So--is California
a '3rd world country'?

In December I wrote that Taiwan had better solve its electrical generating problems or it could end up putting a lid on the growth of its local semiconductor industry. One reader shot back: "you can also add California to the list." I don't think either of us then realized just how prescient that crack would be. Who could believe that Silicon Valley would be suffering daily rolling blackouts just one month later?

But this was the week that was. Several Valley chip makers were hit by rolling blackouts causing, by one estimate, tens of millions of dollars in damages to local electronics companies. Among those hit were Advanced Micro Devices, Apple, Integrated Device Technology, Linear Technology, and Sun.

But the power crunch shouldn't have much impact on the worldwide semiconductor supply chain. Most chip makers don't have their main production fabs in Silicon Valley. AMD's production fabs are located in Texas and Germany, for example.

But that doesn't mean that such infrastructure problems wouldn't hurt the California chip industry in the long run. Calling California a "third world country," CEO Craig Barrett declared that Intel would not build any more plants in the state until the situation is resolved. Now for the right price, Maine might be able to swing a few megawatts.

(See Jan. 19 story.)

Intel posts 4th quarter
surprise at least to me . . .

Intel did a lot better than some people including me expected in the fourth quarter. The chip leader beat its revised forecast to make a net income of $2.2 billion on revenues of $8.7 billion. And it was a record year for both revenue up 15% to $33.7 billion and net income up 44% to $10.5 billion.

Sales were flat with the previous quarter, while sequential quarterly net fell 13%. It was the fading economy that got the blame, of course, and something that's also "causing near-term uncertainty," acknowledges CEO Craig Barrett.

The Santa Clara chip maker expects to have a sluggish start to 2001. The way it looks now, first-quarter revenue will be 7.5% less than what it reported in the year-ago quarter. It expects to rack up a gross margin of 58%, plus or minus a couple of points, down from 63% in the fourth quarter of 2000.

What about the second half? Says EVP Paul Otellini: If the economy improves, the chip market should rebound in the second half.

Intel is also changing big time as a company. Last year, the chip maker acquired 16 companies and businesses amounting to more than $2.7 billion in annual business. Most of these mergers were aimed at expanding the company's networking, communications, and wireless businesses.

(See Jan. 16 story.)

. . . and hikes capital spending
by 12% to $7.5 billion this year

It sure doesn't look like Intel is going to let the Far East read that silicon foundries outspend it on adding production capacity. Despite near-term uncertainty, Intel is going to increase its capital spending by nearly 12% to $7.5 billion in 2001.

Wall Street was stunned by Intel's plans--it was $2.5-to-$3.5 billion more than was expected, according to Goldman, Sachs. The increase in capital spending is needed to accelerate the use of 0.13-micron processes and 300-mm wafer fabs, Intel points out. The company also is planning to boost R&D spending in 2001 by 10.3% over last year to a whopping $4.3 billion.

Intel's unexpected spending increase for new production capacity is not expected, however, to bail out the troubled semiconductor equipment industry in 2001, according to analysts. Analysts had just lowered their forecasts for sales of chip production systems this year to between 4%-to-12% after last year's boom pushed these sales to more than 80% over the preceding year. Some analysts had even said a decline in semiconductor capital spending for fab gear was possible this year.

But some equipment makers should benefit from Intel's increased spending. Most likely candidates, predicts Goldman, Sachs, will be leading vendors of 300-mm wafer gear, copper processing tools, inspection and measurement systems--firms such as Applied Materials, ASM Lithography, PRI Automation, KLA-Tencor, Lam, Novellus, and Teradyne.

(See Jan. 17 story.)

Ignore what analysts say,
AMD finishes a great year

The way that Wall Street and the newspapers reacted this week, you'd have thought that Advanced Micro Devices had really screwed up. The accent was on the negative--not making the earnings per share that Wall Street had expected. But I thought that Sanders & Co. did pretty darn good.

Record sales and net for the year ain't sliced beets for a company that some analysts on Wall Street had given up on couple of years ago. Sales hit $4.6 billion, a 63% jump over 1999, and net came in at $983 million, up from a loss of $88.9 million a year ago.

Yep, the quarter slowed as expected, but sales still were up 33% to $1.18 billion, a record, while net came in at $177.9 million, nearly triple year-ago profits. But net per share missed analyst projections by 2 cents.

"AMD substantially outperformed the semiconductor industry in a year of extraordinary growth," declares a happy CEO Jerry Sanders. AMD gained market share at the expense of its main rival Intel. "AMD gained market share in the PC processor arena with more than 26.5 million total units sold in 2000," he claims. "We believe we gained three points of market share in units during the year, to approximately 17% of the worldwide market for PC processors."

