Corporate Semiconductor Buyers Can Get Better Prices for Analog Products

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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.

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Corporate Semiconductor Buyers Can Get Better Prices for Analog Products

  1. 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. 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. 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. 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. 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. 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. 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

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