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4 Misconceptions to Consider When Embarking on an Analog ASIC

Misconceptions abound when it comes to integrating analog functionality onto an IC, particularly when it comes to the amount of functionality that can be integrated, the manufacturing volume needed to make it economically practical, the extent to which a product can be differentiated from the competitive devices, and the need for “hand-crafted” analog functionality.

Alas, some of these can form imaginary roadblocks to progress, so let's address some of them head-on:

1. It is only economical to integrate analog functions into an ASIC if the analog content is minimal. Because stand-alone analog ICs are relatively expensive (witness the high-gross profit margins posted by most of the “dedicated” analog chip companies) there has been a growing desire among customers to engage in all analog ASICs (application specific integrated circuits). Unfortunately, these same IC companies set high ASIC barriers regarding who can access this capability and impose large up front NRE (non-recurring engineering) costs and tooling fees coupled with mandatory high-volume usages.

To get enough “value” into the ASIC to justify these initial up-front costs, the customer often has to include large digital functions in the design which then often restricts the performance of the analog portion due to the requisite manufacturing processes used.

The reality is that many independent ASIC companies focus on full-custom, all-analog designs and offer attractive solutions for low- and medium-volume requirements. With a little research, you can find the perfect solution for your analog integration needs. One of the beauties of developing an all analog ASIC design is that it is relatively inexpensive. Analog ICs are typically produced in processes that have been around for many years, even decades. The capital equipment has been fully depreciated, reducing manufacturing costs to little more than pure variable costs. Typical engineering and production tooling costs for a full custom analog ASIC can run from $125K to $350K, making them very competitive alternatives.

2. Only ultra-high volume applications can benefit from analog ASICs. The semiconductor industry operates in alternating cycles of boom and bust. A brief look back in time reveals that in boom times, capacity at the big Asian foundries fills quickly and all but the most promising, high-volume customers are turned away. Aggregators have somewhat mitigated the problem by combining numerous smaller company requirements under the umbrella of their larger purchasing power.

However, the large Asian fabs (IC fabrication plants, also called foundries) are built to benefit from economies of scale, offering processes tailored for the mass market; high-density, low-power logic. For many wafer foundries, pure analog is problematic if it cannot be produced on their high-volume, fine-line, low-voltage processes. Fortunately, there are bountiful alternatives.

Throughout the world and in particular in Silicon Valley, there are numerous “boutique” wafer fabs that specialize in analog processes and are not loathe to accepting lower-volume business. Considered a well-guarded secret by many, these fabs welcome low- and moderate-volume analog business and offer pricing quite competitive with the billion-dollar fabs in Asia.

These smaller fabs have come to realize that while analog designs are often focused on lower annual volumes, analog in general has shown to be less susceptible to the violent supply/demand curve swings inherent to the general semiconductor industry. An additional attribute is that analog designs, unlike their digital cousins, can sometimes remain in production for as long as 10 years or more. For the wafer foundries, accepting reduced annual volumes becomes an annuity that offers payback for years to come. Experienced analog ASIC companies have spent decades nurturing these relationships for their customers.

3. Cell-based ASIC designs ensure product differentiation Designing an analog ASIC using a cell library is tantamount to designing a system using standard, off-the-shelf, analog ICs with one key exception: selection. At the board level, there are tens of thousands of IC amplifiers, voltage references, converters, and more from which to choose. In a cell library, the designer is limited to choosing from a few of dozen amplifiers, voltage references, converters, etc. Performance compromises may be needed to accommodate these limited choices.

Custom analog ASIC development affords a perfect opportunity to rise above the competition. If you and your competitors are basing your designs around the same mixed-signal cell libraries, both of you will have approximately the same performance specifications, dictated by the specifications of the library cells.

True product differentiation comes from invention. It is derived by creating a uniqueness not readily available to the competition. cell libraries fail to deliver the necessary uniqueness. Full custom analog designs allow the designer (or design team) infinite flexibility to impart into the IC new levels of elegant simplicity while maintaining superior performance metrics, and all of this comes at a very competitive price. Learn more in myth No. 4: Handcrafted analog is too expensive (below).

4. Handcrafted analog is too expensive, compared to standard cells. There is a time and place to use analog library cells:

  • When the analog functions are a very small percentage of total chip being created and their use is necessitated by the dominate digital design requirements;
  • When the performance of the analog functions in the design are all of a non-critical nature.

