Our sister title Electronic Business recently spoke with Steve Sanghi, president, CEO, and chairman of Microchip Technology, on the economy's impact on the microcontroller market, the company's entrance into 32-bit MCUs, and why it still banks on 8- and 16-bit MCUs as a sustainable sales opportunity. What follows are excerpts of that conversation.

Electronic Business: What challenges do you see for the MCU market through the rest of 2008?

Sanghi: The MCU market has the broadest application space, especially the low-end. Eight-bit microcontrollers go into just about everything you can think of, anything that has power applied to it in consumer, industrial, office automation, telecommunication, PCs, and everything else. The biggest headwind is the economy. There is no consensus on where the economy is headed. Nobody knows. Even a big company like General Electric has announced they are selling their appliance division because of slow growth. The market challenges are really around that. What's going to happen in the US economy? If the US economy falters and goes into recession, will it affect the world economy?

Electronic Business: What are the technical challenges for the second half?

Sanghi: There are challenges as well as opportunities. Lots and lots of end products are trying to improve their customer experience in terms of interface. Small handheld end products are adding display capabilities where there were just push buttons. Touch sense displays are on appliances. There are a lot of challenge in the area of connectivity. There are lots of competing wireless protocols like USB, Ethernet - there are just too many protocols to talk about. As the world tries to get connected and you deal with areas and buildings where you can't get to the wires. Or the third world [for example] where many of the countries are going to metered electricity and water rather than free from the government, they now have to install meters. And how do you do all of that? There are lots of technical challenges around creating a connected world.

Electronic Business: It sounds like there is a huge opportunity there, too.

Sanghi: Right. We are connected in all facets of that. [Microchip] is in Zigbee, powerline communication, RF, we have lots of products with USB. There are lots of industrial protocols. One is called CAN bus, another is LIN bus. They both started in the automobile market but they have filtered into the industrial world.

Electronic Business: How does the auto market look right now?

Sanghi: The automobile market is divided in two pieces: US and Europe/Asia. The US market is sick and the Europe/Asia market is healthy. The world is still building more cars every year, growing by 4 or 5% a year. But it doesn't feel that way because, living in America, the news from Detroit is almost always negative. If you look at the world, the car market is not bad.

Electronic Business: How does analog look through the second half?

Sanghi: Analog looks very good. The analog market, along with the microcontroller market and the rest of the semiconductor market, in general, is slow. It isn't growing at 17, 18% a year, like it had. Most analysts are estimating growth this year in the low to mid single digits. If you look at our last quarter, our analog business was up 8% sequentially, just December to March. We guided for it to be up another 8 to 12% sequentially from March to June. Our analog business is heading for growth of about 16 to 20%. But I will say that the overall analog business, just like the rest of the semiconductor business, is slow and impacted by the economy and pricing.

Electronic Business: What about the other embedded markets?

Sanghi: My sense is the overall microcontroller market - 8, 16, 32, all combined - will slightly grow at the rate of the overall semiconductor market, which is low to mid single digits. Our microcontroller business was up 4% sequentially December to March and we guided for it to be up 2 to 6% from March to June, so mid-point is 4%. So that would be 8% growth in the first six months [of 2008]. Lots of competitors are doing worse than that.

Electronic Business: You entered the 32-bit market in November 2007. How has that progressed?

Sanghi: We now have 11 products in production. We are selling an incredible amount of developer kits, which is always a leading indicator. If you sell lots and lots of development kits, it means people are evaluating and using the products. It's the best rate of development kit sales in any of our product launches. We have a number of beta site designs and some of them are starting to go into production, but the product is very complex and it usually takes a year and half to two years for the average 16-bit or 32-bit design to go to production. We don't really expect much of a ramp for two years. There's good momentum, but a lot of the revenue is yet to come.

Electronic Business: What's driving the 32-bit market? What technologies are demanding that type of technology?

Sanghi: The microcontroller customer, unlike the microprocessor customer, doesn't always go for performance. They go for what his or her application needs and what is the device that will do the job. A microcontroller application doesn't often get updated in software continuously, especially the low-end applications. Take for example your garage door opener. You don't get a disk from your manufacturer and update it. As a result, the majority of the microcontroller applications require the right amount of power, performance, and price at the time of design because they do not get updated. That is in stark contrast to a microprocessor based application, like a PC, where the customer is willing to pay for performance and the manufacturer over designs. Microcontrollers are really at the time of design. The [result] of that is the microcontroller customer does not design with 16 bit if they can do the job with 8 bit. The microcontroller market doesn't follow Moore's Law. There is no need for that level of performance.

Electronic Business: Why are some of the MCU markets moving to 32 bit?

Sanghi: One of the reasons some of the markets have grown for 8 to 16 to 32 is really added functionality, which has added so much of the code inside a part. If you are using a part, lets say, in the automobile market, and you need to put the CAN software, the LIN software, you have put so much of the protocol software in that you have no room left to write your applications code. By the time you add your application code, the amount of program instruction storage that you need in that device is such that for many of the architectures it is passed the point that 8-bit microcontrollers offer. It's not because of performance, it's simply for storage because the majority of these 8-bit architectures cannot pack a number of instructions.

Electronic Business: Opportunity for 8 and 16 bit sounds solid. What else was behind Microchips' 32-bit entrance?

Sanghi: We need 32-bit for applications on the very high end. And we need 32-bit just to be able to enter a customer sometimes. If a customer is evaluating a 32-bit microcontroller from a competitor and a sales guy goes in and the customer asks for a 32-bit microcontroller … and we say yes, we are invited in and we can tell our story. More often than not, the customer decides to design with a16-bit microcontroller because it is sufficient to do the job. If the customer requires a 32 bit, we have a competitive 32 bit to show also. It completes the portfolio and we're not kicked out of any customers because we don't have a 32 bit to show.

By Suzanne Deffree, Managing Editor, News - Electronic Business