and beyond as wireline recovers, with packet-voice applications becoming significant, and as wireless resumes its march to total pervasiveness. In spite of this near-term market setback, DSP remains the technology driver for the recovering semiconductor industry, since without DSP there is no access to the Internet, no multimedia and no wireless communications.

Will Strauss is President of Forward Concepts (Tempe, Ariz.).