Reversal of fortune for chip buyers: average prices for microcontrollers will rise

James Carbone, contributing editor

After declining for years, prices for MCUs will increase despite robust demand, By James Carbone.

The days of declining average selling prices for microcontrollers (MCU) is over as tags for MCUs will increase over the next four years despite growing demand.

The average price for MCUs, including 4- 8- 16- and 32-bit devices, will increase 2 per cent in 2017 after rising 8 per cent in 2016, according to researcher IC Insights. The average MCU price will rise 3 per cent in 2018, 4 per cent in 2019, and 1 per cent in 2020, the researcher said.

The increase in microcontroller tags is a big change for the MCU market, especially the 32-bit segment.  From 2006 to 2015 the average 32-bit MCU price declined 17 per cent per year from $5 in 2006 to $0.92 in 2015, said IC Insights.

“Prices had been coming down hard and heavy,” said Rob Lineback, senior market analyst with IC Insights. “Thirty-two-bit MCU average selling prices had been falling so much that they took down average prices for all microcontrollers. It has been so dramatic,” said Lineback. However, 32-bit prices are now rising. In 2016, the average price for a 32-bit MCU increased 18 per cent to $1.09 and the price will continue to rise over the next several years, he said.

Lineback noted that the 32-bit segment is the largest microcontroller segment and will account for 60 per cent of total MCU revenue and 43 per cent of units in 2017.

Price increases coupled with increased MCU unit shipments mean healthy revenue growth for the microcontroller market through 2021. Global MCU revenue will increase from $17.5 billion in 2016 to $18.8 billion in 2017, a 7 per cent increase. The MCU market will continue to grow through 2021 when revenue will total $25.1 billion, said IC Insights.

Exponential growth
“Business has been great,” said Punya Prakash, product line manager of the SimpleLink  MSP432 MCU business for Texas Instruments. “It’s very strong. We’ve seen almost exponential growth in the 32-bit side of the business and continue to gain share with 16-bit microcontrollers, but the growth of 32-bit is much larger,” she said.

Much of the growth is coming from the automotive and industrial markets and with the Internet of Things. “We don’t view Internet of Things as a market. We see it as an enabler,” said Prakash. She noted that there are expected to be 30 billion connected devices by 2020 and most of the devices will need MCUs to connect to the Internet.

She noted that automotive is driving MCU business because electronics content in vehicles continues to rise and more vehicles are being connected to the Internet. Automotive is a “very sustained market” with long lifecycles, said Prekash. It uses 8-, 16- and 32-bit MCUs, although 32-bit is the fastest growing segment, she said.

In fact, much of the growth in MCUs is due to increased demand for 32-bit microcontrollers, which have been “going like gangbusters,” said Lineback. One reason for robust demand for 32-bit MCUs is that the average price for the
device fell to below $1.00 two years ago, Lineback said the drop of the average price to $1.00 was “kind of a psychological point” when a lot of companies decided to use 32-bit parts rather than 8-bit.

“Suppliers had been trying hard to get the price down for 32-bit to basically the level of 8-bit,” said Lineback. Because the price fell to below $1.00, 32-bit MCUs started to be designed into applications that had used 8-bit microcontrollers.
“There are 16-bit microcontrollers, but they are different animals,” said Lineback. ‘They have a lot of the signal processing. Sixteen is more specialized and 8- and 32-but are more general purpose,” said Lineback.

Thirty-bit prices increased because of growing demand and because 32-bit MCUs offer more value and function in a smaller package.

Strong growth in automotive
While MCU demand is growing across virtually all customer segments, it is especially strong in automotive.  Automakers have long used MCUs for engine control, antilock brakes, power steering and seating and airbags among others functions.

But now they are also needed in sophisticated safety features including advanced driver assistance systems (ADAS). ADAS improve safety by warning drivers if there is a vehicle that has crossed the center line or if there is a stalled vehicle down the road. Other features include blind spot detection, surround view cameras, lane change warning, automated braking and lighting and lane change warning, all which require microcontrollers. MCUs are used in infotainment systems and in many cases, provide connectivity to the vehicle network.  MCUs are also used in vehicle features such as touch-screen controls, advance environmental controls and keyless entry. Electric cars and hybrids are also helping drive microcontroller use.

The industrial segment, including factory automation, is also using more microcontrollers as more equipment is being connected to the Internet. “Many systems already have a microcontroller doing embedded control or measurement,” said Lineback. But now more MCUs are being used for Internet connectivity.

In some applications MCUs are competing with processors, system-on-a-chip devices which are more specialized and “sometimes more powerful,” said Lineback.

However, he said MCUs have an advantage because they are better suited for a lot of embedded functions and are more code efficient. “The program code is on chip whereas in a lot of the system-on-chip processors don’t have the program. That is one of the distinctions between the two,” said Lineback.

He noted that Intel has started to use the x86 microprocessor architecture in microcontrollers. The x86 architecture has traditionally has been used for PC processors.

“They have been introducing some microcontrollers or at least they have been calling them that,” said Lineback.

However, with 32-bit MCUs, ARM-based microcontrollers dominate the market. About 77 per cent of 32-bit MCUs are based on the ARM architecture, he said.

Enough competition and capacity?
With MCU demand growing and prices increasing, some in the supply chain are concerned that there may not be enough capacity and competition in the MCU market.

In fact, there has been consolidation in the microcontroller manufacturer ranks. In recent years, NXP acquired Freescale and now QUALCOMM is buying NXP. Renesas acquired Intersil and Microchip Technologies bought Atmel.

Despite consolidation, the MCU market remains competitive, according to Lineback. He noted that Intel, the leading provider of microprocessors and the biggest semiconductor manufacturer in the world, has invested in microcontrollers. In fact, Intel had been the biggest manufacturer of microcontrollers years ago, but decided to focus more on microprocessors for computers, said Lineback.

Computer sales have slowed so “they are trying to get back into microcontrollers. Their interest is really in embedded processing or connected system with MCUs and system-on-a-chip processors as well,” he said. “Intel wants to be an Internet of Things company connecting systems,” said Lineback.

“The question is how successful will they be,” said Lineback. “They will be competing against ARM and Intel has not been able to compete very well with ARM on anything else” including smartphones. “Intel gained market share with tablets just as tablets were dying,” said Lineback.