Standard logic will post modest revenue growth despite the trend to integrate logic functionality onto other chips.
By James Carbone
The general purpose standard logic market will end 2016 declining 21 per cent to $1.54 billion, but will recover over the next several years and grow to $2.2 billion in 2020, according to Semico Research, based in Phoenix, Ariz.
The standard logic market tends to be volatile, alternating between precipitous sales declines and sharp revenue increases as electronics equipment manufacturers build up inventories of the inexpensive chips and then burn them off. For instance, while the standard logic market will fall 21.6 per cent in 2016, in 2015 the market grew 30 per cent compared to 2014 as sales reached $1.9 billion, the researcher said.
“General purpose logic had a good year in 2015 and a lot of inventory was built up,” said Jim Feldhan, Semico president. “This year cell phone shipments are slowing down and PCs are on the decline, so 2016 is a correction year and we are forecasting a 21.6 per cent decline.” PCs and cell phones are major customer segments for standard logic.
However, some logic manufacturers are faring better than others. Frank Dover, senior director logic and EEPROM for ON Semiconductor, said the chipmaker’s standard logic business is down 3-4 per cent because of price erosion. However, unit shipments are up about 8 per cent driven by wireless applications, he said.
Standard logic includes a variety of products such as OR, AND, NOR, NAND gates, buffers, drivers, transceivers, multiplexers, backplane logic, universal bus products, flip-flop, latch and register chips among others.
Feldhan said the current inventory correction should be over by the end of the year. “Since the inventory will be burned off this year, next year we think the general purpose logic market will grow about 9 per cent to $1.7 billion,” said Feldhan. “There will be positive growth from 2017 to 2020.”
Feldhan noted that standard logic is one of the first products that buyers at electronics manufacturers purchase when a recovery begins. “They are willing to build inventory for it because the last thing they want to do is tell Apple a $600 iPhone can’t ship because the manufacturer didn’t buy enough of these 8-cent parts,” said Feldhan.
While standard logic sales are volatile year-to-year, so are prices. In 2009 the average price of a standard logic chip was 8.4 cents, said Feldhan. In 2010 the market declined 37 per cent and the average price fell to 4.1 cents. In 2011 there was strong growth and the price bounced back to 7.7 cents. The price climbed to 8.2 cents in 2013 and by 2015 the average price was 11.3 cents, he said.
“Now we’re going through a correction. Manufacturers are burning off inventory, revenue is dropping and the average price today is 8.8 cents,” said Feldhan. “The fluctuation in ASPs is a reflection of demand.”
The good news for standard logic manufacturers is that there will be less price volatility over the next several years. Semico forecasts the average price will be 8.6 cents in 2017, 8.4 cents in 2018 and 9.4 cents in 2019.
Impact of consolidation
He said one reason for less price volatility could be the consolidation in the semiconductor industry including standard logic manufacturers. “ON Semiconductor and Fairchild Semiconductor are merging and with fewer players out there it may stabilize the ASP a little,” said Feldhan.
There may be another benefit to consolidation.
“In some cases, the equipment is 30 years old and is getting harder to maintain,” said Feldhan. Needed parts for the older equipment can be hard to find. With consolidation, two chipmakers can share spare parts and they may have more leverage with chip equipment manufacturers or their suppliers to get them to produce the parts needed to keep the older equipment operating, he said.
Despite fluctuations in prices and annual sales, the standard logic market will continue to post growth because the low-cost parts are used in many mature electronics applications and are being designed into emerging applications as well. Tom Hackenberg, principal analyst, embedded processors for IHS Markit Technology, said that the standard logic market will post a compound annual growth rate of 4 per cent through 2020. Much of that growth will be driven by a variety of customer segments, including “factory and building automation including home automation, test and measurement, communications and connectivity infrastructure changes with a redesigning of communications networks targeting managed networks, security, 5G and IoT infrastructure roll out,” said Hackenberg.
He said that mobile PCs are the largest market for standard logic, but the segment is growing slowly. Wearable electronics such as smart watches, smart glasses and fitness devices are smaller customer segments, but are growing at a faster rate and will help drive standard logic growth.
Such emerging segments “tend to need more standard logic to get to market fast with a variety of robust and competing solutions,” said Hackenberg. Those segments use fewer system-on-chip solutions and “tend to leverage new features with more standard logic,” he said.
However, high-volume mature device markets such as PCs are eliminating standard logic components to increase profit and competitiveness by integrating logic functionality onto other chips, he said.
Feldhan said standard logic sales growth will continue despite the trend of embedding more functionality, including logic, in system-on-chip (SoC) solutions. In fact, with SoC, additional logic is often needed. “It may be needed to fix a bug” or to add some functionality that was not included in the SoC solution, Feldhan said.
“No matter what the product is you will always find some standard logic,” said Feldhan. “It is similar to discretes. People thought that discretes were going to go away, but they haven’t. It’s the same thing with standard logic,” he said.
Feldhan noted that standard logic is needed by high-performing products such as Apple’s iPhone and Samsung’s Galaxy and in cost-sensitive Internet of Things (IoT) applications.
IoT applications may use SoC or a standard microcontroller for an application, but the manufacturer may “need to add a couple gates here and there for other functions and they will do it with standard logic because it is cheap,” said Feldhan. He noted while general purpose logic is inexpensive, many of the parts are available in small chip scale packages which IoT applications need. “It doesn’t take up much space and it is cheap solution for a few logic gates,” said Feldhan.
Dover of ON Semiconductor agrees there is a trend toward smaller leaded packages such as SOT9 or leadless XFN and SC88. “For legacy logic including 14 to 48 pin devices, the trend is toward QFN packages,” he said.
Feldhan said there is also a trend toward standard logic chips that require less power, including many IoT applications. “Companies making standard logic have spent a lot of effort reducing the power, improving the performance and reducing the size of the packaging, which allows them to be used in handheld devices, said Feldhan.