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Sanghi: IC industry bears brunt of harsh conditions

Posted: 04 Apr 2014 ?? ?Print Version ?Bookmark and Share

Keywords:Sanghi? Microchip? semiconductor?

Microchip CEO Steve Sanghi said that the semiconductor industry's growth is challenged under tough times, with business models pressured into stricter spending and consolidations.

Sanghi has directed the microcontroller vendor towards stronger revenues since 1990. He said, "We are evolving to a slower-growth industry, and even though Microchip is still growing we will eventually converge to the mean."

The go-go days of double-digit revenue growth are over as the chip business settles into a middle age measured by mid-single-digit annual growth, Sanghi believes. The change also marks the end of the days when customers routinely saw eight per cent annual reductions in chip prices and employees pocketed five per cent annual raises, he said.

Microchip CEO Steve Sanghi

Sanghi: We are evolving to a slower-growth industry, and even though Microchip is still growing we will eventually converge to the mean.

In the new environment, chip buyers will pay flat or rising prices. Employees will compete for merit raises that come on a more graduated schedule. And chipmakers will continue acquiring each other to fuel growth.

"We are working on the entire puzzle, and hence we are coping well, but it's not without stress," said Sanghi. The changes have sweeping "impact on customers, retention!the whole supply chain."

The days of forward-pricing chips based on expected advances in process technology are over, Sanghi told us. "The industry has to change its practices!you have to make money today, because no one will let you make it tomorrow."

Consolidation necessary, but not sufficient

Mergers are marking the chip industry's maturity as companies get bigger to survive harsher times ahead, Sanghi said.

"Three years ago you wouldn't have forecasted Texas Instruments would buy National, and Avago and LSI would merge. Who would have thought Fujitsu's semiconductor group would be no more!now part of Spansion!or that Sanyo would not be making chips? It's all a sign there's not enough growth."

Mergers won't guarantee survival, Sanghi said, pointing to some archrivals.

"MCUs don't consolidate that well if their code base is different, because there's no synergy!you have to provide separate tool chains, reference design, app notes, and so on" for each architecture.

"That's the mistake Renesas made," he added, pointing to Japan's MCU microcontroller giant. "They combined Hitachi and Mitsubishi and made a bigger boat anchor, and then added NEC, and they are still losing money."

Despite tough times, Sanghi said he still feels satisfaction in finding ways to grow his $1.5 billion company.

"When a customer can't get a price reduction, it comes up the flag pole, and I have to say no. When employees can't get a raise, it comes back to me. There's enormous pressure on semiconductor CEOs today from all stakeholders, including community services looking for donations and sponsorships.

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