What is the future development trend of the world's top 10 analog chip manufacturers? Who will win in the end?

Last week, IC Insights announced the revenue and rankings of the world's top 10 analog chip manufacturers in 2018.

Due to the high threshold characteristics of analog chips in the IC industry, their products and technologies are difficult to copy. Therefore, the gross profit margins of related manufacturers are quite considerable. Among the top manufacturers in the world, those with gross profit margins below 40% are considered relatively poor performance, and the highest are close to 70%.

In this context, the rule that the strong get stronger and the big get bigger becomes more prominent. According to IC Insights, the top 10 IC manufacturers accounted for 60% of the global sales of analog chips in 2018, reaching US$36.1 billion, compared with US$32.3 billion in 2017 and US$28.4 billion in 2016, showing a trend of increasing year by year. Among the top 10 manufacturers, five had revenue growth rates of 10% or more, and two had negative growth rates.

Figure 1: Ranking in 2018 (Source: IC Insights)

According to the ranking in 2017 shown in Figure 2, eight companies had revenue growth rates exceeding 10%, and only one company had negative growth. The decline in the semiconductor industry in the past year has also affected the analog chip field, but compared with memory and logic circuits, the analog chip market has been less affected.

Figure 2: Ranking in 2017 (Source: IC Insights)

The hegemony remains strong

Obviously, whether in terms of revenue or market share, Texas Instruments ( TI ) is far ahead of other manufacturers and firmly occupies the position of the leader in the analog chip industry.

With sales of $10.8 billion and a market share of 18%, Texas Instruments once again became the leader in the analog IC industry in 2018. In 2017, TI's analog IC market share was also 18%, and in 2016 it was 17%, and its position is very stable.

In 2018, TI's analog sales increased by $900 million year-on-year, almost twice that of second-place ADI and 10 times that of tenth-place Renesas. In 2017, the company's analog sales increased by $1.4 billion year-on-year, a growth rate of 16%, which was also more than twice that of second-ranked ADI.

TI’s analog revenue in 2018 accounted for 78% of its $13.9 billion in IC sales and 72% of its total semiconductor revenue of $14.9 billion.

According to IDC statistics, the growth rates of the industrial electronics and automotive electronics markets will lead until around 2020, with annual growth rates expected to be 4% and 8% respectively, far exceeding the overall chip market's average annual growth rate of 2%.

Industrial and automotive electronics were TI's main revenue sources in 2018, with industrial applications accounting for 36% of its revenue in 2018, automotive applications accounting for 20%, and personal electronics accounting for 23%. TI said that these three areas are highly profitable and provide the best opportunities for future growth.

TI is also one of the first companies to produce analog chips on 300mm wafers. The company once said that manufacturing analog ICs on 300mm wafers can increase the cost advantage of each unpackaged chip by 40% compared with using 200mm wafers. In 2017, more than half of TI's analog revenue was achieved by using 300mm wafer manufacturing.

In summary, TI's outstanding performance is largely due to the characteristics of analog chips themselves and their market, namely, analog chips are significantly differentiated and have a long life cycle.

The technology of analog ICs comes from collecting and capturing information from the real world. Because of the complexity and heterogeneity of the real world, the product design used to capture this feature also has complex and heterogeneous characteristics. The differences in analog chips are very significant, which is reflected in the fact that the company's IP is particularly important. At the same time, analog chips emphasize high signal-to-noise ratio, low power consumption, high reliability and stability, long life cycle and low price, which is significantly different from digital chips (digital chips follow Moore's Law and are usually eliminated by higher-process products after 1 to 2 years).

In addition, from the supply side, the supply of research capabilities in the analog chip industry is limited. In the design process, human resources are difficult to replicate. Compared with digital chips, the design process of analog chips relies more on experience and less on computer models. The design process is more trial-and-error, and good engineers have more than 10 years of experience. Therefore, analog chip companies have built strong barriers to entry.

Furthermore, product differentiation and limited research capabilities have reduced market competition, while the decentralized nature of the terminal market continues to amplify the strategic advantages of the analog chip industry. The terminal market for analog chips is very fragmented, with tens of thousands of product lines and a decrease in the average order volume. Industry leaders have advantages in horizontal categories, and it is difficult for new entrants to compete effectively. The market competition landscape is stable, and leaders have a say in pricing power.

