Picture this: A new breed of cameras

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introduce artifacts that further degrade accuracy and quality. Likewise, digital converters and image processors that can't handle large amounts of data introduce noise and granularity into photos.

Blue overtones, red fringing, washed-out detail, jagged edges in smooth surfaces, shadows--all these are common problems caused by hiccups in the processing chain of digital photos or video.

Pixim's technology aims
to avoid overexposure

Pixim's Digital Pixel System, which grew out of research by Stanford University professor Abbas El Gamal, attempts to improve the picture by combining the image sensor with a massive array of analog-to-digital converters. With this somewhat-novel architecture, signal degradation and lighting problems are reduced because pixels are independently monitored and controlled.

"There is an A-to-D converter under each pixel," Hirsch said. "The dark ones get longer exposure, and the light ones get less."

This technology invariably requires larger cameras, so Pixim isn't trying to fit its sizable chip into smaller products such as cell phones. Instead, it sells its chips to companies like General Electric and EverFocus Electronics that are offering security cameras for $300 to $1,500.

Focusing on the process
Other companies, such as NuCore and Texas Instruments, are concentrating mostly on the image processor itself. From an economic perspective, buying chips has definite advantages over manufacturing them. Five years ago, a "mask"--which is a sort of circuit blueprint--might cost $100,000 to make, and an entire chip might cost $10 million to develop. Now a mask alone can cost more than $1 million, and the cost of the whole chip could exceed $30 million. The rising costs come because camera makers are putting more, faster transistors into a smaller space, a la Moore's Law.

Products also have a shorter shelf life, so new chips must be cranked out every 12 months to 18 months. To top it off, cameras are expected to come with ever-broader sets of features, including wireless connectivity, the capability to connect to different memory cards, audio recording and "preview engines," which provide a view of what a picture might look like before it's taken.

To this end, Texas Instruments has created a line of chips that include such features in transistor blocks but enables manufacturers to tailor them to specific product lines.

"We create the image pipeline," Ferrell said. "What they do with it is up to them."

NuCore, which sells an analog-to-digital converter as well, is trying to distinguish itself by adding high-visibility features. The company's current CleanCapture chips, for instance, include the company's InfiniteBurst technology, which lets cameras take up to 3.5 pictures a second.

"It will keep taking pictures until the memory card is filled up," Baum said. "And there is an autofocus between each shot."

In another feature that takes a significant step toward true hybrid lines, Panasonic's JVC brand recently came out with a video camera that can automatically take a 2-megapixel photo in the middle of a video stream. The camera effectively drops about nine frames of video as it takes the still shot. (JVC sells a NuCore chip under its Megabrid brand.) Similar models from others are coming.

Later in the year, NuCore will debut software that lets a camera run a slide show with special effects and a soundtrack directly onto a TV set. High-definition capture at 30 frames per second is on the drawing board for the company's fourth-generation product, which is nearing the end of its design phase.

So far, progress is proceeding in a bottom-up fashion. NuCore has landed deals with Contax, Kyocera and JVC, among others, and has shipped a million chips since production began in 2001. Texas Instruments maintains comfortable relationships with Kodak and HP, the top two U.S. manufacturers, and sells its chips for use in cameras from Olympus and Samsung.

The watershed moment will occur when Canon, Sony or Sanyo, which make a number of cameras for other brand manufacturers, begin to use third-party chips en masse. That might be a tough sell for Canon, said Shyam Nagrani of iSuppli, because much of its marketing is based on its Digic image processor. But sources say Canon has already begun to sell at least one high-end camera with a third-party image processor.

The use of third-party chips and other parts may become increasingly necessary as competition intensifies. Although unit shipments of digital cameras will rise to 74 million this year--a 19 percent increase--average selling prices of cameras will drop from $240 to $205, leaving worldwide revenue from still digital cameras roughly flat at an estimated $15 billion.

Prices for video cameras are dropping as well, but it's still a hometown crowd.

"In camcorders, Sony is No. 1, and Panasonic is No. 2. And guess what, they both make their own imagers," said Pixim's Hirsch.