By Steve Sanghi, President and CEO, Microchip Technology Inc.
I’m often asked by investors and suppliers to describe “the killer application” for our microcontrollers and analog products. The simple answer is, there isn’t one. Yet, Microchip continues to grow organically as well as through carefully chosen acquisitions.
Instead of pursuing the elusive one or two very high volume applications, Microchip’s business model embraces diversification, including products, applications, customer base, markets served and geographic locations. If employed correctly, this diversification strategy could very well help many other embedded manufacturers, big and small, enhance their business models.
Many semiconductor manufacturers invest millions of R&D dollars to create a highly specialized IC competing for “the killer application.” But, at best, this can be a risky proposition requiring suppliers to navigate volatile market conditions with no guarantee of being designed in – and no ROI. Bleeding-edge process technologies, IC performance, capacity, price, the appropriate end-product feature set and, ultimately, consumer demand must all converge at the right time.
A horizontal product strategy, on the other hand, enables market growth with minimal exposure. For example, our PIC microcontrollers provide the right combination of performance, peripherals and price to appeal to a broad range of applications and OEM customers.
Our products can be found in thousands of unglamorous applications, such as thermostats, smoke detectors and coffee makers – staples of everyday life where sales opportunities are more consistent. Diversification better insulates Microchip from the ups and downs of any one application, market or economy.
Customers requiring small quantities of silicon devices can number in the tens of thousands, worldwide, representing a huge market opportunity. This group is often ignored by the semiconductor giants, who spend their time and resources chasing after “the killer application.” While distribution partners can play a significant role in servicing these smaller customers, the winning manufacturer must provide a “whole product solution,” including the silicon, sophisticated development tools, technical documentation and application notes, and dedicated technical field support.
In many cases, today’s low-volume application can turn into a high-volume cash cow within years. Microchip has more than 70,000 customers – a diverse group that includes small customers as well as Fortune 500 companies that dominate their markets.
Commodity memory suppliers and chips that serve only a single “killer application” can be designed out based on a penny cost reduction from the competition.
By providing an embedded development platform based on a proprietary architecture, seamless code migration and a vast range of device offerings, OEMs have little incentive to change silicon solutions from one design cycle to another. Instead of designing with a new architecture each time, they retain their code investment and can easily specify the appropriate silicon device based on the changing performance needs of the end product.
By providing a solution that meets the needs of many, chip makers could build diversification into their business models while creating a compelling competitive advantage. Additionally, a shift in focus to unglamorous markets instead of high-profile “killer applications” could provide many embedded suppliers with predictable sales growth.
(Note: The Microchip name and logo, and PIC are registered trademarks of Microchip Technology Incorporated in the U.S.A. and other countries. All other trademarks mentioned herein are the property of their respective companies.)