Corporate Industrial Semiconductor Buyers should look at requirements for Analog IC's for potential cost savings. Margins for all Analog IC companies are high however with appropriate preparation and pressure there is a chance to save.
Corporate Semiconductor Buyers Can Get Better Prices for Analog Products
1. Corporate Buyers of Analog Semiconductors are not
getting best possible prices
There is a real opportunity for Astute Corporate IC Buyers to exert
pressure on Analog Semiconductor producers to get better pricing.
5% to 10% Reduction should be easy
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
2. Recent Comment from CFO at Major Analog IC Company
• “the analog market is one of those markets where we never
really see the price being unfirm, if we can coin a phrase.
So, it’s pretty stable and it’s been pretty stable through this
entire cycle. So, could it get better? I guess it could get
better. But it’s actually in a pretty good shape today.
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
Translation: Even in a down cycle we maintain prices and do not worry
about pressure from customers. In an up cycle we can charge even
more. Our customers (particularly industrial ones) are not smart
Buyers.
3. Analog Companies Enjoy High Margins
• Analog products typically enjoy higher gross
margins than memory, DSP, Microprocessor
and logic products.
– Analog Margins 50% to 70%
– Memory and Logic 20% to 40%
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
Of the total IC Market Revenue Analog Products make up ~ 15%
4. What keeps Analog IC Buyers From
Doing Better?
• Harder to Leverage
– 100,000 different types of product sold each year
– Volume of any given product not great
– Long life span and difficult to interchange products
• Analog IC Companies focus more on technical Engineer
to Engineer Sales
• Analog products are important but generally are not
the vital component of a system so do not get as much
attention
• Analog Design and Production is not as straightforward
as other IC products making cost comparison and
models difficult for Buyers to develop
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
5. What Do Analog Companies Do when
faced with Smart Buyers
• For high volume aggressive Buyers they will
price to cover fixed cost (automotive)
• For aggressive Asian based Consumer Buyers
they will price at breakeven costs
• In general though most Analog Buyers are not
that aggressive or knowledgeable
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
6. Suggestions to Get Better Prices
• Become more knowledgeable about differences in Analog
Operations and Companies (next slide)
• Demand better pricing – Analog companies are not used to
this and can be pressured
• Have pricing requests come from Asia
• Analog companies sell technology value because they are
comfortable in the space. If you have an innovative
requirement or are in a field they are targeting (medical
device) reverse things and have them lower costs upfront
for chance to support the product.
• Visits to Analog companies and technical roadmap sharing
help as relationships do make more of a difference with
Analog Companies
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points
7. What Makes Analog Operations
Different?
• Improvements in wafer-manufacturing costs have a smaller impact on the
gross margin of analog
• Analog products have higher back-end costs as a proportion of total costs
(50% or more)
• While larger-diameter wafers are typically more cost effective, individual
fab perfor-mance matters
– A well run 150mm Fab can outperform and poorly run 200mm fab
• The effects of the transition to 300mm capacity on the analog universe
will certainly be felt, but only in select segments (Power management IC: switching controllers, drivers)
• Most Companies maintain a balance of internal and external fab
operations
• Backend operations concentrated in Philippines for both internal and
subcons. Some subcon in lower cost operations in Malaysia and China but
productivity not as high in these places yet. Taiwan for some very high end
products.
Bill Kohnen Sept 2013 Purchasing Conference Discussion Points