DSP Group Is Set to Gain From the iPad Revolution

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Includes: AAPL, DSPG
by: Shlomi Cohen

This week I visited one of Israel's most veteran and most successful chip sector companies that has continued to survive as an independent entity, DSP Group Inc. (Nasdaq: DSPG).

The company was founded a generation ago, and over the years has been somewhat of a technology incubator for impressive public companies that sprung out of it, like DSPC which was sold to Intel (Nasdaq: INTC), and from there to Marvell Technology Group (Nasdaq: MRVL), and like AudioCodes Ltd. (Nasdaq: AUDC; TASE: AUDC) and Ceva Inc. (Nasdaq:CEVA; LSE:CVA).

DSPG is a world leader in processors for cordless telephones for the home, with a market share of 65%. Until today, the company has sold no less than one billion chips.

As someone who last bought a cordless phone a decade ago since I received the new generation DECT phones for free (as part of an ADSL package with Bezeq The Israeli Telecommunication Co. Ltd. (TASE: (BEZQ)), it was clear to me that I was going to a company whose fate was sealed in the era of the cellular phone, similar to Kodak's film in the age of digital photography. That is to say, put the telephone in the museum and forget about it.

To my surprise, I left there with the decision to keep the stock on my radar screen, as I realized that household communications are very near to a great revolution, and DSPG has advanced solutions for the new era. The company's veteran chairman, Eli Ayalon, is full of energy, excitement, and confidence in DSPG's ability to return and thrive in the new era. One cannot deride someone who promised to return Benjamin Netanyahu to power, and did, as his campaign manager in the last elections.

DSPG's chance to return is great, because two new things are going to happen in our homes. The first is the tablet computer, like Apple's (NASDAQ:AAPL) iPad, which will soon strongly settle in the home as an easy mobile source for downloading and watching multimedia content from the Internet. It will straddle the seam between the laptop, which will soon become the home's desktop computer, and the television.

The second thing that will happen is the convergence of landline and cellular telecommunications within the walls of the home.

DSPG spoke two years ago already about tablet computer screens which will be connected to phone lines, but without Steve Jobs we wouldn't have heard about it even in two more years. Steve Jobs, as is known, is not interested in telephone calls, but only in the market for downloading multimedia content for pay from Apple's iTunes site, and the use of the application store built originally for iPhone users. The iPad screen is meant for viewing and reading electronically in the home, either directly on the screen or through appropriate communication on the big LCD screen on the walls, or outside when we are in a taxi, on the train, the plane, or in a café.

For DSPG, a large potential market has opened up here, because very soon the home market will see tablet computers, primarily from Asia, and that will bring the price down a lot from the prices at which Apple will begin selling at the end of March. In contrast to the iPad, these will be screens priced at $100-150, which will be connected to the Internet in order to watch shows and listen to music and radio, but will also serve as a base for advanced DECT cordless telephones, with DSPG's new integrated chipsets.

Additionally, the convergence of the landline telephone with cellular in the house will begin soon with new handsets that include DSPG processors. Picture, for example, a smart phone with a touch screen, connected to the home WiFi system using Google's (NASDAQ:GOOG) Android operating system, which will include all the usual applications, but also a DECT phone for the home. It will also be a type of online information center for the home, an advanced remote control for managing viewing and listening on household entertainment devices, and more.

The company hopes to grow 10% this year, and more in the future as these solutions reach customer homes.

Published by Globes [online], Israel business news - www.globes-online.com - on November 17, 2009; Reprinted on Seeking Alpha with permission

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009