Expect prices for standard logic to sprout
James Carbone -- Purchasing, 6/15/2006 2:00:00 AM
Since 2001, buyers have enjoyed falling prices and short leadtimes for standard logic. However, strong across-the-board demand and tight packaging capacity for some products is resulting in longer leadtimes and firming prices for standard logic.
Because of strong first-quarter demand and firming prices, suppliers believe they will post strong revenue growth in 2006. In fact, the standard logic market is expected to grow about 10% from about $1.52 billion in 2005 to $1.72 billion in 2006, according to researcher iSuppli. While that is not stellar growth, it is very healthy considering standard logic revenue grew only about 3.8% in 2005.
A portion of revenue growth will be due to higher prices. Prices have firmed, not because of a tight supply of standard logic chips, but because of tight packaging supply.
Tight supply has resulted in leadtimes of some products stretching out from six to eight weeks last year to 16-20 weeks this year, according to industry analysts and suppliers.
"There's not enough packaging capacity to go around," says Roger Banks, a standard logic analyst for iSuppli in London. Demand is strong for thin-shrink small outline packages (TSSOP). Packaging capacity tightness affects more mature products that are less profitable than newer products with higher prices and margins.
However, leadtimes are not stretching for all standard logic products, says Michael Rauth, standard logic product line director for Fairchild Semiconductor in Portland, Maine.
"It's selective. The average leadtime for logic in most packages is still six to eight weeks, but some are in the 11-12 week range," says Rauth. "TSSOP high pin count 4856 is 12 weeks. A few spot packages are out 20-plus weeks such as small outline integrated circuit. Our Tiny Logic Line SE70 product has a long leadtime, but we are adding capacity," he says. Other suppliers are also adding packaging capacity for more profitable lines.
Supply tightness has firmed prices and suppliers expect prices to at least stay stable. In fact, prices will likely rise later in the year because of increasing demand and higher raw material costs including gold and palladium, according to Banks.
Banks says complementary metal oxide semiconductor (CMOS) standard logic average price per unit was about 9¢, but that will increase. Banks expects the average price per gate for CMOS standard logic will rise 4.8% in the second quarter and 1.5% in the third quarter before stabilizing in the fourth. Even if prices increase they will be about half the 20¢ average price back in 2000.
Buyers who purchase through distribution will likely see price increases. Distributors have been charged more for standard logic by suppliers, according to Banks. "Distributors have struggled to pass price increases through because the distribution market is very competitive. As a result, profitability for distributors has been declining on standard logic," he says.
High prices coupled with strong unit demand are why suppliers will see double-digit growth in 2006.
Bruce Potvin, director of marketing for logic at Philips Semiconductors in San Jose, Calif., says standard logic units grew to 15.3 billion in 2005, up from 14.6 billion in 2004. However, the first-quarter run rate for unit shipments was so strong that unit shipments would reach 18 billion if the rate of shipments continues through the year, he says.
He says standard logic demand is growing from many industries, including consumer equipment, computers and communications equipment.
Standard logic has three main applications in equipment: driving signals where high drive is required, buffering, and switching and level translation.
"We have seen a pickup in demand in the consumer market where traditionally an engineer would design in logic within an application specific integrated circuit (ASIC) for level translation," says Potvin. "However, with 90 nm and 65 nm, process technology, the cost of nonrecurring engineering charges and real estate within the silicon is extremely expensive. What they are looking at is using single gate functions in those applications outside of the ASICs," he says.
Potvin says Philips standard logic has been designed into iPods, MP3 players, handsets and notebook and desktop computers, set top boxes and communication infrastructure equipment and vehicles.
He says demand is stable for older 5.5V products, but Philips is seeing growth for 3.3V node products and below including its LVC, ALVC, LVT families and 1.8V AuP products.
Some equipment like multimedia cell phones have different voltage requirements and require standard logic to handle different voltages, voltage level shifting and translation, says Jan Pape worldwide marketing director for standard linear and logic for Texas Instruments in Dallas. "A DSP in the phone may operate at 1.8V, but you still have 3V or 5V components," says Pape.
TI says there is strong demand for its Little Logic especially in wafer scale packages, the smallest in the industry. The package has .5mm pitch.
With demand growing for standard logic, some suppliers have huge backlogs. Rauth says the Fairchild backlog at the end of the first quarter was the highest it's been in six years and its book to bill was 1.3, meaning for every $100 of parts it shipped, it got $130 of new orders.
Some suppliers are concerned that double ordering will occur and are taking steps to control it by using control order entry in their order systems to monitor demand and inventory at distributors and in the supply chain.
"Our control order entry module in our system looks backwards and determines what the average resale rate for distributors is and tries to match it to what we supply into their inventories," says Pape. "We work closely with them to determine what their inventory is, their resale rate, and try to match it to the real end customer demand. It's trying to take out the speculation."
In the past, during boom times purchasers would double or triple order parts out of fear they would not have enough components. However, often they canceled orders and distributors and suppliers got stuck with huge inventory of parts causing prices to tumble.
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