A new semiconductor company de-cloaked from stealth mode this week. Orca Semiconductor makes analog chips for a variety of end markets. We understand that not many people get excited by analog semis. Texas Instruments’ goal seems to be as deliberately boring as possible. And no one on the Street really knows how to model these companies. Nonetheless, we are always encouraged to see new semis companies come to market, and we think that is worth some attention.
We had the chance to speak with Orca earlier this week and we think they are taking a smart approach to the market. Orca’s first product is a power management chip, this is a bread and butter product for analog companies. The world needs these everywhere and most of us never think about them. The OS1000 has a sleek design that looks very efficient on paper, perfect for low-powered devices.
One of the difficulties of designing an analog chip is that every customer’s requirement is a little different from every other customer. But every new chip a company makes carries significant costs, so there is no way to make a chip for each customer. Analog designers thus need to find some common denominator that satisfies as many as possible. A chip that feels custom to the customer, but is a catalog part for the supplier. Giving the customer what they need, not necessarily what they want.
A good example of this is Indie Semiconductor who after years of grinding away is doing fairly well in the demanding automotive market working along these principles. Orca seems to have taken a page from that playbook, for an entirely different set of demanding customers.
Of course, small analog companies face all sorts of challenges. Not least is that they have to compete with some massive companies – TI and ADI both have market caps over $100 billion. Our sense is that Orca is turning their competitors’ size to their own advantage. The big companies are not nimble, and their cost structures mean that there are many product areas where they cannot compete, below a certain volume the economics do not work out for them. Add to that the fact that the analog market is massively fragmented, that means there are plenty of lucrative niche segments for companies like Orca to tap. It is worth noting that the Orca team comes from Maxim, a company with solid engineering talent that was recently subsumed into ADI, and thus let go of much of its senior talent.
Of course, another major concern is China. There are hundreds of analog chip designers in the PRC. These companies operate at manufacturing processes well clear of US sanctions, and have ample access to low-cost domestic foundries. And so there is a lot of concern that they will swamp global markets with a tidal wave of capacity. While this is a valid concern, all that competition also means that many of those companies are struggling to generate enough margin to sustain R&D and develop quality products. Our sense is that the analog market is big and diverse enough to support a more focused approach such as Orca is looking to deliver.
So while analog chips may not excite many, we think it is encouraging to see companies like Orca emerge on the scene with a disciplined strategy and clear product focus.
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