Because of sluggish demand for PCs and a slowdown in flash memory, AMD is projecting first-quarter sales to be up year-on-year, but flat sequentially from the fourth quarter. Flash memory will grow "modestly" from the fourth quarter, but the year as a whole will show "substantial growth."

(See Jan. 17 story.)

Yeah, PC sales were
lousy in 4th quarter

That fourth quarter slump in PC sales was a mean one. Dataquest now says that the final three months ended up slowing worldwide unit growth to just 14.5% last year--one of the slowest growth years on record.

The market researcher figured that PC shipments last year ended up at 134.7 million systems. It was even worse in the U.S. Here PC unit growth rose by only 10.3% to 49.4 million.

Dataquest is currently projecting a 16% increase in PC unit shipments this year to 156 million systems, but that is beginning to look too optimistic. It all depends, of course, on the general economy and whether customers continue to buy new models because of higher speed CPUs and faster main memories.

But like a good market researcher, Dataquest sees a silver lining in the dismal fourth quarter. "It does help allay some of the fears of inventory overhang going into the first quarter of 2001, particularly in the U.S. retail market," says Dataquest analyst Charles Smulders.

Compaq Computer held on to the market lead by accounting for a share of 12.8%, Dataquest figures, while Dell was second with a 10.8% share. Hewlett-Packard passed IBM as No. 3 vendor by grabbing a 7.6% share. IBM had lower sales and accounted for only a 6.8% share, according to the market researcher.

(See Jan. 19 story.)

Here's good news maybe
for Samsung and Rambus

Samsung Electronics' big gamble with the Rambus DRAM may finally be paying off. The global DRAM leader claims it captured "at least 50%" of the worldwide Rambus DRAM shipments in 2000.

But the problem is that today's Rambus chips cost two-to-three times more than their Synchronous DRAM competitors, which has limited the acceptance of the DRAM architecture. This approach to faster memory has been heavily promoted by Rambus, its designer, as well as by Intel until recently.

But the Rambus picture could be brightening. This week Samsung said that it has developed a "more affordable" Rambus DRAM design that can reduce production costs by at least 20%, the Korean company claims. It has a simplified architecture similar to today's mainstream synchronous DRAMs and a die size that's 5% smaller than other RDRAMs.

The new Rambus DRAM is configured as a 4-bank memory rather than a 32-bank memory as they are in conventional RDRAM devices, Samsung claims. The new 256-megabit Rambus chip is ready for production using a 0.17-micron design rule process, Samsung said. Mass production is set to begin in the second half of this year. It will be aimed at mid-priced and low-end PC systems, Samsung adds.

Between 250-and-300 million Rambus DRAMs will be shipped in 2001, the South Korean company estimates.

(See Jan. 17 story.)

Conexant hits minefield,
delays IPO for new company

A surprising loss and decline in sales put the kibosh--at least for now--on Conexant Systems' ambitious plans to split the chip company into two new and independent entities.

The Newport Beach company also blames the equity markets for its decision this week to postpone the filing of an initial public offering for its new Internet infrastructure company. "The dramatic pull-back in the technology equity capital markets, coupled with our weakened performance and near-term visibility, dictated that we postpone the initial public offering of our Internet infrastructure business originally targeted for late January," says CEO Dwight Decker.

The delay is a blow to the company, which wants to split the company into "personal networking" and "Internet infrastructure" companies in order to put more focus on these groups and provide more value for shareholders.

Conexant hasn't given up, of course, and insists it will move ahead and split up the company into two operational units in February. Once business conditions and the equity capital markets improve, Decker says that they will complete the separation into two independent, publicly traded companies.

The quarter ended Dec. 31 was a rough one. Sales dropped 20% to $410.4 million and a pro forma net profit of $53.2 million in the year-ago quarter turned into a $57.4 million loss. It all happened because of a steep drop in consumer demand and inventory corrections at several customers and their contract manufacturers, Decker says. But, he adds, "we expect our business to return to growth in the June quarter and we expect to return to profitability in the second half of the calendar year."

(See Jan. 18 story.)

Slowdown, what slowdown?
ASML's backlog up in year

Overall outlook for the chip production equipment market in 2001 may be worrisome, but ASM Lithography still has more business than it can handle.