NRE costs are a compilation of several variables. These costs must be amortized over the number of chips produced during the lifetime of the product to determine their effect on the unit cost of the ASIC. When executed properly, NRE costs associated with handcrafting the analog circuitry will return a disproportionately lower unit cost of the final chip in terms of reduced die size and higher yields. The key to success is the extent of the analog design experience resident at ASIC house doing the integration. With engineering and production tooling costs typically in the range from $125K to $350K, even low-volume applications can benefit.

16 comments on “4 Misconceptions to Consider When Embarking on an Analog ASIC

  1. Scott Elder
    May 9, 2013

    “(witness the high-gross profit margins posted by most of the “dedicated” analog chip companies)”

    TI, the world's largest analog semiconductor company reported gross margins last quarter of 47%.  And they sell everything from 18 bit SAR ADCs for $30 to LM324s for 7 cents.  Not sure I'd call that high gross margins, Bob.  That part of our business is over too.

  2. Bob @ JVD Inc.
    May 9, 2013

    Hi Scott,

     

    Unfortunately, as far as I am aware, TI does not break out their gross profit  margins by product group so there is no public info about the margins of their Analog line.  I suspect that the margins that you state as 47% include much more than their analog business.  We do Know that National, prior to the acquisition, had posted excellent margins…well in excess of 47%…I wonder what that says about the rest of TI's lines?

    My comment comes from a chart I prepared for a white paper I wrote a while back.  I have updated the top 3 with FY 2011 and FY2012 data. Here is the data I collected from these company's respective 10K reports. I hope the formatting reproduces. If not contact me and I can email it to you.  Bottom line is that this is a high margin business.

                                2012      2011     2010             2009       2008

    ADI                      65%       66%      65%             55%        61%

    LTC                      75%        78%     77%             75%        77%

    Maxim                  60%        62%     60%             52%        61%

    MPS                                               56%              59%        61%

    National                                         66%              63%        64%

    Semtech                                         58%             55%        54%

    SMSC                                              50%             51%        52%

    Volterra                                           61%             60%        57%

  3. Scott Elder
    May 9, 2013

    Hi Bob – They break out their operating profit per each business, but not in the financial reports.  Here are the numbers for Analog only .  You can see this has been steadily dropping since at least Q1-2010 (earliest data I have) starting at 29% and the latest quarter Q1-2013 is 18%.

    2010-Q1   0.2911485

    2010-Q2   0.312169312

    2010-Q3   0.328905756    

    2010-Q4   0.320158103

    2011-Q1   0.272135417    

    2011-Q2   0.280856423    

    2011-Q3   0.265895954    

    2011-Q4   0.244247788    

    2012-Q1   0.198695136    

    2012-Q2   0.242777778    

    2012-Q3   0.249593055    

    2012-Q4   0.251048532    

    2013-Q1   0.182038835

  4. Bob @ JVD Inc.
    May 9, 2013

    Operating profit margin (as you stated) is far different that gross profit margin. See if you can get the Gross Profit Margins for their Analog business so we are comparing apples to apples.

    Operating profit margins also account for things like research and development, selling, general and administrative costs which address non-product related costs. The point of my discussion is strictly product related costs and does not try to assess the “efficiency” (or lack thereof), of the company.

  5. Scott Elder
    May 9, 2013
  6. Bob @ JVD Inc.
    May 9, 2013

    Kinda puts them on par with SMSC… %age wise…

    The other interesting thing about Gross Margins is that this figure is an average over the year….meaning that half of the revenue any of these the companies received has a lower gross margin and half of it has a higher gross margin. Older products tend to fall into the first category, newer products into the latter.

    When I worked for a Big IC company, we couldn't get a new product approved for design unless its anticipated initial gross margin was at least 50% higher than the department's average.

    This is why creating an ASIC by gobbling up a bunch or LM324s and 555 timers and other low asp products rarely makes sense. The newer, higher priced ICs carry more margin and are very economical to consolidate into an ASIC.

  7. Brad Albing
    May 10, 2013

    Gents – thanks for generating some quite good dialog here.

