Standard logic prices stabilize for now; outlook cloudy
Staff -- Purchasing, 6/17/2004 2:00:00 AM
The standard logic market will post more than 10% annual growth over the next several years; demand, which boomed at the end of 2003, continues into 2004.
Logic demand is coming from a broad-base of customer segments including portable electronics equipment, computers, industrial controls and communications and consumer electronics equipment. The strong demand will result in the standard logic market growing from $1.41 billion in 2003 to $2.24 billion in 2007, according to market researcher iSuppli.
Of course with demand being strong, the days of steep price declines are over. In fact prices increased steeply since the fourth quarter, according to standard logic market leader Texas Instruments.
"Prices were still declining into November, but since December we have seen prices increase 30%," says Jan Pape, worldwide director of marketing for standard linear and logic for TI. "However, prices are still lower than they were in the first quarter of last year," he says. Prices eroded during the downturn; they fell roughly 54% from 2000 until the fourth quarter of last year, according to iSuppli.
The future pricing scenario for the rest of the year is clouded. Some suppliers say prices will rise some more and others say they will stay flat. As of late May, prices had stabilized. However, it's probably a good bet that tags will rise later in the year in the 3%-4% range.
Demand was strong in the first quarter, which is traditionally a slow period for semiconductor companies. Demand for logic will get even stronger in the third quarter as OEMs and electronics manufacturing services companies build for the Christmas selling season.
"During the downturn prices had to erode because there was huge capacity in the market," says Pape. "But right now demand is double what we had last year at this time and the recovery is not related to a single segment of the market. It is broad-based," he says. "Last year we shipped 6 billion units, including linear and logic and we now have demand in the 12 billion range." Logic accounts for more than 50% of the units.
Besides, strong demand prices will likely rise because suppliers are under pressure to improve profitability, says Roger Banks, an analyst with iSuppli. The good news for buyers is that there is also stiff competition for market share among the top suppliers, which will keep the lid on price increases.
Price increases are more likely for North America and Europe than for Asia, according to Banks. He says Asia is buying larger volumes of standard logic parts than the U.S. and Europe, and has more clout. "We could see prices rise by as much as 10% while Asia prices may be flat up to1%."
He says buyers can expect some shortages toward the end of the year. "At the moment supply and demand are reasonably in balance, but factory utilization rates are at 85%-90%. "When you are at that level you tend to see product shortages because planning the mix is not that easy," says Banks.
When prices were rising, leadtimes were also stretching. Leadtimes had stretched out to more than 20 weeks for some parts, but now they are in the six to twelve weeks range.
As the result of booming demand, suppliers are adding capacity. TI builds most of its chips internally, but had to look for external capacity because of rising demand. "That is why price increases were so dramatic," says Pape. "External manufacturing cost is substantially more than internal," he says.
A lot of the standard logic capacity revolves around assembly and testing. After chips are built they have to be packaged and tested. "We are pouring tens of millions of dollars into installing additional capacity in assembly, and installing test into internal factories," he says. He adds that TI invested during the downturn but is increasing its investment.
Getting smaller
Most manufacturers see increased demand for standard logic for portable electronics, such as cellphones, personal digital assistants and MP3 players. Those products require low power chips in small packages.
Pape says TI sees strong demand for its Little Logic parts that use Nanostar package technology. He says the technology is used by cellphone makers because it can be used in space- and power-constrained applications." We have a customer coming out with a personal digital assistant (PDA) phone using 14 of these devices on one board," he says.
Pape says demand is greatest for Texas Instrument's 5V HCMOS family and 3.3V LVC products.
Portable products such as cell phones are also a strong customer segment for Fairchild Semiconductor, says Mike Rauth, logic product manager.
Fairchild supplies across logic to many industries, but it has seen especially strong growth from cell phones, PDAs and digital still cameras which require low power logic in small packages.
"We supply Tiny Logic to the ultraportable segment," says Rauth. The chip uses Micro-Pak technology. The dimension of the chip is just 1 x 1.45 millimeters. "That's the current smallest offering," he says.
Small packages such as Micro-Pak have given design engineers a reason to use standard logic instead of having the logic functions integrated on another chip. Designers would prefer not to use standard logic because of cost pressures and the need to add features without adding power, says Rauth. But standard logic continues to be used because of package developments, which provide a cost effective solution for OEMs.
"Standard logic enables designers to concentrate on the functionality of core system components, without concern for on-board buffering or line driving," says Rauth. "Standard logic performs the signal conditioning, so that ASICs, memories and microprocessors don't have to."
Besides, Micro-Pak there is also demand for standard logic in depopulated, very thin quad flat-pack (DQFN) packages which have no leads. The package provides a 75% area savings over thin shrink small outline (TSSOP) packages, which are widely used in a variety of equipment.
The new packages give design engineers options. "When considered in the light of continually accelerating time-to-market pressures, standard logic offers a low-risk solution for late-breaking design changes," says Rauth.
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