Microchip takes a hit from US housing market downturn

Microchip takes a hit from US housing market downturn

An interaction with Steve Sanghi, CEO, Microchip Technology

Friday, October 19, 2007

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US-based Microchip Technology, has steadily been making its presence known in the semiconductor industry with its wide range of microcontroller products

These microcontrollers have made their way into many consumer electronic products across automotive, home, office automation and communications products in India and across the world.

Steve Sanghi, the company's CEO, has been instrumental in propping up the company, which was in the dire straits in 1990, to becoming a $1 billion firm ranked number one in the 8-bit microcontroller space in 2006.

Sanghi has also written a book called, "Driving Excellence: How the aggregate system turned microchip Technology from a failing company to a market leader," chronicling the company's successful growth journey.

Here are excerpts from an interview with Priya Padmanabhan from CyberMedia News.

CMN: The company registered a dip in revenues in the last two quarters. Was the US housing market downturn responsible for this?

Steve Sanghi: The US housing market hit records in the last couple of years driven by very low interest rates in the US. Microchip has significant design activity in the housing market with customers who build appliances, security systems, garage door openers, smoke and carbon monoxide detectors, sprinkler systems, irrigation equipment in the home among other things. These are related to new home construction. There is also a replacement market where you purchase new equipment when your existing appliances go bad. A fairly large portion of the market is driven by new home construction. New home construction in the US peaked by about two million units a year. That figure in the last year dwindled to less than one million a year. As a result, the consumption of products in that market is down drastically. We were able to deal with it because we are also in the consumer, automotive, communication and office automation markets. Earlier, we were able to overcome the effect in the US housing market, which is about eight per cent of our business, but then this spilled into the consumer market because of the credit crunch. That is a much larger impact that we were unable to overcome. So in the last two quarters, we were affected and went negative in the last quarter. The global consumer segment makes up for 34 per cent of our business. US consumer market makes up around half of that market.

CMN: In which countries are you investing to ease this impact?

SS: We are investing worldwide and especially in China, India and Romania. We have identified these three countries. Romania is a low cost location that allows us access to cater to our European customers. China is a large market and is becoming a sales office and application development center. But the largest percentage increase in investment we are doing anywhere is in India.

CMN: What are the kind of services rendered at Microchip's India design center?

SS: The Bangalore center is doing significant number of Silicon designs, which would go to the US where they would be used in manufacture at one of our fabs. The products designed here are not for the Indian market but for the global market. They have done a lot of designs for the PIC 18, PIC 24 and PIC 33 architectures. We have an application design center in India where the engineers do reference designs and product verification support for specific customer markets. They also work on development tools that our customers can use. We also have a call center here.

CMN: How is the company doing in the Analog microcontroller space?

SS: We have done well in Analog over the years. We grew 24 per cent year-on-year in Analog last fiscal. This year it has been flat because of the housing market. It is a good competitive market and there are a lot of good Analog companies. It has not been an easy entry into Analog. It has taken us many years to establish ourselves in Analog.

CMN: What are the major trends that are shaping the microcontroller market?

SS: In terms of performance, it is moving from 8-bit to 16-bit to 32-bit microcontrollers. Then there is growth along the functionality line. For example, Microchip has a line of 16- bit microcontrollers that we call digital signal controllers, which has the DSP functionality combined with the microcontroller in the same chip. It allows the customer to execute Digital Signal Processing (DSP) functions, speech libraries, echo cancellation etc. The other dimension is that of user experience and configurability. Microcontrollers are drivers for the entire lighting industry with new digital displays and lights. The other area is connectivity. There is Infrared connectivity, Radio frequency connectivity (Zigbee) and in industrial and automotive markets, there is CANbus and LINbus.

Packaging is also getting smaller and more compact.

©CyberMedia News

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