  8. bjcoppa
    May 10, 2013

    ASICs are being outsourced to foundries more and more annually. TSMC is one of the leading foundries producing ASICs. There are a few small US foundries such as TowerJazz but most are located in east Asia. Fabless companies that produce ASICs and other chips are rising to the top in profit margin and revenue so they can specialize and master in designs. The capex needed to support owning fabs is increasing by hundreds of millions of dollars each year, leading more companies to outsource production.

  9. Scott Elder
    May 10, 2013

    To your point about cheap parts; I noticed that some of the metal programmable parts tout 30 op amps etc. on one die  Well, a 1MHz 2V-40V op amp costs less than 2 cents (i.e. quad LM324).  So having 55 cents worth of lower performing op amps on a $4 ASIC doesn't bring much value.

    I've done this custom analog IC thing for several years on and off.  I've seen where it works (i.e. military part, small form factor requirements like a hearing aid, etc.), but I've also seen many more people go down the path and fail.

    I do believe that ultimately most analog chips will be custom.  But first the industry needs to design tools that enable connecting black-box IP with high confidence so that an engineer that designs on a PCB today can architect his IC system in the future.

    Prototyping an IC is cheap–even full custom.  Defining, developing and qualifying for production is the real expense.

  10. Brad Albing
    May 14, 2013

    Hi Scott – just to clarify – obviously, in an absolute sense, the profit on an LM324 at 7 cents selling price is trivial, so regardless of margin, I'm going to ignore that. But for the high priced devices, are you saying that a 47% margin is low as margins go?

  11. Brad Albing
    May 14, 2013

    With respect to the fabless guys, that brings to mind the othe blogs we've seen here like Design a Production-Ready Custom Mixed-Signal IC on Your Couch:

    http://www.planetanalog.com/author.asp?section_id=482&doc_id=559611

    And Design a Custom Analog IC in Your Garage:

    http://www.planetanalog.com/author.asp?section_id=526&doc_id=559519

    the point being, if we let someone else worry about the fab facility, the cost goes down considerably. Well, until you consider the NRE – but that's a topic for another time.

  12. Scott Elder
    May 14, 2013

    < >

    No.  They can go lower.  Depends upon the competitiveness of your products.  Here are some nice statistics:

    [Stock Price/ IC Sales] Ratio for Analog Semiconductor companies –>>

    Linear Technology = 7.0 [~75% margin = means customer pays 4x manufacturing cost]

    Analog Devices = 5.29 [~65% margin]  [leader in amplifiers/data converters]

    Maxim Integrated = 3.81 [~60% margin]

    Texas Instruments = 3.22 [~52% margin] [leader in total analog, power management]

    On Semiconductor = 1.29 [~33% margin = means customer pays 1.5x manufacturing cost]

    You won't find any sub-47% margin products coming from Linear.  But you'll probably find lots from On Semiconductor.  Both companies have total revenue from $1.2B to $2.5B.  So it's not like Tiffany vs. Walmart ($4B:$400B sales ratio).  In the analog world, performance is rewarded on an analytical basis rather than the color of the wrapping paper.

     

     

  13. Brad Albing
    May 14, 2013

    That info helps considerably. I would probably know that if I'd paid more attention in my business classes back in college. But your expalnation helped fill in the missing details.

  14. bjcoppa
    May 14, 2013

    The pendulum has swung in the semiconductor industry more towards the foundries offering the most advanced node sizes and technology offerings. 10 or more years ago the leading foundries were well behind the curve and much slower to the party in advanced wafer processing methods and techniques such as high-k dielectrics and metal gates However, due to the shift towards fabless business models, companies like TSMC have reinvested revenues earned at high profit margins to become more competitive with respect to high performance chips- taking market share from top IDMs. A company such as ARM for apps processors has licensed out designs to leading foundries which are pumping out cutting-edge chips especially in mobile devices- keeping companies like Intel out of top smartphones.

  15. Bob @ JVD Inc.
    May 14, 2013

    Scott… thanks for the statistics re: [Stock Price/IC Sales]  vs. gross  margins. Not unexpected that the equity markets will place more value on those companies that make remarkably high margins.

     

    To Analoging's comment, I might be wrong, but I don't think any of the companies Scott mentioned are producing much (if any) analog in advanced node sizes.  Analog's sweet spot is .35um to .18um…and a little in .13um.

  16. Brad Albing
    May 14, 2013

    Just curious – would Intel even want to be in smartphones? I realize it's real high volume product, but it's also a cutthroat business with razor thin margins.

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