Maxim Navigates the Analog Space

Manufacture of analog products has certain inherent advantages

Analog products do not require leading edge manufacturing facilities, since the capacity can be used for longer periods of time than digital products. This reduces capital equipment costs, as large upfront costs are avoided, depreciation is less and profits are more stable in the face of lower utilization rates.

Being more differentiated, analog products are also less likely to become commoditized. The relatively longer life cycles ensure that older analog products can keep contributing to revenue for longer periods of time and generate higher margins (due to pricing power) than corresponding digital products.

However, revenue growth is always an area of concern for analog companies. While the business model supports outstanding margins, long lead times for customized devices require a relatively longer sales cycle than digital products.

Differentiated engineering design team

Maxim’s (MXIM - Analyst Report) design team is a competitive differentiator. Unlike digital design, analog design requires a greater amount of customization. It takes a long period of time to assemble an experienced analog design engineering team such as Maxim’s. The customization aspect enables the company’s products to command a higher price, thus making it a very lucrative business.

However, the attractive margins of the high-performance analog market are bringing more players into the space. This is increasing competitive pressures, and raising demand for engineering staff. So far management has successfully retained its engineering talent and has even made additions, in line with its long-range plans.

Market trends that play to the company’s core competencies

The world is moving toward energy-efficient, miniaturized, mobile, multi-use electronic devices. This is leading to the surge of electronics across products and markets. Some of the newer markets for electronics are medical, automotive and consumer -- all of which have considerable potential to consume a wide range of analog and mixed signal ICs. This is a big positive for a company such as Maxim, and new products in these categories will drive future growth.

Management has outlined a two-pronged growth strategy

The company has a fairly broad range of products that makes it possible to serve a diverse clientele. Management has split these products under two broad heads -- one consisting of core analog products, and the other high-volume application-specific products.

Core analog products are targeted at industrial and communications customers, where the company has been differentiating itself through improved product performance, thus enabling it to earn higher profits. The sales effort in this area is focused on small and mid-size customers. The ASSPs are targeted at a few large customers in the consumer and computing sectors.

Management believes that Maxim’s ability to churn out demanded products before its rivals would enable it to secure a strong position at key customer accounts in these markets. This in turn is expected to bring in volume sales.

Sejuti Banerjea contributed to this post.