Within the past two months, the power IC market appears to have turned a corner heading out of the recession that has tenaciously kept the market in the doldrums since late 2000. Demand appears to be increasing, but prices probably will remain steady for at least the rest of this year.

Analysts and suppliers are cautiously optimistic that the problems plaguing power ICs for the last 12-18 months are a thing of the past with the glut of ICs plugging the pipeline dissipated and the need for smaller, faster power chips gaining ground. While these newer devices have higher tags, the myriad number of power semiconductors available coupled with the continued need for older lower-priced chips will mean average power IC prices will be steady.

Power IC inventories were high until early January, says Nate Andrews, director of Venture Development's Power Conversion and Control Group. "Overstock was the word, until about two months ago," says Andrews. However, demand for power ICs has picked up with cell phone and personal digital assistant manufacturers increasing their orders. The book-to-bill ratio turned positive for the first time in over a year.

However, power IC makers are cautious waiting to see if demand for chips continues to grow.

"While I see a mild upturn in the market—there's a positive tick in the right direction—it's too soon to be sure if this is a recovery," says Jeff Kelley, director of marketing for National Semiconductor's power management group. "There have been so many changes with the supply chain as a whole in the past 18 months—major cell phone makers getting out and/or letting contract manufactures take over the business, and companies selling inventories and facilities to others—it has offered a level of confusion to the industry. "

Other companies appear more certain the worst is over. Mike Caruso, market development manager for Texas Instrument's power management group, claims the downturn has been a thing of the past for more than four months. "We saw business stabilize in the second half of 2001 and we've seen a slow climb out. Orders [book-to-bill] picked up over one in the last quarter and were well over one this quarter. We think, from a channel perspective that lots of inventory has been burned off from a distribution and customer standpoint. But we're still being cautious."

Despite the upturn, prices remain stable because there are so many different power ICs. "Prices are so fragmented in power and analog ICs because there are so many different chips," adds Caruso. He notes some upticks, but given market conditions, he thinks it will be unusual to see significant price hikes.

National Semiconductor's Kelley says any price rises will be based on the usual reasons. He thinks prices will broaden in the upper direction, but with a range of 30¢ to $3, the changes will have little effect on overall market prices. "At the low end, prices will remain around 50¢, but new challenges and requirements will send the higher end upward in a dramatic fashion."

The analysts and IC makers agree that capacity will be sufficient to meet any upturns, even significant ones. They all concur that two to four week leadtimes in mid-February aren't likely to rise. Most power chip manufacturers added capacity in 2000 when demand was overwhelming. By second half 2001, capacity was sufficient for oversupply and most makers throttled back to produce just enough to meet demand with surge flexibility.

Throughout the recession, IC makers have been upgrading fabs from six- to eight-inch wafers.

Most power chipmakers also say that research and development budgets were upheld during the recession. All of the companies contacted by Purchasing claim their company's R+D budgets have remained intact. "There has not been any scale back in [Fairchild Semiconductor's] research and development. We believe IP and new architectures will add to [the market's] momentum and how well we enable our customers to come out of the downturn," says Madhu Rayabhari, strategic marketing director or Fairchild's analog division in San Jose, Calif.

Probably the biggest change on the manufacturing side is the decrease in acquisitions over the past couple of years. During 1999 and 2000, there were a large number of acquisitions. While the trend hasn't died altogether, it has slowed and there is less expansion in general. Although it's likely that larger companies will continue to acquire other companies to strengthen positions, there's less capital available now for that sort of activity. For example, last September, Texas Instruments purchased Palo Alto, Calif.-based Graychip, a company making reconfigurable digital down and digital up converters for high-speed communications.

There are several trends buyers should watch including the movement to lower and multiple voltages and higher current and development of new power sources and the impact on power IC technology.

Manufacturers of cellular phones, personal digital assistants, laptops and other portable electronic equipment are always looking to extend usage without recharging. Power IC makers will have to adapt to these changes by either making the chips smarter and/or providing the ability to enable the fuel source to run longer without requiring recharging.

Currently, manufacturers are working to develop new processes and features to provide customers with mixed and lower voltages and higher currents. For example, National's Kelley maintains his company is "looking for new processes that will allow lower voltages and higher currents. It could be more than two different processes."