January 15, 1998

Life in the high-volume lane

Bill Schweber, Technical Editor

Chasing today's big customers may move the vendor further away from the smaller customers who could be tomorrow's big ones.

This industry has always consisted of small-, medium-, and large-volume OEMs, served by vendors that structure their product designs, sales, and marketing to accommodate one or more of these OEM categories. In the last few years, the growth of truly high-volume applications, such as cellular phones and laptop computers, has increased the number of genuine "million-piece" OEM customers. To take advantage of this opportunity, more and more IC providers and component vendors target these big-unit-volume customers.

Who can blame them? After all, high volume is where the money is. Given the extraordinarily high costs of process and product R&D, fabrication lines, and overall production infrastructure, the component vendors need these high customer volumes to spread the nonrecurring product costs and make a decent profit.

Yet, this high-volume targeting brings both opportunity and risk to the vendor and to the OEM. For vendors, it's a chance to start a new design with greater certainty about the sales volume, which has a big impact on product planning. It's also an opportunity to do leading-edge designs, showing cleverness and skill at providing the features and performance that the OEM needs--features that the OEM may not even think are possible. OEMs, in turn, get parts that can give them the competitive edge in their markets. It's a partnership.

But there are risks, too. What happens when the high-volume sales that the vendor counted on don't materialize for any of a dozen reasons? If the vendor has placed too much emphasis on these megacustomers, a few misses often mean that business suffers significantly, especially if the rest of the customer base is thin. More important, chasing today's big customers may move the vendor further away from the smaller customers who could be tomorrow's big ones. It may also result in less general visibility to, and sense of, the market at large, including other moderate- to high-volume OEMs. At the extreme, you occasionally see an in-house or captive supplier try to market its products to outside OEMs, and the supplier's product definition, promotion, and application-support ef- forts are often rusty.

Does this emphasis on larger customers by IC vendors harm the "little guy"? Not really. Thus far, most IC vendors--especially those of analog or mixed-signal ICs--that offer products for high-volume OEMs also offer the products to the general market, although sometimes with a three- or six-month delay. In effect, the big OEMs get the product first, but they are funding the product development and lowering the cost to all. As long as this symbiotic balance continues, both large- and small-volume OEMs benefit. If this mutually beneficial framework changes, however, both the component vendor and the smaller OEMs will likely see unpleasant results. 

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