Pond: Raytheon was the 'missing link'

Electronic News, March 2, 1998 by Kirk Pond

Semiconductor

South Portland, Maine--With the acquisition of Raytheon Electronics Semiconductor late last year, Fairchild Semiconductor entered the analog/mixed signal business. The agreement to purchase Raytheon, announced only eight months after Fairchild became an independent company, confirmed the company's intention to intensify its exclusive focus on high performance multi-market products.

Fairchild's strategy as the only company singularly focused on becoming the world's leading supplier of "building block" semiconductors runs contrary to the business plans of many in the industry. While we are not developing systems-on-a-chip solutions, Fairchild's efforts support and are complementary to systems development. The use of Fairchild products, whether in the logic, non-volatile memory, discrete power and signal technologies, and now the analog/mixed signal arena, will grow along with the explosion of semiconductor applications and the development of integrated solutions.

The acquisition of Raytheon Semiconductor, effective Dec. 31, 1997, provides the nucleus upon which to build a strong analog business, previously the "missing link" in our business strategy. Fairchild now has the ability to provide solutions in all major categories of standard products. Fairchild's new Analog and Mixed Signal Products group is one of the world's top three suppliers of critical DC-to-DC converters for PCs, the leading provider of video processing ICs for the growing broadcast video market and is the largest supplier of ground fault interrupters (GFIs) in the North American market.

The worldwide ana-log/mixed signal market is projected to grow at a compound annual growth rate (CAGR) of 17.3 percent through 1999, a rate somewhat faster than the industry average. The market is expected to reach more than $34 billion annually by the year 2000.

While the segment was affected by the worldwide 1996 inventory correction, historically the analog/mixed signal business has grown at a rate of 13-21 percent annually. Because multi-market analog components are some of the most essential building block parts, key to virtually all electronic applications, this segment has enjoyed some of the most stable growth in our industry.

Looking at just two end applications, cell phones and notebook computers, gives an instant snapshot of this growth. It's estimated that sales of cell phones will increase at an average rate of 35 percent per year through the rest of the decade, while notebook computer sales will continue to grow at 20-25 percent annually in that same time frame. Translated to unit numbers, the industry is looking at delivering roughly 200 million additional cell phones and 23.1 million notebook computers in the year 2000. These and other end applications require multiple analog/mixed signal components, with the per unit number of components rising simultaneously with the increase in functions performed by electronics.

The keys to meeting the future challenges of these markets include new product innovation to answer both changing design requirements and new end product applications; high volume/cost-effective manufacturing processes; and superior logistics/customer service. Fairchild is focusing its efforts on these initiatives, resulting in a growth rate of more than 35 percent in the company's first six months over the prior year with excellent profitability. With the addition of the Analog/Mixed Signal Product group, Fairchild is projected to be at a billion-dollar run rate in our second year.

Fairchild has aggressively increased its development rate in new products, resulting in the introduction of more than 175 new products since becoming an independent company, a three-fold increase over our prior rate. These results are supported by a three to five times increase in R&D funding, in anticipation of the needs of our customers.

Fairchild's manufacturing and customer service initiatives have already yielded results, with Stack International ranking us number one in quality and service among all semiconductor companies worldwide and nine of our top 12 customers rating us their number one or number two supplier. Most recently, Compaq named Fairchild their Supplier of the Year, a recognition unanimously voted, for the first time in the history of the award, by Compaq's major sites worldwide.

Fairchild will bring this same focus to the new Analog and Mixed Signal Product group. We are well on our way to revising the product roadmap and bolstering the group's product innovation efforts with increased R&D funding. Fairchild leads the way in high volume, high quality cost-effective manufacturing and many of the processes developed in our continuing quest of leading edge manufacturing practices will be transferred to the new Analog and Mixed Signal Product group's manufacturing practices.

Finally, the analog business faces the same challenges in supply line management as do all multi-market product lines. Delivery time, reducing customers' costs and the logistics requirements of high volume manufacturing and shipping (Fairchild manufactures and ships more than nine billion chips annually) demand a very different business model from the industry standard. Fairchild is committed to providing our analog and mixed signal customers with the same excellent service that has earned so many customer citations in our first year.