February 3, 1999 12:45 PM PST

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Intel and Analog Devices will unfurl details on a joint development agreement centered on digital signal processors later today that appears targeted at taking market share away from Texas Instruments.

Separately, details began to emerge on Intel's dealings with Mattel. Intel is working with Mattel to develop toys that work with personal computers to be sold for $50 to $100 under the Intel Play brand name, the Wall Street Journal reported today. Intel plans to unveil the first two products of the Intel Play line of toys Monday at the Toy Fair in New York.

Intel and Analog will hold a press conference at 1:30 p.m. PT to discuss details behind the joint development agreement between the two companies.

The agreement is expected to revolve around DSPs, said sources, which are used for managing digital signals inside of cell phones, set-top boxes, and other devices. DSPs essentially control how digitized signals containing analog information, such as digitized music, are processed and eventually presented.

Analog Chief Executive Jerals Fishman declined to comment on the deal with Intel today. However, he was bullish on the DSP market.

"Revenues of 6 to 8 billion dollars [industrywide] in DSPs per annum across the industry is possible in the early 2000s," he said. "DSPs are growing rapidly. Revenues are now at $3 billion."

DSPs are Analog's focus. Fishman expects DSP revenue to growh 25 to 30 percent a year at Analog, and the company is making making heavy investments in the technology.

"DSPs have very attractive margins," said Tom Thornhill, a semiconductor analyst at NationsBanc Montgomery Securities. The chips can cost up to $200 or $300 per chip, close to the price range of CPUs.

Intel does not have its own product for the DSP market.

Analog Devices jumped 4 3/4 to 32 7/8 in midday trading of 2.22 million shares. Earlier, it reached an eight-month high of 33. Intel, the No. 1 chipmaker, rose 1 13/16 to 136 7/16.

Although the details of the Intel-Analog alliance are not yet know, the entry of the microprocessor giant into this market could have an especially strong effect on Texas Instruments. Not only does the company lead the DSP market, it has largely structured its business strategy around the chips.

"TI must be livid," said Danny Lam, an analyst with Fisher-Holstein

"This is what TI has put all of its money into," said Fred Zieber, semiconductor analyst with Pathfinder Research.

A long and winding road
The Intel-Analog alliance is an endorsement of the market, but TI doesn't believe it will compete with TI initially, said Greg Delagi, manager of TI's DSP business.

"This is a very long lead-time business. It is going to take a long time for their dream to become a reality."

To succeed with DSPs, chipmakers need not only manufacturers who will buy it, but also significant support from the softwawre community. For example, software support for TI's 6000 DSP began in 1992, and the chip itself didn't arrive until 1996, Delagi said.

TI is growing faster than its competitors, he said, gaining 5 percent market share last year in a DSP market that's growing at 20 percent a year. TI gets 29 percent of its revenue from DSPs.

Bloomberg contributed to this report.

 

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