"Customer demand still exceeds ASML's capacity for 2001, which is higher than the output for the year 2000," says CEO Doug Dunn. "In 2000, we saw customer demand accelerate beyond previous expectations, creating pressure on our production capacity and increasingly on the capacity of our supply chain," he says. But customer demand has softened in the past two months, he acknowledges.

The Dutch company had a backlog of 255 lithography systems at the end of 2000, up 60% over the 159 tool backlog a year earlier. Despite softening chip sales, ASML still sees "unchanged strong demand for leading-edge products" such as 300-mm platforms, 193-nm scanners, and its most advanced 248-nm DUV tools.

The Dutch lithography giant reported sales grew 81.7% to $2.05 billion last year from $1.28 billion in 1999. ASML received orders for 464 systems last year, up from 325 in 1999. Net income in 2000 totaled $326 million compared with $76 million in 1999.

(See Jan. 18 story.)

Now the big boys in IC assembly
and test are moving into China

Competition for IC-manufacturing services is heating up in China. Amkor Technology will open its first chip assembly and testing plant there. Plans are for the new Shanghai facility to start assembling and testing ICs for baseband processors and controllers in the third quarter.

The Amkor move comes just as rival ChipPac has lined up a $25 million investment from Qualcomm to expand its chip-packaging and testing services also located in Shanghai. ChipPac claims to be the largest contractor of IC-packaging services in China today.

But Amkor is now coming on fast in China, which has become a hotbed of activity among chip companies. "We are opening this facility on a fast-track basis to meet a customer's almost immediate requirement for our products and services," says James Kim, CEO of the world's largest merchant supplier of chip-packaging and -testing services. It will be equipped with tools from Amkor plants in South Korea and the Philippines. Ankor engineers will be brought in to ramp up the Shanghai plant and will train locally hired staff.

The factory will begin by turning out baseband processors and controllers, then it will be expanded to add components for other telecom and computer products. These chip packages will house SRAM and flash memories, power controllers, RF power amplifiers, and graphic chip sets.

(See Jan. 16 story.)

Vanguard takes big step
toward becoming foundry

Vanguard International Semiconductor took a big step in its transformation from a DRAM maker to a supplier of memory foundry services. Silicon Storage Technology has signed a silicon foundry agreement with the Taiwan company to source SST's 0.18- and 0.13-micron flash memory products.

Production will begin in the fourth quarter of this year, with volume output beginning in early 2002. Products incorporating SST's advanced self-aligned SuperFlash memory technology will be turned out at Vanguard's 200-mm wafer fab in Hsinchu.

"Attracting SST's business is of strategic importance to us," said Paul Chien, president of Vanguard. He said SST's memory products are requiring "a high-volume, sustainable supply of wafers." Chien added, "Our new vision is in complete synergy with SST's requirements and we anticipate a successful, long term relationship."

Sunnyvale-based SST, which launched its self-aligned SuperFlash cell last May, says the technology was the industry's first split-gate architecture flash memory cell to offer self-alignment. Traditional split-gate flash memory cells require built-in tolerances to align different layers of the memory cell, and that means larger cell size and higher manufacturing costs, SST claims.

(See Jan. 16 story.)

TSMC tries to lead way
in system-on-chip output . . .

The cavalry charge by the silicon foundries to get out front in the production of system-on-chips was illustrated this week by Taiwan Semiconductor Manufacturing Co., which delivered its first 0.18-micron ICs for Bluetooth wireless systems to Zeevo, a fabless chip startup based in Santa Clara.

Zeevo, formerly called TelenComm, expects to announce the line of Bluetooth products, software, and full development support later in the first quarter. No word on the price. The start up aims to leverage TSMC's new 0.18-micron RF-CMOS process to take a lead in SoC designs for such enhanced wireless applications as Bluetooth. The 0.18-micron mixed-signal CMOS process integrates radio-frequency circuits with analog and digital baseband functions on a single chip.

But this market may be a long way off, despite the many optimistic market research forecasts. But they still keep on pushing. The market for Bluetooth chips recently has begun to accelerate, declares analyst Joyce Putscher at Cahners In-Stat Group. By 2005, she figures, this emerging market will approach $5 billion. From zero to $5 billion is one big jump, but then five years is a long time.

(See Jan. 16 story.)

. . . while UMC aims to be one of first
IC makers to fab 0.07-micron transistors

TSMC isn't the only Taiwan foundry that's trying to push production state of the art. United Microelectronics expects to be one of the first chip makers to ramp production of 0.07-micron (70-nm) gate-length transistors for processor-class products.

The world's second largest pure-play foundry will use Numerical Technologies' phase-shifting photomask technology with its 0.13-micron logic process to start producing 0.07-micron gates with existing 248-nm lithography tools later this year. Switching speeds will be under 9 picoseconds, UMC claims.

