(iTers News) - Since its inception in 1981, Linear Technology Corporation has been steadfastly focusing on a broad range of analog chips mainly for industrial and communications infrastructure applications.
The 27 year-old legacy product offerings and expertise in the sector are now underpinning its renewed bet on automotive chip markets that the company believes is set for explosive growth.
As cars are now getting smarter and more intelligent, more and more of electronics contents are being built into, replacing what used to be some mechanical parts
So is a proliferation of silicon content in to the cars and buses to control and manage all of those automotive electronics. The proliferation will accelerate further, as a growing fleet of hybrid cars are taking to streets.
In an interview, Lothar Maier, CEO, or chief executive officer with Linear Technology said, “Linear Technology has a strong product offering for industrial areas. Many of industrial products work well in the automotive, too, because many of the requirements (in the automotive) are exactly the same as the industrial applications do in the terms of quality reliability and ability to manage industrial voltage range and operate in harsh environments.”
“We recognized several years ago electronics in automobiles are going to be tremendous growth opportunities not just for digital suppliers, but also for analog makers, as well. And, I think opportunities for electronics in cars are right now just beginning,” added he.
According to him, sales to automotive markets just make up low single digit of 3 % to 4% of Linear’s revenues 3 to 4 years ago.
Hybrid opens up new opportunities
But, in the its fiscal calendar 2007 ended on July 1 2007, sales to automotive markets suddenly rocketed upward to make up 8%, and in the first quarter of fiscal 2008 ended September 30, 2007 the portion hit 10%. And, he expects sales in automotive markets to represent about 15% of total revenues for year from now on.
Meanwhile, industrial applications markets represent over 30% of its revenue.
The followings are excerpts from the interview.
Lothar Maier) Automobile is one of the markets Linear Technology several years ago started to recognize as having the strong growth potential. And, I think the whole emergence of electronics in the cars is just beginning. We saw the emergence of navigation system would become pretty much common place in many cars. Even if they started with most expensive high-end car models, today you see they are becoming more and more common feature. As, a result, I would be surprised to see every car don’t come with a navigation system (in the future).
And, LED lighting is more and more prevalent in cars, as headlight and taillight are now using them. And, all illumination you get inside the car will be done with LED lighting. More importantly, high-tech featured cars are starting to develop electronics system in the cars, so that electronics systems are replacing normal wire mechanical system. You know electronic braking and electronic steering.
As, more and more of hybrids become prevalent, all of mechanical functions that used to be run off motors, (they) still have to work.
You still have air conditioning system and you see the mechanical feature is going to be powered by some sorts of motor and is always associated with electronics going along with it.
Hybrid cars got all of battery management system. I think people are just beginning to scratch the surface of what sorts of electronics are going into cars.
For example, a few weeks ago, I was visiting customers in Japan. Some of our automotive customers were talking about using automatic lane departure warning system. Cars are able to read basically the lines of the road and if you departed, or strayed out of or from those lines, it warn you departed out of lines. It has an ability of forward-looking radars so that it calculate your speed and calculate (that) of cars ahead of you and calculate cruising distances between the two and, if you approach too fast to the cruising distance, it warns you.
I think just a lot of new innovative ideas people are looking at, focusing on electronics automobile
iTers News) Which section, parts of cars are you seeing the biggest growth potential for you company, especially.
Lothar Maier) For us, the biggest probably has been entertainment ad navigation system, only because it was the first. I don’t think it is necessarily going to be ultimately the biggest opportunity lying ahead. I think it could be many of areas people even haven’t though of.
With so many electronic motors, there is a need for sensing and detection of problems, (which) may be currents in electrical motors. I think there are a lot of opportunities. I think hybrids are great opportunities for analog (chip) companies, because you know…
That one (where I see opportunity) could be battery charge.
Somewhat, you got lots of battery for hybrids, and going along with it, the problem of charging, maintaining and balancing the batteries for hybrids are only becoming more complex, as the number of batteries (cells) is going up. As we (the industry) go from Nickel metal hydride battery to lithium ion, there is a whole new sensitivity for safety.
Almost all, with few exceptions, hybrids are sold with Nickel metal hybrid.
I wouldn’t be surprised if a number of years later, in the future, vehicles become not just hybrids, but maybe become plug-in-hybrid, which will become bigger part of the percentage of the cars. So, the opportunities might be quite larger for electronics companies, particularly for Linear.
Surges and spikes are big Issues
iTers News) Which kinds of chip offerings do you have on your chip portfolio for automotive electronics markets ?
Lothar Maier) Initially, we got car management type of products for communications areas and car navigation systems. And, we got power conversion products. We got LED drivers for displays of these navigation systems and LED drivers for headlight and taillight coming in. We have also products on development which we think is going to be very attractive and was just recently released.
One of them is, for example, the environment of a car is pretty harsh. There are a lot of surges to curb in the car. Lot of currents go through the car. Some components turn off and on. Spikes go through it.
So, we have recently introduced some surge protection products.
And, we are working on new products particularly directed to hybrid markets. What this product does is basically manage charging and discharging battery systems in hybrid cars. The product is now still under development, and will be introduced sometime within this year.
iTers News) Could you more elaborate on the product, which is under development ?
