Expect 10-15% price erosion for standard logic chips
Jim Carbone -- Purchasing, 6/19/2003 2:00:00 AM
Overcapacity and weak demand caused by the decline of the telecommunications industry have battered the standard logic market over the last two years. The worldwide standard logic market fell from about $3 billion in 2000 to just $1.3 billion in 2002 as prices plummeted. In 2000 the average price for a standard logic chip was $0.22. By 2002 the price had fallen to $0.14. The good news for buyers is that prices will continue to fall for the rest of the year. In fact prices will stay low indefinitely, according to Betsy Van Hees, an analyst with market intelligence provider iSuppli.
"We don't see pricing ever going up again," she says. "Price points have been set. Unless there is a big capacity crunch, we don't see prices going back up. We see suppliers doing what they can to make cost-cutting measures," says Van Hees.
She says standard logic market leader Texas Instruments (TI) has been aggressive in reducing prices and other suppliers have had to follow suit to be competitive.
Suppliers agree that prices will decline this year, probably about 10-15%.
While the standard logic industry has been hard hit, suppliers are cautiously optimistic that the worst is over.
"We think we are still in the trough. It can't get any worse than this," says Dave Hoover, product marketing manager for logic at TI. "Inventories have flattened out."
He thinks the logic business will be sluggish this year. "In a good market telecom was the race horse everyone was riding," says Hoover. "But the telecom sector is still in the doldrums and computing is still flat."
He says unit shipments will be up about 10%, but, with prices declining, he is not expecting much if any revenue growth.
If the market declines for a third straight year, it could result in future supply problems.
"When the market comes back there will be suppliers who have a difficult time supplying product," says Hoover. "They have removed capacity from the system. They have closed fabs. They have obsoleted products that they will need in the market recovery," says Hoover.
While telecom has adversely affected the logic market, there is a bright spot for logic suppliers: portable electronics equipment including cell phones, personal digital assistants and other handheld devices.
More logic is being shipped to portable electronic equipment manufacturers and less to telecom companies. That shift is affecting the logic business.
"In the past, standard logic that we offered would be a quad gate device in a 14-pin package," says Rich Lewis, product marketing manager for logic at Fairchild Semiconductor. With the transition of business to portable electronic equipment, single gate logic in small packages is in demand. Single gate devices carry lower price tags.
Cell phones, personal digital assistants and other handheld portable electronics are driving development of new standard logic chips. Those applications require lower voltage chips in smaller packages.
Texas Instruments, ON Semiconductor and Fairchild are shipping miniature leadless packages for one-gate logic devices. Fairchild's MicroPak package for one-gate logic device is 65% smaller than the industry standard SC70 package.
Texas Instruments' NanoStar package is about 70% smaller than the SC70 package and is the smallest in the industry. ON Semiconductor announced its MicroLeadless package with a space savings of 65% compared to a SC70.
"We are seeing packaging become a differentiator," says Hoover. "In the past differentiation was in functionality or technology. Now it is in packaging."
That is due to the downsizing of portable equipment especially cell phones. "A year ago we introduced the world's smallest logic package, NanoStar. It is wafer chip scale. It's not new. It has been used with analog chips, but we applied it to logic," says Hoover.
Besides smaller packages, portable equipment is requiring lower power logic.
"Cell phone manufacturers are adding more features and functionality to their phones and that increases power requirements," says Lewis of Fairchild. But they need to save power because of battery life. To save power they are reducing the operating voltage of the system and using more lower voltage parts, he says.
"We have a broad family of logic products called ULP for ultra low power," says Lewis. "They are designed to prolong battery life. They operate at 1.5V which cell phones are migrating to," says Lewis.
However, not all chips in a circuit will be lower power.
"Portable equipment requires more lower voltage nodes," says Hoover. "However, there are a lot of remaining legacy chips still on the circuit that may not be a lower voltage node, but they still have to communicate with each other. There is a growing need for translation," which allows chips of different voltages to operate together, he says. TI has introduced technology called advanced ultra low voltage CMOS (AUC) chip, a 1.8V interface logic device that interfaces to multiple voltage nodes.
Now Playing: 