Standard logic prices may rise in third quarter despite downturn
Analysts and suppliers say that standard logic prices are just about as low as they can go
By James Carbone -- Purchasing, 6/18/2009 2:00:00 AM
The global standard logic market will decline by about 19% this year because of the global economic downturn, but buyers should not expect any steep price drops. In fact, modest standard logic price increases are possible in the second half because of low inventory levels and stronger demand.
Analysts and component manufacturers say that standard logic prices have fallen dramatically over the past years and are just about as low as they can go. "There is just not a lot of margin to give up at this point," says Hank Volin, senior business marketing manager of Fairchild Semiconductor in South Portland, Maine. "The price freefall has stopped. It has been hard to reduce costs to keep up with the rate of price decline."
Standard logic prices have fallen sharply since 2001. The average price was about 21¢ in 2001 and then fell to 9¢ by 2003 and has since dropped to about 7¢ and is holding, says Jan Pape, worldwide marketing director for standard linear and logic products Dallas-based supplier for Texas Instruments.
Roger Banks, principal analyst for researcher iSuppli, says prices were under pressure in the first quarter, but should stabilize towards the end of the second quarter as third-quarter standard logic demand starts to build.
"A modest increase in standard logic pricing is forecast for the third and fourth quarter as leadtimes extend and the purchasing focus moves towards making sure that the components are there to support the equipment production builds," says Banks.
Banks adds that in a "normal market environment" price increases for standard logic are expected when leadtimes move out past 14 weeks. "But in the current environment with so many uncertainties it is expected that pricing will increase at a shorter leadtime point as purchasers scramble to fill the inevitable short-term shortfalls," he says.
Even if prices rise, the standard logic market will still decline to $1.75 billion from $1.9 billion in 2008 because of overall weaker demand for the year, according to iSuppli.
While the market will be down for the year, Pape says the market bottomed out in the first quarter and he expects quarterly sequential growth through the rest of 2009. He says sales will be up 15% in the second quarter and 10% in the third.
He says the recovery has already started in China where the government's economic stimulus program seems to be working. Under part of the package, low-income people in China are given 30% discount vouchers to be used for buying cell phones, televisions and other equipment.
Demand for electronics equipment in China has increased and TI and other chipmakers are seeing more orders, says Pape. In fact, in some cases there is double ordering occurring because inventories are so low and leadtimes are longer than many buyers expected.
One strong segment for standard logic suppliers is the smart phone segment of mobile phones. The segment is posting solid growth during the downturn and the devices use a lot of standard logic, according to manufacturers.
"Handsets are becoming more feature rich," says Dan Godbout, technical marketing director for logic at Fairchild. "That increases our content and also increases our ability to come up with new solutions for handsets. Even when phone sales decline, out content is increasing which means our revenue stays up," he says.
Godbout says smart phones are using more standard logic because they have more features than regular cell phones. For instance, many smart phones have two cameras instead of one, so an I2C bus that work with the memory cards is needed. That requires more logic.
"They have different voltage levels between the cameras and the processor and SD (secure digital memory) cards so you have to translate those voltages so they are compatible. We have solutions for that," he says.
Smart phones also require more low-power standard logic as do other devices such as portable medical equipment.
Manufacturers say portable equipment requires low power logic in smaller packages.
Texas Instruments recently announced its new wafer chip-scale package PicoStar, which has a .35mm pitch and a height of .15mm. The package is about a thin a human hair and 50% thinner than other packages. Chips that use the package are placed in the printed board instead of on it.
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