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Electronics buyers can expect soft prices and short leadtimes for microcontrollers through at least the first half of 2012 because of sluggish demand and high inventory levels.
“It's a buyer’s market right now," said Brian Matas, vice president of research for IC Insights, based in Scottsdale, Ariz. “Average prices for microcontrollers are coming down and current supply conditions will continue in 2012.” The average MCU price declined from $1.08 in 2010 to $1.06 in 2011, and will drop to $1.05 in 2012 according to IC Insights.
In addition, leadtimes have declined drastically from high levels in 2010 when the MCU market boomed.
“Twelve to 18 months ago, leadtimes were 16 to 20 weeks and they stayed at 10 to 12 weeks in the first half of this year,” said Geoff Lees, vice president of industrial and multi-market MCU business at Freescale, headquartered in Austin, Texas. “But now leadtimes are running about six weeks for virtually all types of MCUs.”
Other MCU suppliers reported that some of their products had 30-week leadtimes last year and now leadtimes are stock to four weeks.
The average price for a microcontroller will drop, but the decline will be relatively small as more 32-bit MCUs are designed into equipment.Leadtimes have shrunk as MCU demand lessened in the second half of the year because of economic woes in Europe, sluggish growth in the U.S. economy, and weaker demand from Asia.
As a result of overall weaker global demand, the microcontroller market will end 2011 growing about 4 percent to $15.8 billion. In 2010, MCU revenue grew 36 percent.
“The reason for the drop off this year was the global economy and the uncertainty in the industry,” said Matas. He noted that MCU business was strong in the first half. “Then in July, it was almost as if the brakes were put on and ever since then there is uncertainty,” he said. From there, both MCU demand and revenue declined.
“The pervading sense of uncertainty throughout the industry made it difficult for a lot of businesses to gauge what kind of production ramps they should plan,” Matas added. “It goes across all segments from consumer to industrial.”
One reason for the uncertainty is the growth of MCU inventory levels. With high inventory levels, OEMs are not ordering as many parts. Suppliers say stockpiles are being worked off and levels should return to normal in the first quarter.
How long the uncertainly in the supply chain will last remains to be seen, but supply conditions should continue to favor buyers in the first half of next year. MCU demand is likely to pick up in the second half of 2012, which will result in healthy 9 percent growth for the MCU industry as revenue tops $17.2 billion in 2012, according to IC Insights.
One reason for decent revenue growth next year is the continuing transition from 4- and 8-bit MCUs to 16- and 32-bit chips, which have higher price tags.
“Single-digit growth in demand can be absorbed by the capacity already in place," said Ganesh Moorthy, chief operating officer for Microchip Technology.This year, while the overall market grew only 4 percent, revenue in the 32-bit MCU segment increased 12 percent and sales increased 21 percent for 16-bit chips. The market for 4- and 8-bit MCU's declined by 16 percent in 2011, according to Matas.
“A lot of designers are saying we could do more with our products and not spend that much more by moving up to the 16-bit level,” he said. “You get a lot more functionality.”
Matas added that numerous automotive and industrial applications are moving to 16- and 32-bit MCUs.
While supply conditions may favor buyers in the first half, many suppliers expect 2012 to be a decent, if not stellar, year for MCUs. They noted that MCUs have been designed into more new products over the last two years and many of those new designs will go into production in 2012.
In addition, MCU inventory levels are starting to drop and more MCU orders will be placed by OEMs. As a result, most MCU manufacturers believe business will be better in 2012, but are hesitant to forecast how much business will improve.
“It's hard to tell how much growth there will be next year, “ said Ganesh Moorthy, chief operating officer for Microchip Technology, based in Chandler, Ariz. “There are many factors outside of our control.”
However, he said that in previous business cycles when there was a steep decline in business, there was an even larger “spike back up.”
In addition, in an up cycle, electronics purchasers “want to carry more inventory just to be safe. All these factors drive the cyclicality of the business. If you look at historical performance of the semiconductor market in 2012 should be a reasonably good year,” said Moorthy.
