The logic price wars

Despite tough market conditions and aggressive pricing tactics, suppliers of commodity standard logic remain committed to their products. A number of these companies appear well positioned to take advantage of the industry's next upswing as they continue to expand wafer manufacturing capabilities, shift to larger 6in. wafer sizes for cost advantages, and launch hundreds of new products targeting the growing wireless and handheld sectors.

The good news for buyers is that despite growing demand for logic devices, prices will continue to decline as suppliers fiercely compete for market share.

Market research firm iSuppli Corp., Santa Clara, Calif., estimates that worldwide standard logic sales in 2003 will reach $1.42 billion, up 5.8% from $1.35 billion in 2002 but still down from $3.1 billion in 2000.

Consumer electronics and handheld devices should drive growth over the next two years, logic suppliers say, although they see pockets of strength also in automotive and industrial applications. Computing and communications demand, however, remains stagnant, pushing logic makers away from these sectors, which have historically accounted for a large chunk of revenue. This has resulted in a number of new product families with smaller packages, as well as lower and mixed operating voltage ranges.

"Since the time the market switched in 2000 from communications-driven to consumer-driven, the challenge has been to get to market quickly with our parts with the resources we have," said Bruce Potvin, director of marketing for logic products at Philips Semiconductors, San Jose.

"We've seen a lot of design opportunities in cell phones, digital still cameras, PDAs, and other battery-operated, low-power consumer applications," Potvin said.

Still, the logic market needs a killer application that will deplete the excess capacity still available and stop the price wars that logic vendors have been waging in an effort to secure market share, according to iSuppli analyst Betsy Van Hees.

But if price competition continues to rage, consolidation may be ahead, Van Hees said. "They've done their cost-cutting and now they're looking to see what they're going to do next."

The average selling price (ASP) for logic dropped about 21.8% in 2002 and is on pace to dip another 6% to 8% in the third quarter of this year and 2% to 3% in the fourth quarter, according to iSuppli. Vendors said that prices dropped about 10% to 20% last year.

The pricing pressure has offset the fact that demand has begun to rally, said Kevin Walsh, director of strategic marketing at Integrated Device Technology Inc. (IDT), Santa Clara, Calif.

David Hoover, worldwide product marketing manager for the Standard Linear and Logic Group at Texas Instruments Inc., agreed. "In 2003, we're looking for logic units to be up by 10%, but prices to be down by 15%."

Hoover said that as inventory built up in 2000, logic suppliers became increasingly competitive and found the only way to move the inventory was to cut prices.

And while most suppliers expect there to be some price firming this year, it seems that no one will take the lead to increase prices out of fear of losing market share.

Not wanting to misstep in this highly competitive environment, logic suppliers have continued to expand capacity during the downturn and haven't backed off from developing new products, where they expect double-digit growth for parts in smaller packages.

"Because ASPs are higher for new products and smaller packages, we expect strong growth in those areas," said Bob Houf, strategic marketing director for ON Semiconductor Inc.'s standard logic products, Phoenix. "Smaller, cutting-edge packages demand a bit of a premium, but it doesn't last forever."

In some cases, pricing is below cost, iSuppli's Van Hees said. "We see amazingly aggressive pricing in high-speed gates. When you thought four or five cents a gate was unbelievable about four months ago, because pricing had dropped from 10 cents a gate in 2000, now you're looking in Asia at 3 cents or less for older HC and HCT gates."

"It's to gain market share. We've seen very aggressive pricing by some of the top suppliers like TI, but others like IDT and ON Semiconductor are not going along. TI is repositioning itself to gain market share, and I think their pricing is indicative of that, while Philips and Fairchild are rolling up their sleeves and saying I don't want to lose," Van Hees said.

TI's Hoover said the company intends to remain the logic market leader not only through aggressive pricing but also through new-product development and availability. As part of its commitment to the logic market, TI has claimed it will be the last major supplier to increase prices, announce obsolescence, or extend lead times.

However, some rivals believe that TI is slashing prices at the expense of its own and others' profitability.

"What TI has done is move away from profitability to 'how do I keep my fab full and how do I gain market share,' and that has put Fairchild and us in a defensive position that has driven market prices down," Philips' Potvin said.

TI said it has nearly doubled its logic capacity since 2000 through fab expansion and increasing the size of its wafers, and is committed to price leadership. "This is a very competitive market. Logic-systems designers want confidence in their logic suppliers. They don't want to design a million-dollar system and have the line go down because of a five-cent gate," Hoover said.

Similarly, ON Semiconductor is leveraging its internal manufacturing capabilities for nonlogic discrete products, of which it produces more than 25 billion units a year, and is piggybacking its MiniGate logic devices on those high-volume factories. "It offers us a cost advantage and competitive pricing for our customers," said Dan Huettl, director for standard logic products at ON.

"We've accelerated our strategic manufacturing plan by a good two years, and that's why we've moved the higher and more costly manufacturing locations for both front-end fabs and back-end assembly sites to low-cost manufacturing regions," ON's Houf said.

