Analog Devices & Texas Instruments: Semiconductor Market Dynamics

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As you know, one crucial aspect when examining both companies is the range of general-purpose catalog products and application-specific ones. There are clear advantages and disadvantages to these two different strategies. ADI leans more towards the application-specific side, while TI focuses more on general-purpose. General-purpose products have higher ROIs and longer life cycles. On the other hand, application-specific products might be more differentiated and harder to break into the market. I'm interested in your opinion on which strategy is more attractive.

Analog Devices had a high-performance, high-resolution, and expensive product portfolio. This includes the op-amps, the DACs, and the ADCs, which are the core of Analog Devices. These are general-purpose but high-performance and high-value products. However, we couldn't compete with TI on price for the lower end of the market. Analog Devices had to maintain its general-purpose portfolio and consider how to grow. For every new product cycle, about one out of five would exceed their five-year revenue goals, two out of five would reach about 70% of those goals, and one to two would fall well below. This is similar to the startup space where one or two out of ten companies that a VC might invest in really pay for all the rest.

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It's interesting to note that the average selling price for ADI is four to five times higher than the industry and TI. Is this entirely determined by the product mix, like more expensive converters, or is it because, on a product-to-product basis, ADI's products might have better precision, higher speed, and are actually superior to TI's?

Sometimes TI dominates the cheaper products, while other times ADI is superior, especially for the more expensive products. The significant difference in margins is because ADI chooses to operate only in markets that can pay those margins. They strictly avoid markets or new product designs that won't meet their minimum requirement of 69 or 70 points, excluding consumer products. On the other hand, TI is more flexible, willing to lower their prices and sacrifice some of their margin. ADI leads with margin in mind, while TI prioritizes gross revenue.

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