Moorthy noted that microcontroller demand is already broad-based, as MCUs are being designed into more systems to enhance the functionality of equipment. One example is energy efficiency.
Whether it is motors, power supplies, lighting, or metering, microcontrollers are being used more to improve energy efficiency, according to Moorthy.
Another demand driver for MCUs in 2012 is the need for intelligent systems to communicate with each other.
“Increasingly with embedded systems, there is a need for some systems to speak to each other and to communicate in some fashion whether it is multiple systems in a factory or multiple systems at home," said Moorthy.
Some suppliers believe MCU demand will grow next year because high inventory levels will be worked off. In addition, some macroeconomic trends and events will stimulate the economy, including the MCU business.
“We are betting that we will outperform the overall NCU markets due to our design activities for the past two years,” said Tony Keirouz, vice president product marketing and applications, Americas for STMicroelectronics.Tony Keirouz, vice president, product marketing and applications, Americas for STMicroelectronics, said events such as the Olympics, the World Cup, and even the elections in the U.S. and other countries will have a positive impact on the economy, which will help drive the overall electronics industry including microcontrollers.
He added that “some of the key designs that we have won over the past two years will materialize and go to production.”
Keirouz went on to say that he expects decent demand for low-end and high-end microcontrollers. “There's room for 8-bit to 32-bit solutions and we believe this it will continue over the next two or three years,” he said.
Some customers will ask for “very simple solutions but with very critical low-power requirements. Others will want a high-end combination of a digital signal processor and microcontroller to replace two chips to save space and be more cost effective," said Keirouz.
However, he noted while the entire microcontroller industry will grow next year, "we are betting that we will outperform the markets due to our design activities for the past two years.”
Two segments that are likely to drive MCU demand for STMicroelectronics and other MCU makers are automotive and medical.
Growing use of microcontrollers in more equipment will drive revenue growth through 2016.Maria Cortez, MCU marketing manager for Texas Instruments, based in Dallas, said microcontrollers are used in everything from engine control and hybrid vehicles to airbags and tire pressure systems in vehicles. In the medical segment, they are used in implantable devices such as pacemakers and patient monitoring equipment, among others.
She added that renewable energy will also be an important segment for TI, as MCUs are used in the smart grid as well as solar inverters and wind turbines. Both large motors and micro motors will use more microcontrollers, as will battery operated equipment.
Cortez said the MSP430, C-2000 and Concerto products are used in many of these applications.
The MSP430 is a mixed-signal microcontroller with a 16-bit CPU. It is used for low-power consumption embedded applications.
“MSP430 is our ultra-low-power microcontroller line and operates at 0.9 V,” said Cortez. “It is for all these battery operated devices that need to have very long battery life.” MCUs are used in everything from remote controls to implantable devices to smart meters.
The C2000 is used for digital motor control, power conversion, lighting systems, power line communications, and automotive applications.
Concerto, which combines an ARM Cortex-M3 core with a C2000C28 core, is a microcontroller that has digital signal processor instructions, according to Cortez. Concerto is used in applications such as solar inverters and industrial controls.
Some MCU makers predict that demand will be strong for 32-bit processors in 2012. Lees said Freescale's MCU growth will rise next year because of the introduction of new 32-bit ARM controllers which will begin sampling in the first quarter. The new MCUs, part of the Kinetis line, are targeted for use in industrial measurement, instrumentation, metering, and medical equipment.
While suppliers say MCU demand will rise next year, it should not have significant impact on supply unless demand growth is at a very strong rate throughout the whole year.
“Currently there is plenty of capacity in place,” said Keirouz. “If buyers start panicking like they did 2010 and hoard products, supply may be an issue.” However, single-digit growth can be absorbed by the capacity in place.
“If there is growth for the whole year, then we will see shortages. But we don't see that happening,” Keirouz noted.