Analog-chip price curve to flatten as suppliers seek profitability
Buyers can expect only slight price declines for analog chips this year .
By James Carbone -- Purchasing, 4/10/2008 2:00:00 AM
Buyers can expect only slight price declines for analog chips this year despite strong unit demand as semiconductor suppliers focus on profitability more and less on growing market share.
While the average price of analog chips fell 7% in 2007, in 2008 the price will drop only 1%, according to researcher IC Insights. At the same time, unit demand will increase by about 9% and revenue will grow about 9% as well.
"Last year was not the best year for analog [chip suppliers]," says Brian Matas, vice president of research for IC Insights in Scottsdale, Ariz. He says the size of the overall analog market dropped from $36.9 billion in 2006 to $36.6 billion in 2008 due in large part to price erosion.
"In standard analog products, revenue for data conversion products grew 18% and unit shipments were up a hefty 70%," says Matas. He says data conversion chips are used in cell phones, portable computers and communications equipment.
Matas adds that the application specific analog products for automotive systems grew 21% in 2007 and will have strong growth again in 2008 because overall more electronics are being used in automotive applications
He says this year the overall analog market will grow 9% as revenue rises to $39.8 billion. "Supply and demand are in better balance this year and we expect pricing to come back and favor the IC supplier," says Matas. However, buyers should not worry too much because prices won't increase, but just become more stable.
The average price of an analog chip fell from 53¢ in 2006 to 49¢ in 2007 and will drop to 48¢ in 2008 and will be mostly flat through 2011, according to IC Insights.
Matas says for the next five years, analog IC suppliers are going to be in a better position to command a price that is "more reasonable and makes more sense from a profitability standpoint. We believe companies have grown extremely tired of just making razor-thin margins," he says.
Matas adds many semiconductor suppliers, including analog IC suppliers, are pulling back on capital spending in an effort to limit capacity growth. That will impact prices providing unit growth continues to be strong.
While suppliers would welcome—and buyers regret—stable prices, many view falling prices as routine.
"Pricing has been stable and normal which means it goes down at the usual rates," says Bob Conrad, executive vice president of analog products for Fairchild Semiconductor in South Portland, Maine.
One reason is that analog chips are used in high-volume applications such as cell phones. Phone manufacturers purchase a lot of analog chips and demand lower prices.
"The purchasing power of the big cell phone makers is considerable so we are used to high-stakes negotiations twice a year where we have to stay price competitive every single quarter or someone else gets the business," Conrad says.
While suppliers may limit capital spending which could result in more stable prices, it doesn't mean buyers won't see a slowdown in technology developments for analog ICs. Semiconductor suppliers often make capital expenditures to build new fabs that have the latest process technology and perhaps use 300mm wafers instead of 200mm. "In analog you don't need 300mm wafers because 200mm wafers are good," says Matas. "You don't need 65nm process technology because 18 micron is fine."
Suppliers agree. "Our strength is not innovation in process technology, but taking existing technologies and creating products out of them," says Trent Butcher, senior product marketing manager with Microchip's analog and interface products division in Phoenix, Ariz. "We increase the performance and decrease the cost and reduce the size of the parts."
That can be done by integrating more functionality on a chip. For instance Butcher says Microchip integrates electrically programmable read-only memory (EPROM) on analog parts to boost functionality.
He adds there is a clear trend to lower analog chips. "Most analog chips are made on a complementary oxide semiconductor (CMOS) technology which is conducive to lower power."
Butcher has seen lower power across the board in almost any industry; even in industries you wouldn't think there would be a need for low power. "Customers are demanding that their units not consume as much power," he says.
He adds that there is greater demand for analog chips in smaller chip scale packages (CSP) especially dual flatpack no lead (DFN) and quad flat no lead (QFN). CSPs have an area no greater than 1.2 times that of the die that is being packaged and their ball pitch should be no more than 1 mm.
"Chip packaging is a fast moving trend driven by cell phones," says Conrad. "Phone manufacturers want signal path chips, power managements ICs or metal oxide semiconductor field emitting transistor (MOSFETS) to be chip scale," he says—not to improve width and length, but to lessen the height of the overall chip and package. The smaller the better.
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