Exposing the hidden costs of using off-the-shelf analog ICs

by Bob Frostholm, JVD Inc. , TechOnline India - July 07, 2011

There are many standard analog chips in the market that are simply priced too high. It may make good economic sense to consider using an analog ASIC company developed chip that mimics a standard product.

An ASIC does not necessarily have to be a custom integrated circuit. There are many standard analog chips in the market that are simply priced too high. It may make good economic sense to consider using an analog ASIC company developed chip that mimics a standard product.

Analog ASICs are not for everyone. Like any component choice, they must
offer the best economic value for the application.  Any associated up-front NRE costs (non-recurring engineering) must be factored into the equation along with hard tooling (wafer fabrication masks, test  hardware and software and more). In addition, there is the issue of time. Analog ASICs can take from six months up to a year or more to be ready to use in a production environment. And of course, there is a minimum quantity that must be consumed to assure the value is received.
These must all align properly to justify development of an Analog ASIC.

Why do Standard Analog ICs Cost So Much?

No one designs and tools production for ICs for free. The OEM pays for this one way or another. When you buy a standard analog IC, some portion of the price you pay is used to cover the development cost of that chip. The real question becomes, what portion of the price you pay is actually the cost to make the chip? A simplified analysis is derived by viewing a chip company’s financial statement. The critical metric is Gross Profit Margin (GPM).

Gross Profit = Company Annual Sales – Actual Cost to Build the Products Sold

When viewed in their annual report, reflecting sales over a 12 month period, GPM is an average, meaning half of the chip company’s sales during that year achieved more than the reported GPM and half were below the reported GPM.

 

                             

 

Depending on the GPM of the products you selected for your new design, it may be cost advantageous to consider replacing them with an analog ASIC. For example, a circuit uses several off-the-shelf analog ICs, including a Linear Tech gain programmable precision instrumentation amplifier, a National micro power ultra low-dropout regulator, an Analog Devices 40 µA micropower instrumentation amplifier, and much more.

The combined high volume bill of materials cost was $3.56 and was easy to integrate into an analog ASIC.  By integrating the equivalent functions into an analog ASIC, it was possible to reduce the $3.56 cost to well under one dollar. The product lifetime is expected to be ten years, with monthly volumes averaging 15K units.

After amortizing in the NRE and tooling costs associated with the development of the ASIC, the following sensitivity analysis was developed. It is expected that during the lifetime of the ASIC that there may be some degradation to the prices of the standard analog ICs.

The analysis projects lifetime savings based on not only under and over achievement of the lifetime volumes of the chip but also the fact the future cost savings may be less than today’s based standard product price changes.

                              

While cost is a compelling reason to move to an analog ASIC because it is an easily measured metric, do not underestimate the value of IP protection and unique differentiation. Many times these critical aspects of an analog ASIC’s economic value are overlooked.

 

About the author:

Bob Frostholm is Director of Sales and Marketing at Analog ASIC company, JVD Inc. (San Jose, California.)

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