Electronics Production | May 12, 2011

Exposing the hidden costs of using off-the-shelf analog ICs

With the demise of industry wide second sourcing and the move to developing purely proprietary designs, Analog IC companies have raised the profit bar to new heights. Less affected than their digital brethren by the cyclical nature of the chip industry, Analog IC companies have successfully carved product niches to weather the financial storms.
With the notable exceptions of cellular phones, notebooks, and other highly competitive consumer driven applications, Analog product designs can easily last for years, even decades without change. While the world cries out for "cost down" in nearly every application, most Analog IC companies respond with more expensive, feature rich choices for next generation designs. Great news if you want to redesign your product every couple of years. But who can afford that?

Once a product is in production, it's difficult to implement lower cost manufacturing and procurement strategies when the chip average selling price remains constant. Our customer's engineers, who at one time were charged solely with designing to a specification, are now challenged with meeting ever-shrinking cost targets as well. The engineer has in fact become a part-time cost accountant, relying on his own technical shrewdness to seek suitable substitutes that can shave pennies from a product's cost.

There are many hidden costs associated with using off the shelf Analog solutions. As you will see shortly, the biggest hidden cost is the cost of the off-the-shelf product itself.

In the early years of Analog ICs, there were a handful of big players, each with a unique niche. National was the king of op amps, Fairchild the ruler of regulators, Signetics championed the timer market and Motorola controlled the communications chip sector.

With only a few companies and a few Analog chip designers, each company selectively second sourced the best products of their competitors to broaden their own product offerings, ultimately giving all of them a somewhat similar product portfolio. Without product differentiation, price, service and support played an important role in winning orders. Pricing was aggressive and ASPs dropped rapidly once a second source was available.

Flash forward a few decades and the landscape looks quite different. The legacy companies have changed quite a bit; Philips consumed Signetics, Motorola split into Freescale and On Semiconductor, while National ate Fairchild, then spit it out again years before TI gobbled up National. Many of their old mainstay Analog products remain, augmented now by thousands upon thousands of newer, sole-sourced, proprietary devices.

Additionally, many new players have joined the Analog fray. Dozens of Analog chip companies have grown up or sprung up in the ensuing years, spurred on by the semiconductor foundries (independent wafer fabrication facilities) that have helped lower the barriers to entry by avoiding the burdensome capital costs of building a dedicated fab. Nearly all have bestowed us with more proprietary IC designs, rich in features and benefits, and not cheap.

Bipolar processes, once the mainstay of Analog ICs, pretty much reached their limitations and have been supplanted by various CMOS, BiCOMOS and BCD processes that are better able to meet the more stringent power and speed requirements of today's customers.

The products offered by the Analog players have changed dramatically. As Voltage Regulators like the uA723 and uA7805 evolved into more sophisticated products, the term Power Management arose, creating a whole new category of Analog chips, adding control, protection, high efficiency, watchdog timers, multiple outputs and more.

Many authors have opined that competing on price is a suicide strategy, calling it a going out of business strategy. In the early years, semiconductor processes were not as stable as they are today. Yields were dicey. Second-sourcing protected the customer if their primary vendor had a manufacturing problem, and everyone did at one time or another.

Second sourcing a competitor's Analog chip was never easy, always problematic. Unlike digital, where the rules are well defined in terms of what voltage a logic "1" and "0" represented, Analog chips use critical external resistors and capacitors and a second-sourced chip had to exhibit exactly the same performance with the identical external components as the original.

As simple as it seems, this is not an easy feat. Many chip engineers used to argue that it was more difficult to create a second source product than it was to develop a new proprietary device. This may account, in part, for the demise of second sourcing. Nonetheless, some second sourcing was very successful and customers benefited greatly.

Take for example the NE555. Sourced by some 15 different companies at one time or another, the ubiquitous 555 timer cumulatively sold in the billions of units at prices approaching ten cents. Will we ever see the likes of the 555 timer again? Not likely.

In his book, "THE LONG TAIL: Why the Future of Business Is Selling Less of More," Chris Anderson addresses the dynamics of choice and explains why. The gist of the book is that the more choices we have, the less of any one item will be sold.

Look at the IC Master and investigate DC to DC Converters…1'214 pages, with 25 parts per page…over 30'350 DC-DC converters from which to choose. Most assuredly, there are no billion-unit devices here.

The Need for Analog ASICs

With so many standard products to choose from, is there really a need for Analog ASICs?

The answer is unequivocally, yes. According to market research company In-Stat, ASICs represented 59% of the Analog market in 2010, while Dataquest places the figure closer to 54%.

Regardless, it is evident that the demand for Analog ASICs far exceeds that of standard Analog ICs.


A. Differentiation
B. IP Protection
C. Cost
D. All of The Above

Author: Bob Frostholm, JVD Inc.. The rest of the whitepaper can be found under


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