Simulating the secret of 80% margin of IC company

In the area of ​​analog ICs, there is a maverick company that has never competed with everyone and continuously created a niche market. The gross profit margin for the coming year remains at an unbelievable level of nearly 80%, and the average operating profit is close to 55%. This is the Linear Technology Company (LTC). This year, Linear Technology has been in full swing for 30 years and its annual sales will reach US$1.5 billion. The company’s CEO, Lothar Maier, came to China and Sun Changxu, chief analyst of “International Electronics Business”, talked with Lothar and tried to uncover the high-profit secret of Linear Technology.

The first one that marveled us was that so many high-end, innovative analog ICs from Linear Technology were not produced in the most modern factories, but were produced in what we thought were "obsolete" 6-inch fabs. from. Currently, Linear Technology has two 6-inch wafer fabs, one built in 1996 and the other built in 2000, and 95% of Linear Technology's products are manufactured in these two factories. "We think it is enough to meet our process needs. There are currently no plans to upgrade the equipment. Unless we build a new factory, we may choose 8-inch Jingyuan Plant." Lothar said he even laughed and said: "Our first 4-inch The fab was used for 20 years until it was replaced by a 6-inch factory in 2000, so this 6-inch plant can be used for at least another 10 years. "The current production capacity of these two production lines is up to 2 billion US dollars, compared with Linear Technology's Sales are much higher, and it seems that their expansion plan will not be implemented soon.

Lothar particularly emphasized that compared to the improvement of the process, they are more concerned with product innovation, high pressure, high reliability, durability, and timely delivery to customers. Therefore, in the current era of digital IC industry chasing advanced technology, billions of billions of dollars in the burning of money; in the era of some analog IC manufacturers also participate in the semiconductor arms race, the unique persistence and personality of Linear Technology, It makes it stand out both in terms of gross profit margin and operating interest rate.

The second thing that surprised us is that Linear Technology continues to expand into emerging markets and will never participate in the "cleanliness and self-satisfaction" of the Red Sea. The industry is circling such a story: "Lineart's products are always in a unique position in the market. Once competitors enter, they quickly give up and move to new unique products."

Indeed, for markets with a large number of participants, even if it is the eyes of everyone's extremely proud orders, Linear Technology can choose to give up. Chang Xu asked Lothar, there is no Linear Technology lC4 iPhone4, Lothar said that previous generations have, but he has voluntarily gave up iphone4 and iPAD2 market, "because there are too many competitors involved." Lothar said.

Once, the high-end consumer electronics market is also an important source of income for Linear Technology. After the dotcom bubble burst, the company’s sales fell by nearly half in fiscal 2002. Subsequent rapid growth In addition to the recovery of all standard markets such as industry and communications, the rapidly growing emerging high-end consumer electronics market such as mobile phones, digital cameras, MP3/MP4 players, brought more than one-fourth of sales to Linear Technology. income. "All of these emerging end products require sophisticated analog devices in tiny packages. Linear Technology is the first semiconductor company to offer such new analog devices." Lothar explained, "Consumer electronics continues to drive into 2005. Since then, many competitors have poured into the market, leading the market to focus on price over performance.” So, in 2005, Linear Technology switched its design and sales resources from a consumer electronics and mobile phone market that accounted for nearly one-third of its sales revenue. Industrial, communications, automotive and military/aerospace markets. “We think these markets are more in line with our philosophy of providing innovation,” says Lothar. After a few years of reorientation, Linear Technology has regained its fast-rising channel. At present, consumer products account for only 6% of the company. Industry, communications (infrastructure), and automobiles accounted for nearly three-fourths of their sales. Never participate in the Red Sea market and never compromise on prices. This is one of the important reasons why its gross profit margin has been consistently high.

After abandoning competition in the consumer electronics market, Linear Technology's innovations in hybrid/pure battery pack monitoring products (BMS), energy harvesting chips and micro modules have brought new competitiveness to it in recent years.

Third, Linear Technology is the only analog IC company that pursues a “non-stop production” policy, which brings them significant cost benefits. The reason why this can be done is because Linear Technology's products often have "standard" attributes. Shipments are several orders of magnitude larger than custom/partial custom chips with "special" attributes, because the average single With a large amount of sales, the fixed costs such as R&D and management fees are apportioned very well. "The first device developed by Linear Technology, the LT1001, has been available for 27 years and is still available today. Linear Technology is also willing to continue to provide collaborative design, sales and promotion." Lothar said, " Because the end markets we are concerned with are industrial, communications infrastructure, and automobiles, these products have a very long life cycle, so this non-stop plant policy is particularly important.” It is worth mentioning that this policy is behind Ling Li. A deep confidence in his own product. Just as an engineer said in my microblog: “The LT1001, when I was in college, used a board, high-precision amplifier, and it was easy to use. I didn't think it had been produced for 27 years.”

Fourth, compared with the high price of similar products, it is also an important reason for its high gross profit margin. "We don't compete with others on device prices. We always promote the overall value of our solutions," Lothar explained. In addition to the high price and high reliability of Linear Technology's products, Linear Technology's lifetime commitment to its products and its commitment to the industry's shortest order-to-delivery time are indispensable. The reason, these factors combined, it is possible to allow customers to accept its relatively high selling price.

Linear Technology promises the user 4 weeks delivery, which can not be said to be a miracle in the analog IC industry, because the general analog IC delivery is 8-12 weeks. This commitment is based on the fact that Linear Technology has its own manufacturing plant, packaging plant, and test facility. It has a warehouse called “die bank”, which has two to three months of inventory and more than 7,000 products. The device die of the model is so quick to deliver to customers. "Because we have prepared a full range of sufficient die libraries, we can quickly deliver on customer's request when users need different grades and packages, eliminating the need for wafer manufacturing time of 8 weeks under normal circumstances. "Lothar said. When asked if he needed to worry about an inventory backlog, Lothar said, “Since our devices never go out of business and never expire, we rarely worry about overstocking.” Perhaps this is their successful operation of the “die bank.” "The important reason for this is that Die Bank's management model is common to many companies, but Linear Technology can take its characteristics to the extreme.