Buyers can expect standard logic prices to rise later in the year as demand picks up and leadtimes stretch. The good news is there is still more than adequate supply and less than stellar demand for standard logic so price increases will be small.

Logic demand will likely remain sluggish until late in the third quarter because demand for end equipment will be weak until then. That means prices will be stable and leadtimes short until the third or fourth quarters.

"Suppliers would love to raise prices," says Kelly McNatt, an analyst with market researcher iSuppli in El Segundo, Calif. "They don't want prices to stay at the levels that they are at, but there is no demand out there that can warrant any type of price increase. The moment demand starts to pick up, they are going to flip the switch and raise prices." Buyers can expect 1-2% price increases initially, then 3-4% increases once demand ramps up in earnest.

When price increases will begin remains to be seen because there is plenty of supply and no movement in leadtimes as of the second quarter, according to McNatt.

It's no surprise to buyers that suppliers would like to raise prices. The standard logic market declined 46% from $3 billion in 2000 to $1.7 billion in 2001 as prices declined in the 20% vicinity depending on type of product. The drop was due to weak end equipment demand and high inventory levels.

"There is still some inventory left on the shelves," says Dave Hoover, marketing manager at Texas Instruments (TI). "We are starting to see pockets where inventory is being depleted and we are seeing demand come back."

He notes that the telecommunications industry was hard hit by the downturn and had high inventory levels of many parts including logic. "However, the consumer and industrial segments didn't have such high inventory levels and we are seeing some steady demand from those areas," says Hoover. While demand may be starting to come back, the standard logic market will decline to $1.5 billion this year because of low prices and overall sluggish demand, especially in the first half.

"Demand will pick up in the second half of the year with some pretty good growth in the fourth quarter," says McNatt of iSuppli. "However, it won't be enough for logic to have a positive year. In fact, I don't show the logic market getting back to $3 billion in my forecast horizon which goes through 2006," she says.

McNatt says last year's decline in the logic market was broad based, but the decline of the networking and telecommunications equipment industries had the biggest impact. One reason the logic market will decline again this year is that networking and telecommunications industries will likely be weak through the year.

"When the market grows again it will be due to a combination of things. It will be driven by portables, MP3 players, digital cameras, computers and the return of networking and telecom," she says.

Some suppliers already see an improvement in business.

"In the first quarter, demand was soft, but our bookings were growing," says Paolo Bettezzato, marketing manage, analog and standard linear of STMicroelectronics. "Consumer is probably where I would see a faster pickup in business as far as logic is concerned. All signals suggest there will be a pickup in the second half but it's hard to say because, after what happened in 2001 in general, everybody is cautious," he says.

He says leadtimes are starting to stretch. "Last year we had 4-6 weeks. Now we are in the 8-10 week range. Surface mount packages will have longer leadtimes because they are in greater demand," says Bettezzato.

A key trend buyers should watch is the movement to lower voltage logic. Growth of portable electronic products such as cell phones, personal digital assistants (PDAs) and MP3 players is driving the trend.

While 3.3V logic is the norm, suppliers are making more 2.5V products and TI, the leading standard logic supplier, has introduced its AUC 1.8V logic chip. "It is the first and only 1.8V logic part," says TI marketing manager Dave Hoover.

"It is targeted at battery-operated systems. It is being used in cell phones and PDAs," he says. However, it can be used in plug-in systems as well.

"Coming out of this downturn, you are going to see more systems migrate to 3V and lower," says Hoover. A lot of digital signal processor (DSP) and microprocessor cores are moving to 1.0 and 1.2 volts and that will continue to drive lower voltage needs. TI's AUC chip works at 1V although its performance is optimized at 1.8 V.

"It allows the customer to conserve power in plug-in systems because of lower voltages while still achieving higher speeds." he says.