UMC started working with Numerical Technologies two years ago after deciding that 193-nm lithography tools would not be production ready for microprocessor-class products using gate lengths under 100 nm. UMC is the third chip maker to use phase-shifting technology from Numerical in chip production. Motorola pushed its 0.18-micron process technology and 248-nm DUV lithography tools to 0.09 micron gate lengths using it, and Texas Instruments is using the technology to boost the performance of 0.13-micron.digital signal processors.

Numerical Technologies believes phase-shifting masks will take off as chip makers face growing pressures to shrink device feature sizes below the exposure wavelength of lithography. This "subwavelength" technology is growing partly because 193-nm scanners and supporting infrastructure are not yet ready for production.

(See Jan. 18 story.)

Watch for Samsung! It's spending
$6 billion this year to hike capacity

Samsung Electronics, which was suffering along with the rest of the South Korean semiconductor industry two years ago, roared back last year. It reported net earnings of $5 billion in 2000, more than double the $2.47 billion earned in the previous year. Sales shot up 31% over 1999 to $26.6 billion.

And the Korean giant doesn't want to be left behind. It is increasing its capital investment in the current fiscal year to $6 billion. The company had said earlier that it would spend about $5 billion this year. Samsung says it will finance most of the investment out of its operating funds.

The sharp jump in earnings came from higher DRAM prices in the first half of the year and from a continued strong SRAM market, where Samsung is global leader. But profits softened in the fourth quarter when DRAM prices fell sharply and the flat panel display market softened.

(See Jan. 16 story.)

AMD's struggle continues
in mobile processor market

This week Advanced Micro Devices was talking up new mobile versions of its low-end Duron microprocessor, but observers were calling them nothing more than a "placeholder" that won't cause much of a stir in the market. Only one OEM backed the launch--NEC will introduce three models of its LaVie U notebook series.

The notebook market historically has been a problem for AMD. When the mobile K6 chip first debuted in January 1998, the company's limited chip output was restricted to just IBM and Compaq. Then the next-generation mobile K6-2 was a big success and pushed AMD's U.S. retail notebook market share to between 70% and 80% early last year.

But now the mobile K6-2's market share stands at only 20%, a victim of AMD's inability to update the part with a next-generation design or clock speeds higher than 550 megahertz.

Now the market is waiting for a faster Morgan chip for value-class notebooks that's expected from AMD within six months. This will leave little time for the mobile Duron to become established. The latest Durons suffer in that they lack the power-saving features of the last-generation K6-2. But at 600- and 700-megahertz, they do match the highest speeds of Intel's Celeron chips and are priced much lower.

"Most people are going to wait for the Morgan," predicts Nathan Brookwood, analyst at Insight64. Even so, the new Duron chips were a "good move for them," he says. "It helps AMD establish its seventh generation in the mobile space."

The real problem with the new chip is that it lacks the PowerNow features that made the K6-2 so popular these features will be on the forthcoming Morgan chip). AMD has done "literally nothing" to lower the processor's power, save for decreasing the voltage, to 1.4 volts from the desktop version's 1.6 volts, points out Brookwood.

(See Jan. 16 story.)

Just as California's power picture
dims, Taiwan's outlook brightens

Prospects for the construction of a fourth nuclear power plant in Taiwan improved considerably this week after a favorable ruling by the nation's top court.

Taiwan's Council of Grand Justices ruled that an earlier decision by Taiwan's executive branch to unilaterally stop construction of a controversial $5.6 billion plant had "procedural flaws." It is likely that the decision will now be remanded to the island's legislature, which has already approved the project.

The decision is a boost for Taiwan's chip industry, which is concerned about the nation's power supply. Taiwan Semiconductor Manufacturing is worried about power shortages to its new 12-inch wafer fab in the Tainan Science Park. Power also is a nagging concern to the hundreds of companies at the Hsinchu Science Park, which experienced at least 40 temporary power shortages and outages in 2000.

It was becoming increasingly uncertain the nuclear power plant under construction would be finished--despite the need for power--because it had become a high-profile case for the island's environmental movement. The plant was more than 30% complete when a stop-order was issued by the new government. The state-owned Taiwan Power had already spent $1.4 billion and signed contracts for $1.4 billion more.

(See Jan. 16 story.)

If you have any comments or questions, don't hesitate to E-mail us at bhenkel@aol.com. Have a great weekend!

(Click here for last week's Semiconductor Alert!.)