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Microchip seeks to 'elbow out' MCU rivals

Posted: 17 Apr 2009 ?? ?Print Version ?Bookmark and Share

Keywords:microcontroller? Microchip elbow out strategy? MCU?

Having failed to acquire Atmel Corp., Microchip Technology Inc. is now embarking on a slightly different course: The microcontroller and analog specialist hopes to expand or "elbow out" its product lines!and its rivals!amid a growing crisis in the MCU and overall IC supply chain.

As part of the effort, Microchip has recently expanded into the 32bit controller, touchscreen chip and specialty ASIC markets. It continues to push into the analog and 8-/16bit MCU sectors as well.

The real question is whether the 8bit controller king and its rivals will take more elbows on the chin during one of the worst downturns in the history of ICs. Microchip has taken its share of lumps amid the downturn, but the company appears to be in relatively decent shape as compared to Atmel, Cypress, Freescale, Infineon, NEC, NXP, Renesas, Texas Instruments and others.

Microchip itself was bruised earlier this year, when it ended its hostile efforts to acquire rival Atmel Corp.!a deal that could have expanded its efforts in high-end MCUs. Instead of landing a big fish in Atmel, Microchip is now content with making smaller acquisitions to jumpstart its sales and propel its new strategy.

In fact, Microchip has made three small acquisitions in the last several months, including a move to enter the emerging touchscreen chip business. It is also raising eyebrows by quietly accumulating shares in mixed-signal chip vendor Supertex Inc.

The idea behind the moves is to find new growth drivers to propel its core microcontroller and analog lines, said Steve Sanghi, president, CEO and chairman of Microchip. In other words, the company wants to expand !or what he described as "elbow out"!into new markets, Sanghi said. "You will see us continue to execute the 'elbow out' strategy," he told EE Times in a recent interview.

Microchip also hopes to land some punches against its rivals, many of which are already staggering due to the downturn and other factors. Many of Microchip's MCU rivals!Atmel, Cypress, Freescale, Infineon, NEC, NXP, Renesas and others!are losing money. Others are teetering and could be forced into bankruptcy, including Infineon, NXP and others. Still others are in limbo, such as Freescale and Renesas.

Simply put, there is a potential crisis in the MCU supply chain, said Doug Freedman, an analyst with Broadpoint.AmTech. "Poor balance sheets have microcontroller designers paying attention" to their respective suppliers, Freedman said.

As a result of chaos in the MCU sector, "there is market share for sale" in the MCU market, he said. "Microchip will continue to gain share in 16- and 32bit."

Microchip could benefit as the company remains in relatively decent financial shape. The company is strong in the 8bit MCU market, but the problem is that Microchip was late to the party in the 16- and 32bit sectors.

In 32bit, for example, it has no business to speak of. If Microchip could have acquired Atmel, the 8bit MCU king would have expanded its kingdom to the higher-margin 16- and 32bit worlds. So for now, Microchip must grow organically through its internal product efforts, but is that enough to satisfy Sanghi or Wall Street?

Market challenges
It will be an uphill climb to grow in a down market. In any case, Microchip is a rags-to-riches story. Sanghi joined Microchip as president and CEO in 1990!when the company was near liquidation!and engineered a remarkable turnaround. Today, Microchip is a major supplier of microcontrollers and is expanding into analog.

Last year, Microchip's sales hit $1.035 billion, a decrease of 0.4 percent from net sales of $1.039 billion in the prior fiscal year. It is unlikely the chip maker will remain in the $1 billion sales club this year.

The problem for Microchip and others is clear: The chip industry is experiencing a major downturn. Worldwide semiconductor revenue is forecast to reach $194.5 billion in 2009, a 24.1 percent decline from 2008, according to Gartner Inc.

The general purpose MCU market will be about $10 billion this year, down 28 percent over 2008, said Amy Leong, an analyst at Gartner. The MCU market is "slightly worse than the overall semiconductor forecast due to the higher exposure to automotive," Leong said.

Microchip's other main market is also gloomy. The analog market, like the broader IC and electronics sectors, is fighting the global drop in demand and stagnant economic conditions in 2009. The analog IC market is projected to hit $35.83 billion in 2009, down 4.7 percent over 2008, according to the World Semiconductor Trade Statistics (WSTS) group.

According to Databeans Inc., Microchip was ranked as the world's sixth largest MCU player, with $812 million or 5.9 percent share in 2008. In 2007, the company was also in sixth place with $778 million in MCU sales or 4 percent share, according to the firm.

Microchip is gaining ground on other MCU players, including Renesas (20.1 percent share), Freescale (11 percent), NEC (9.7 percent), Fujitsu (7.7 percent) and Infineon (7.2 percent), according to the firm. With the exception of NEC, the other MCU players ahead of Microchip lost share.

2007 and 2008 Worldwide microcontroller revenue share by supplier (Click on image to enlarge.)

Still, Microchip faces challenges in the arena, mainly how to expand its share in the higher-margin 16- and 32bit sectors. The 8bit MCU market was about $5 billion in 2008, down 5 percent over 2007, according to Gartner.

"Microchip remained No. 1 in the 8bit market," said Leong. But much to Microchip's chagrin, "Atmel is the fastest growing among the top 10 8bit vendors and moved to 5th place in the 8bit rankings."

Compared to its leadership position in 8bit, Microchip was only ranked as the world's 14th largest MCU player in 2008, according to Gartner. In total, the 16bit MCU market hit $4.3 billion in 2008, down 6 percent over 2007, according to the firm.

In 2008, the 32bit market grew 12 percent to $4 billion. It's too early call Microchip's 32bit MCU efforts a bust, but the company's sales in the arena are "very, very small and less than $1 million," Leong said. "I think the biggest challenge or opportunity (for Microchip) is to participate in the fast growing 32bit market. Sanghi said they plan to significantly increase the 32bit MCU products this year. Microchip also needs to compete against the existing ecosystem of ARM-based 32bit MCU vendors such as STMicro, NXP and Atmel."

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