ADI also grew strongly

Analog Devices, ranked second, saw its analog IC sales rise 7% to $5.5 billion in 2018. The revenue figures shown for ADI include sales from Linear Technology, which ADI acquired for $15.8 billion in cash and stock in the first quarter of 2017. ADI’s largest customer is Apple, which accounted for 14% and 12% of its total revenue in 2017 and 2016, respectively.

ADI's analog IC sales increased 14% in 2017 to $4.3 billion.

Infineon surpasses Skyworks

Infineon Technologies rose one spot to third place, having swapped positions with Skyworks in 2017. In 2018, Infineon’s analog sales increased by 14% to $3.8 billion, accounting for 6% of the market. Infineon continued to expand its presence in automotive (43% of sales in 2018) and power management (31% of sales in 2018) applications. Industrial power control (17%) and chip cards and security (9%) rounded out the other major end applications.

In contrast, Skyworks grew 16% year-on-year in 2017, but fell sharply to -1% in 2018. Since the company is one of the world's top three RF chip suppliers and a major supplier to Apple, it seems that it has lost a lot of business to several other companies.

ST's outstanding performance

STMicroelectronics (ST) had the strongest sales of analog products among the top ten manufacturers, with a revenue of $3.2 billion (5% market share) in 2018, up 26% from 2017. It is reported that most of ST's analog IC sales are targeted at motion control (motor driver ICs and high-voltage driver ICs), automation (intelligent power switches) and energy management (power line communication ICs) applications.

NXP's counterattack

NXP was the only supplier in the top 10 to experience negative growth in 2017, with its analog IC sales falling by -1% year-over-year. The decline can be attributed in part to the sale of its Standard Products business to a consortium of Chinese investors consisting of Jianguang Capital and Wise Road Capital. The $2.75 billion transaction was completed in February 2017. The Standard Products business was renamed Nexperia.

In 2018, the company's analog IC sales increased by 10% year-on-year. As the world's leading automotive semiconductor and MCU manufacturer, NXP's main growth area this year was automotive applications. Its analog chips are essential components in emerging LiDAR, vehicle networks and 5G systems.

ON Semiconductor's three consecutive promotions

In 2018, ON Semiconductor’s analog sales grew 11% to $2 billion, accounting for 3% of the market. Following 35% analog sales growth in 2017 and 16% growth in 2016, ON Semiconductor’s sales have grown strongly for three consecutive years, partly due to the company’s acquisition of Fairchild Semiconductor in September 2016 and partly due to the large number of power management products sold in the automotive market, especially for active safety, powertrain, body electronics and lighting applications.

Recap history

Looking at the revenue and rankings for 2017 and 2018, I can’t help but think of the performance of analog chip manufacturers in previous years.

In 2014, the global analog IC market performed poorly. Faced with the pressure of global PC market demand being replaced by tablet computers, the Wintel camp began to sound the clarion call for a counterattack. In addition, driven by emerging applications such as wearable devices, optical lenses, wireless charging and the Internet of Things (IoT), the analog IC market performed well in 2015.

So, in 2014 when the market conditions were not good, how was the analog IC market pie divided?

According to the McClean Report released by IC Insights in 2015, Texas Instruments once again became the world's leading analog IC supplier in 2014, with a market share of 18%. Its revenue growth and market share are comparable to the company's performance in 2017.

Figure 3: Ranking in 2014 (Source: IC Insights)

By comparing the rankings of analog chip manufacturers in 2014 and 2018, we found that what remained unchanged was the position and market performance of Texas Instruments, while in terms of ranking and market share, there was little change in the manufacturers such as Infineon, Maxim, NXP, ON Semiconductor and Renesas.

ON Semiconductor and Renesas only saw significant changes in revenue growth rates. ON Semiconductor's revenue growth rate increased from 4% in 2014 to 11% in 2018. This was mainly due to its acquisitions in the past two years. ON Semiconductor acquired Fairchild Semiconductor to consolidate its position in the analog market.

Microchip ranks in the top 10, mainly because ADI and Linear merged into one, and Microchip filled the position.

The companies with the biggest changes are ADI, ST and Skyworks.

Through the acquisition of Linear, ADI rose from fourth place in 2014 to second place in the industry in 2017, closely following the leader TI.