The unanswered questions are: how long can this aggressive pricing continue, and will it result in some consolidation? "There will come a point in time when prices will have to come up or companies will have to drop out," Van Hees said.

Meanwhile, demand is still rising for low-voltage and one-gate devices despite the generally weak market, she said.

Suppliers are focused on developing and expanding their CMOS portfolios, which account for the bulk of the standard logic market, as evidenced by a growing number of one-, two-, and three-gate devices and new high-performance technologies such as advanced low-voltage CMOS (ALVC) and advanced ultralow-voltage CMOS (AUC).

ON Semiconductor's new MiniGate SZ family of products, for example, consists of 11 one-, two-, and three-gate parts that support high-drive capability of up to 24mA and is available in the industry's smallest Pb-free discrete package with leads, according to Huettl.

The leads offer pick-and-place advantages and simplify inspection. "If the package is leadless, you sometimes can't tell the integrity of the package bond," he said. The new SOT553 package measures 1.6 ¥ 1.6 ¥ 0.6mm, suited for digital cameras, cell phones, PDAs, and other small wireless, handheld devices, Huettl said.

Voltage translators, or signal translation devices, are also a growing technology, particularly as voltages continue to transition from 3.3 to 2.5V and lower. Thanks to AUC technology, many devices are optimized at 1.8V but offer a working voltage down to 0.8V.

TI said it was the first to introduce a logic device optimized at 1.8V. Logic has to keep up with trends in core technology, so as voltage falls for devices like ASICs and DSPs, the logic interface must follow suit, Hoover said.

IDT has also rolled out a family of AUC-based devices that cover voltage nodes from under 1V to 3.3V. "There is now a wider range of voltages to deal with in systems, so you need a device that can shift across multiple voltages," Walsh said.

IDT said its new AUC1664245 high-performance, level-shifting device is the industry's first to support shifting over the entire range of 0.8 to 2.7V. The part is designed for bus-to-bus or processor-to-bus data transfers in cases where buses or processors have different voltages, as well as for next-generation technology to interface with legacy devices.

In April, Fairchild Semiconductor International Inc., South Portland, Maine, introduced what it said is the industry's first single-bit, dual-voltage translator buffer, which allows designers to mix and match different voltage levels to provide a buffered interface between any 1- to 3.6V logic state. The FXLP34 translators are packaged in MicroPak 1.5sq.-mm and MLP 3.5sq.-mm packages for battery-powered devices such as cell phones, digital cameras, notebook computers, and PDAs.

Logic suppliers are also beefing up their bus-switch offerings. These devices turn areas of systems on and off and interface certain segments of the system, TI's Hoover said.

The current big differentiator in the logic market is packaging, and many suppliers report that small-package sales are growing rapidly.

Companies like IDT, ON Semiconductor, and TI are offering one of the newest packages, the quad flatpack no-lead (QFN), which delivers both space savings and performance improvements over packages such as small-scale, small-outline (SSOP) and thin-scale, small-outline (TSSOP).

Packages like the QFN provide better performance, said IDT's Walsh, because with no leads there is much lower inductance compared with SSOP or TSSOP packages, translating into better signal characteristics and faster throughput.

The QFN is about 62% smaller than TSSOPs. In addition, thermal performance is improved by as much as 55% and inductance and capacitance are improved by up to 60% and 30%, respectively, over TSSOPs, according to TI.

A number of companies have also introduced depopulated quad flatpack no-lead (DQFN) packages. The DQFN is similar to the SOIC and allows customers to better route inputs and outputs, according to ON's Huettl.

Fairchild Semiconductor says its new MicroPak package for one-gate logic is 65% smaller than the standard SC70, and TI claims that its NanoStar package offers a 70% size reduction over the SC70.

Fairchild also said that its TinyLogic eight-terminal MicroPak 8 offers a 60% savings over US8 leaded packages while maintaining a 0.5mm terminal pitch, allowing designers to use existing component mounting processes.

In addition, the 0.2 ¥ 0.3mm LGA contact pads of the MicroPak 8 ensure strong joint integrity, according to Fairchild. The package is available in its UHS high-performance, low-voltage logic family. Fairchild plans to offer the package for new high-performance one-, two-, and three-bit ultralow-power (ULP) and ULP-A logic functions designed for 0.9 to 3.3V operation.

TI's Hoover said that the company's NanoStar saves the designer a tremendous amount of board space when designing-in logic. "We thought it would only be valued in the portable space, but we're beginning to see some migration into computing and other sectors where board real estate is starting to become a premium," he said.

Dallas-based TI recently announced an alternate-source agreement with Renesas Technology Inc., San Jose, for its advanced, lead-free, logic wafer chip-scale package, called NanoFree. The package will increase the availability of low-voltage CMOS one-gate technology, according to TI, which said it has completed converting its entire logic portfolio to lead-free finishes and balls.

Toshiba America Electronic Components Inc., Irvine, Calif., said sales of its ultrasmall package, Mini-MOS, are growing rapidly for personal digital consumer products, which are its key target application.