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Analog vendors need to come up with diverse tactics

Posted: 17 Mar 2008 ?? ?Print Version ?Bookmark and Share

Keywords:analog vendor? analog IC? RF? power supply?

For vendors of analog ICs, the challenge is the sheer number of market variables: There are many potential "sockets" to fill, user needs are highly fragmented, and ultimate performance is not necessarily the goal in many applications.

In the power supply niche, there are literally dozens of companies making functionally similar products. Factor in the fickleness of customers, and it can be a tough place to hold a long-term revenue position. But some companies are doing better, for now, than others.

ON Semiconductor, for example, has executed winning strategies in the past few years despite pressure from a broad array of well-placed competitors (Linear Technology Corp., Maxim Integrated Products, Texas Instruments Inc., Intersil Corp.) and lesser-known players. It has prevailed by demonstrating a willingness to take on semi-custom designs for large accounts, broadening its portfolio and working closer with customers on early-stage design-ins. Fiscal 2006 revenue at ON Semi was up 22 percent over 2005, and gross margins increased; the 2007 revenue increase will be somewhat less, in the high single digits, but margins will still grow.

ON Semi's growth in a highly competitive market where ODM branding carries relatively little clout is due largely to its realization that a power supply IC vendor succeeds by offering either significantly outstanding products or a broad, low-cost product line that can fill the many niches and meet the many last-minute changes in customer needs. Dramatically superior performance is very difficult to achieve at this point; with power-supply efficiencies already at 90 percent-plus, a gain of a percentage point or two is nice but not a make-or-break factor in the product. Therefore, a broad line and close customer relations are better tactics for securing design wins and sustaining growth.

ON Semi has also taken a chance by going into new areas where it is not a major market presence, such as data converters. "They built products that specific customers wanted, such as a codec for a major videogame platform that has now provided over $50 million of revenue," said Gartner Inc. analyst Stephan Ohr.

Analog specialists like ON Semiconductor have executed successfully despite pressure from an array of well-placed competitors.

In addition, ON Semi broadened its consumer product lines by purchasing an $80 million (annual revenue) CPU voltage regulation and PC thermal monitoring product line from Analog Devices Inc. for $185 million. And in December, ON Semi announced an agreement to purchase AMI Semiconductora move that will extend ON Semi's product line to higher-margin ICs serving less-fickle medical and military/aerospace customers.

Diverse set
The RF segment of the mobile market has a different set of imperatives, primarily the high level of investment needed to develop and fully qualify ICs to meet numerous regulatory standards as well as divergent customer priorities. In September, ADI agreed to sell its baseband chip product lines (which contributed $230 million to 2006 revenue), as well as some cellular handset baseband support operations, to Taiwan's MediaTek Inc. for $350 million. The move lets ADI better focus investment on its broad line of higher-performance, differentiated RF signal-chain and handset ICs.

Market researcher iSuppli Corp. estimates that the market for baseband chips grew by 20 percent in 2006 and about 13 percent in 2007. Growth is expected to slow further this year to 11 or 12 percent, putting pressure on the costs of bringing product to market.

ADI's baseband divestiture came soon after LSI Logic Corp. sold its mobility products business unit to Infineon Technologies AG. When rumors of the ADI deal surfaced, analyst Doug Freedman of American Technology Research predicted, "Competition will emerge as a result of the ramp of volume in China and challenge the segment's profitability for all but the lowest-cost providers." Of course, this could be a case of vendors' losing money on each sale (after factoring in development costs) but hoping to make it up in volume.

- Richard Goering
EE Times

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