Texas Instruments Strikes Up the Brand for Its Audio Chips

SAN FRANCISCO -- It's not enough that Texas Instruments (TXN) - Get Report has profits pouring in and can boast a stock chart that makes Intel (INTC) - Get Report salivate. Now Dallas' chip cowboys want to brand digital music players so consumers will demand TI inside.

"Right now we are just starting a branding campaign," says Gary Johnson, TI's worldwide manager of audio digital signal processors. "We are targeting a TI DSP logo to show that the player is programmable, that you could go to a Web site and upgrade the portable player."

Today TI chips are in about two out of every three cell phones, but few cell phone users would ever know or care. Now TI hopes branding will tie its name to downloadable music players much in the way Intel's name has become associated with consumer PCs. Johnson emphasized it's too early for the company to discuss details about the branding campaign, saying that its effectiveness will require cooperation from the companies that make the players.

Only two companies have announced plans to sell downloadable music players with TI chips in time for

Christmas

:

Thomson Consumer Electronics

and

e.Digital

.

But if anyone knows the rewards of getting into a game early, it is Texas Instruments, which turned a one-time money-losing obsession with digital signal processors into a

domination of the very-profitable market for cell phone chips. These days TI is looking at a market that's expected to grow from 2 million units this year to 24 million units by 2003.

But while TI was alone for years in its belief that the DSP market would pay off, in this new market it already faces competition from chip companies

Cirrus Logic

(CRUS) - Get Report

,

Zoran

(ZRAN)

and

STMicroelectronics

(STM) - Get Report

. And all these companies are racing to catch up with

Micronas Intermetall

, a privately held European company which supplies chips for

Diamond Multimedia's

(DIMD)

popular Rio player.

More companies are expected to jump in once the market develops, a development that leaves some analysts leery. "It will be a very big market, but it will be commoditized," says Brian Alger, a chip analyst with investment bank

Preferred Capital Markets

. "By the time it is a big market there will be a lot of players." He expects to see

Motorola

(MOT)

jumping in, possibly

Yamaha

and

Sony

(SNE) - Get Report

. (Preferred has no underwriting relationship with TI).

Because of pressure to make the players as inexpensive as possible, manufacturers might bypass companies like TI and Cirrus Logic altogether for companies like

Advanced Micro Devices

(AMD) - Get Report

, Intel,

NEC

(NIPNY)

and

Infineon

, all of which make microcontrollers -- much cheaper chips with more limited functions.

In that case, though, the market will likely split into two sectors, says Will Strauss, an analyst with

Forward Concepts

, a research group specializing in DSP technology. On the bottom will be higher-volume cheap players that people can download music to and replay from. On the top will be a smaller but higher-margin niche for machines that have extra memory and remote Internet access.

The questions for companies like TI and Cirrus are how big a niche each can carve out for itself now and whether each of them will be able to secure market share in the future.

Mike Paxton, a technology analyst with

Cahner's In-Stat Group

, says early positioning and consumer branding is important to convince consumers that it's worth it to pay more for fancy functions, thus justifying expensive chips.

"Prudent companies are looking at this as a valuable niche market that will only grow over time," Paxton says. "If they are positioned like TI and Cirrus to steer the development, they will be ready for it."

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