(Globes (Tel Aviv) Via Acquire Media NewsEdge) Feb. 27--For 20 years, the core business of DSP Group Inc. (Nasdaq: DSPG) was the development of chipsets for wireless telephones, but this market is waning as smartphones take over our lives. The company has tried to diversify in the past few years, developing chipsets for home multimedia products, but the sector has not really taken off.
DSP Group realized -- some would say too late -- that it must find a way to get into the mobile business. With the help of technology acquired by an Israeli start-up, the company hopes that it has found the niche that will enable it to benefit from the surge in the smartphone industry.
"In the contemporary world, mobile devices are becoming thinner and manufacturers are focusing on multimedia and processing ability, and very little has been invested in voice processing," DSP Group CEO Ofer Elyakim told "Globes" in an interview. "As a result, the acoustics in these phones has declined. Following pressure from AT&T, Apple decided to improve the voice quality of its devices to neutralize background noise. This has opened a new market for voice chipsets for mobile phones, tablets, cars, and PCs (via Skype)."
Elyakim said, "We're talking about a huge market, and companies operating in it are very small, which greatly suits us. We're not trying to provide a comprehensive solution for the telephone, but to sell what we do best -- voice processing and noise filtering, and the ability to improve media capture. If you want to air a video clip, the focus will be on me, without wind or background noise, or vice versa."
"Globes": What differentiates your technology from the technology of your competitors
Elyakim: "For decades, the technology used two microphones, one up close for speech, and the second which caught background noise to neutralize noise, and most companies used it to reduce background noise.
"In our patented technology, we use three microphones: two standard mikes, and a third with a special sensor. This technology can identify when the speaker is silent and when he is talking, and the system knows to completely filter out background noise."
The demonstration given to "Globes" at DSP Group's offices in Herzliya clearly showed the strong difference between the noise filtering capability of a device with the company's chipset and a device without it. The company is launching its new technology at the Barcelona World Mobile Congress, at its first ever participation in the congress.
What are the uses of this technology
"The technology improves the voice experience and conversational capability, to be able to receive calls even in a noisy place.
"There will many and diverse uses. It will be possible to give voice orders to a smartphone to set the alarm clock or search Google, instead of typing, even without being near the device. It will be possible to use voice to turn on a device, such as a tablet, television with a microphone and Internet access."
But the uses of the technology are not limited to devices. "IT will also be possible to use the technology in vehicles. Today, cars have a closed navigation system with a 30-40 word range -- turn on the lights, the ratio, attach speaker phones, etc. But when the car is in motion, and there is noise from the road, it simply doesn't work," says Elyakim.
"When the voice identification filter is dirty with noise, it does not understand the instruction, and at less than 80 percent understanding, it is unreliable. If you take SIRI to the street and try to operate the device, it won't understand you, but understands something else, and you don't want to use it. Software reliability is very important."
DSP Group also demonstrated this to "Globes", showing how, with no background noise, two identical mobile devices understand verbal orders, but with background noise, the device with the company's technology understands 91 percent of the orders, while the device without the technology understands only 39 percent, and more slowly. "We're doing something very robust. The technology can work wherever you speak," says Elyakim.
Who are your competitors
"In the mobile market, Audience Inc. (Nasdaq: ADNC) has a large 30 percent market share among smartphones, and it is dominant. Manufacturers want a second vendor, because this keeps prices stable and improves technology. When there is no competition, it's easy to rest on your laurels. When there is external competition, everyone is on their toes, and that's the key in this market."
How do you translate the technology into money
"We'll start with customers and provide samples during the second quarter of 2013, with the objective of reaching design contracts during the year, which will result in sales in 2014. I think that our entry into the field, and the acceptance of our technology by the leading vendors, will prove both the technology and the performance."
DSP Group's chipset is the world's smallest audio processor -- 3mm x 3mm -- but the price the company will get from each sale is less than for the company's other chipsets. On the other hand, this is a huge market compared with the company's traditional market where it currently operates. According to a research firm, 1.7 billion devices with voice command ability will be sold in 2015, up from 500 million in 2012.
"Although these chipsets will be sold for a lower price, the gross profit will be above the company's average," says Elyakim. He adds that some mobile phone makers, such as Samsung Electronics Co. Ltd. (KSX: 5930; LSE: SMSN) and LG Corporation (KSX 3350), are DSP Group customers for home entertainment systems, which should facilitate sales.
DSP Group posted $163 million revenue in 2012, 16 percent less than in 2011, mainly because of the crisis in Europe, but it posted a non-GAAP net profit of $775,000, compared with a non-GAAP net loss of $4.2 million in 2011.
What to you forecast for the wireless phone market
"Although the mobile trend means that consumers use mobile phones more, at the expense of other devices, we don't think that the household market will disappear. Although the category is declining, but within the home telephone market, we see growing segments, which is linked to innovation.
"The field may continue to shrink, but it won't fall to zero, and it will continue to be important for us, with tens of millions of dollars in annual sales, even in five years."
DSP Group's share price has been flat for several years, reflecting a value of only a few tens of millions of dollars on its business (excluding cash reserves), because of the company's shrinking revenue. The new chipset may be a turning point, and investors appear to be aware of this: the share price has risen 30 percent since the beginning of 2013.
(c)2013 the Globes (Tel Aviv, Israel)
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