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Microchip CEO talks strategy, defends new acquisition

Posted: 09 May 2012 ?? ?Print Version ?Bookmark and Share

Keywords:MCU market? microcontroller? Internet of Things?

Microchip Technology Inc. CEO Steve Sanghi is a straight talker.

When Sanghi comments on the economy, outsourcing, technology or market trends, you'll hear very little conventional wisdom or polite evasion. He has no stake winning a popularity contest or looking fashionable.

Sanghi, heading up Microchip for the last 20 years and keeping the company profitable for all these years, stays atop the game by knowing his trade, his company's 70,000 customers, and perhaps, more important, holding no illusions of what Microchip does.

Tom Starnes, embedded processor analyst at Objective Analysis, believes that Microchip has always done a good job "of making their MCUs accessible to 'the little guy' with excellent support and lots of little development kits." In Starnes' view, serving the smaller customer is "more of a mission at Microchip," while it's often a secondary goal to most vendors who concentrate almost exclusively on their biggest clients.

With SMSC's acquisition announced last week, though, industry observers have suggested that the familiar narrative of who Microchip is and what it does could potentially change.

The biggest concern swirling around the financial community now is: How can Microchip!inherently good at serving the vast horizontal market!integrate its business, products, technology and corporate culture with an SMSC whose business is more attuned to vertical market segments, such as automotive, computer and consumer.

In the MCU revenue share ranking put together by Databeans earlier this year, Renesas logged microcontroller sales of $2.62 billion in 2011. The Japanese company's sales remained significantly higher than second-ranked Freescale Semiconductor Inc., which increased its MCU market share to 10.1 percent in 2011 from 10 percent in 2010. Microchip was ranked No.4 after Atmel, which climbed to No. 3 from No. 5 with an increase in microcontroller revenue of 25 percent.

"We will be much bigger than Freescale in no time"
As Microchip keeps buying more companies with technologies such as gesture control and a broader range of wireless expertise and edges toward more mainstream, established automotive and connectivity markets, some even worry whether Microchip will be eaten alive by giants like Freescale, presumably armed with a bigger set of IPs, expertise and product portfolio.

But Sanghi, of course, thinks otherwise.

He dismissed last week the horizontal vs. vertical market argument by noting: "That's a barrier Microchip crossed years ago." He further pointed out, "With the SMSC acquisition and the economy bottoming out, before you can blink, we'll become a $2 billion company [combining Microchip's $1.4 billion annual sales with that of SMSC's $412 million]!much larger than Freescale in the microcontroller space."

Acquisition signals new direction for Microchip
The deal puts Microchip!long known as a "long-tail" company with 70,000 customers!on a new trajectory. With the SMSC acquisition, Microchip will likely be more exposed to the fast-changing, low-margin consumer market it has long avoided. Read the rest of the article here.

Freescale earned annual net sales of $4.57 billion last year (ended in Dec., 2011) Freescale's MCUs and associated application development systems generated about 35 percent of that.

The following Q&A is based on our interviews with Sanghi (EE Times conducted a one-on-one interview with Sanghi about a month ago, and followed with another right after the SMSC announcement), and public comments Sanghi made during financial and acquisition conference calls last week.

EE Times: Leading to the announcement of SMSC acquisition, you recently bought Roving Networks, a California-based company providing Bluetooth and WiFi modules and solutions, and Ident Technology AG, a German company developing 3D gesture recognition technology. Is this the beginning of Microchip moving in a new direction?

Sanghi: This is completely in line with our strategic objectives for the last four to five years. In our efforts to drive the company's growth, we are taking this approach, called 'elbow-out acquisitions.'

EE Times: What do you mean by 'elbow-out'?

Sanghi: Some people could interpret it as a strategy for us to "elbow out" our competitors. But what it really means is that we started participating in the areas around our customers' central 'ball.' Think the customers' ball as being a microcontroller, DSP or FPGA. Our offerings in the areas surrounding the ball include: RF, power drivers to amplifiers, converters, encryption and others. Our goal is to 'elbow out' the available market we serve. I want to occupy more (space) in customers' solutions.

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