Lothar Maier) Basically, hybrid cars generally have not one big battery, but have hundreds of batteries stacked in series, so that volts in hybrid vehicles are typically very high to 300 volts.
And, now that you have all batteries in series, if one battery fails, or one battery has problem, the whole bunch (of battery) will become dysfunctional.
So what we want to do is very carefully balancing the charging and discharging of every battery in the car. There are the products (on our portfolio) that are working on to be able to do that, be able to make sure they get all the charge and discharge at the same rate. And if the problem is at the battery cell, the warning comes out.
That’s one example of the type of products we have specifically for hybrid markets.
Where others face challenges, Linear sees opportunities
iTers News) Will this product be able to work with lithium ion battery ?
Lothar Maier) It allows you make sure that, you know lithium ion battery is fragile, and so people are always concerned about overcharge of lithium ion flowing up. And these (concerns) , in some instances, it has been slow in implementation of lithium ion battery in the hybrid cars, and this is because of safety concerns. So, we have that roduct development that can manage very carefully very large stacks of batteries and basically maintain and help evenly charging and evenly discharging. Particularly on charging side, it’s very important.
We think that’s big opportunities. We see opportunities in hybrid markets beyond just cars. There are lots of areas for buses. Actually, hybrid markets make more sense s in buses than cars, because buses stop and go, frequently. So, you can always charge and discharge the battery every time you got to regenerate the braking. So, not just in cars, but also lots of hybrid opportunities are in buses and trains- lots of locations- just beyond normal cars.
iTers News) Linear has a very rich chip portfolio for industrial uses. How is that legacy helping you to lead the chip markets for automotive applications?
Lothar Maier) We have some products that we are now developing specifically for use in automotive markets. Yet, generally, Linear has always a very strong product offering for industrial areas.
So, in some instances, we have a little bit head-start, because we have never been a company strongly focused on consumer side markets, but a company, which has been more oriented on industrial side.
That growth in the automotive could be a good marriage with the fact that we have a long history in the industrial products. Many of those products(for use in industrial applications) work well in the automotive markets. Historically, automotive markets haven’t , or didn’t need them , but today they need them
A good marriage with legacy in industrial area
iTers News) How do you forecast the chip markets for automotive applications?
Lothar Maier) If you look at the industry forecast for automotive markets, between 2006 and 2010 the growth rate of the automotive (chips) is forecast to be the fastest growing area in the electronics markets, all of the areas, that WSTS (world semiconductor trade statistics) tracks. Analog (chips) for automotive, from 2006 to 2010, is forecast to grow by 50 %, which is the fastest of any segment
iTers News) What do you think is your competitive edge in the automotive market ?
Lothar Maier) Linear is a company that pretty much makes everything inside we sell. We have semiconductor fabrication manufacturing and assembly and test facilities . We are doing virtually all of our production internally. We have never adopted any sort of outsourcing for the number of reasons.
That is something which is very much values for automotive customers, because they truly believe they have to have suppliers that have very secure supply. If you get your own factory, you can build yourself, and you get an ability to supply products in very predictable way. Also it ensures that they are able to get products for a long period of time.
It’s not like the environment where they can buy from somebody else like subcontractors, who often decided they can no longer provide products.
Having your own factories gives you advantage in selling to automotive markets, because you have better control of your supply chain. We are perfectly happy with making parts as long as anybody wants them.
We do our own wafer fabrications, and do majority of assembly in our factory in Malaysia. We do almost 100% of final test somewhere here in Milpitas, California and in the factory in Singapore.
The industry’s No.1 profit-spinner
iTers News) Compared with digital chipmakers, it was learned analog chip makers enjoy better profitability. What is Linear’s case ?
Lothar Maier) If you look at our profitability, Linear is No., compared with all of analog competitors. And we, probably, are 50% more profitable that our nearest competitor. There are number of reason, and one of the reasons is our business strategy is that Linear, since its inception, has always focused on certain segment of analog markets that is the kinds of highest performance segment of the market.
The highest performance markets have been always evolving. What was the highest performance may not be highest performance this year. So, we re looking the area we can bring most value for our customers.
In doing so, we have obviously an ability to achieve better margin. That has been our business strategy. Also, we have been very good at being able to identify the markets which over the years have been emerging and have that product available for those markets. So, we focus on products customers are compelled to buy, staying away from consumer-oriented high volume short lifetime type. That business strategy is another reason that we have been able to achieve better margin, compared with our competitors going back over decades.
iTers News) Where else are you seeing growth opportunities other than automotive ?
Lothar Maier) We are seeing new opportunities in portable electronics for industrial markets, because industrial customers want product that are portable and handheld types devices.
The industrial and communications markets are the company’s two largest, each representing about 30% of our sales. For the last September quarter (first quarter of fiscal 2008 ended on September 30), both made up exactly the same 33% each.
Certain parts of communications markets are also very attractive. For us, we break down communications markets as three segments. Coming first is networking that we have very strong commitment. We are the industry leader when it comes to power of Ethernet, because we were the first company to provide the power of Ethernet products. So, the networking is the big portion of our communications business selling products to telecommunications infrastructure markets like base station and telephone switching system.
We also classify cell phones as big part of our networking business. We are selling our power management products for very high, feature rich cell phones, which comes with DMB and navigation, not to commodity cell phones.