What's happening at Zilog?
Crawford out as chairman

Don't say we didn't alert you. Two months ago, we figured something had gone wrong between Texas Pacific Group and Zilog's CEO Curtis Crawford.

In late January, the Campbell, Calif., chip maker reported that Crawford was stepping down as CEO but continuing as chairman. We wondered then whether it was disagreement over the company's direction or over performance. Crawford was to remain chairman and lead the effort to find his successor as CEO.

Well, Zilog has still not named a new CEO and this week the chip company suddenly announced that Crawford had resigned as chairman. At the same time, Lionel Sterling resigned from the Zilog board. The moves follow a slew of setbacks and high-level staff resignations at Zilog, which is now leaving some observers to wonder if the chip company is in limbo--or even up for sale.

Zilog had signed a merger deal three years ago with Texas Pacific, an investment group, which had then lured Crawford away from Lucent Technologies to take over as CEO.

(See March 20 story.)

IC business will get uglier
before bottom is reached . . .

This was a lousy week to hold the annual SEMInvest conference in Manhattan. Not only did the stock market tank, but most of the Wall Street analysts, investment bankers, and industry managers attending expected things to get uglier before the semiconductor industry finally hits the bottom of the slump.

"Don't be surprised when you see semiconductor equipment bookings 50-to-60% off on a year-to-year basis by the end of the year," warned analyst Carl Johnson, president of Infrastructure. But those kind of ugly numbers are needed to show the bottom has been reached, he said.

For now, about the only thing that anyone could come up with was antidotal evidence that suggests the worst of the worst may soon be over. While a handful of executives thought the bottoming out could be as early as May or June, most speakers indicated they were not looking for measurable improvements until the August-September timeframe. But most people were saying the economy, more than anything else, would play the biggest role in determining whether a full recovery begins by the fourth quarter.

Worldwide chip sales this year currently are expected to fall by 15% to about $175 billion from $204 billion last year, says analyst Ali Irani of CIBC World Markets. But he now says there is a good chance he will lower his forecast to a 20-to-25% decline, based on new input that shows sales in the second quarter turning even worse than first quarter revenues. But Irani still believes month-to-month sequential growth in chip sales will begin late in the third quarter-most likely September.

(See March 19 story.)

. . . And a chip gear recovery
won't happen until 2002

The fab equipment business probably won't recover until new capacity is needed, and that most likely won't happen until next year, according executives attending the SEMI trade group's SEMInvest conference in Manhattan. "Capacity buys are still a year away," predicts Douglas Marsh, vice president of ASM Lithography.

This downturn has all the makings of being the worst equipment industry slump in 15 years, declares analyst Byron Walker, who tracks IC equipment companies at USB Warburg. The consensus at the SEMI meeting was the earliest that equipment bookings could hit bottom would be June or July, Walker says. He predicts the latest start of the next recovery cycle would most likely be in the fall.

"The products will require new technology, and therefore any leftover inventory will have to be written off," Walker says. The need for new ICs, fabricated with next-generation technologies, will then trigger the capital equipment recovery--assuming there is no serious economic recession or war in a major oil-producing country, he adds.

There was one happy note. The book-to-bill for back-end chip-assembly and test equipment "looks like it is beginning to bottom out" from its steep six-month drop, says analyst Robert Maire of Bear, Stearns. It now appears, he says, that the backend assembly segment might start showing signs of improvement in the second quarter.

"The backend will bottom out sooner because it is more unit driven," Maire says. This downturn, he notes, is a rare unit demand-driven slump, unlike most of the industry's recessions which were caused by too much capacity.

(See March 21 story.)

Latest SEMI data indicate
downturn is only half over

Orders being reported by North American chip gear suppliers tend to confirm that a turnaround won't begin until next year. Historically, downturns typically result in a 50-to-70% drop in chip production tool orders from a cycle's peak before they begin to pick up again. The peak in the current cycle came last October when bookings hit $2.99 billion--indicating the semiconductor equipment downturn might only be halfway over.

Orders totaled $1.8 billion in February, down 22% below the $2.3 billion posted a year ago, according to the SEMI trade group. The 4% decline from the previous month was slowing down, but that could be deceptive since the bookings number was based on a three-month moving average. February's numbers included relatively-strong orders in December.

SEMI's book-to-bill fell to 0.77 from a revised reading of 0.80 in January. That means, of course, that only $77 of orders were received by suppliers for every $100 worth of products they shipped. "The book-to-bill ratio reflects the continued erosion in bookings," acknowledges SEMI CEO Stanley T. Myers. February orders, he notes, are 40% below the peak of the current cycle which was hit in October 2000.

(See March 22 story.)

Intel strikes out
with G.Lite DSL

Bad news out of Intel. SBN learned Friday the microprocessor giant has stumbled once again in an attempt to diversify into another chip market. The Santa Clara company has quietly scrapped a line of G.Lite DSL (Digital Subscriber Line) chips. A spokesman confirmed the move and acknowledged that the entire DSL-chip program is "up in the air."

The disclosure is a major blow for Intel, which is scrambling to gain a foothold in the communications chip space to offset the slowdown in its microprocessor lines. The company had once viewed the exploding DSL chip market as a critical part of its communications strategy. It had entered the market a year ago by acquiring Ambient Technologies, which had just introduced a line of standalone chips based on the ADSL technology called G.Lite and was working on a chip based on full-rate, ADSL technology.

But neither Ambient nor Intel ever shipped the G.Lite chip, which is a stripped-down version of full-rate ADSL technology. "The G.Lite PHY (physical-layer chip) was never shipped," admitted the Intel spokesman. Intel's move to scrap its G.Lite chip efforts comes as no surprise to analysts. G.Lite has been a major fiasco in the market. Several companies have already scrapped or de-emphasized their standalone G.Lite chip lines. Most companies also are reporting little or no demand for G.Lite.

(See March 23 story.)

Outlook looks bleak for
automatic-test business

It's really bust time for the boom-and-bust semiconductor equipment business. Now Teradyne is cutting 7% of its work force, or some 650 employees, as the automatic-test equipment market falls off a cliff. In a wide-ranging effort to slash operating costs, the Boston company also is furloughing employees, delaying salary increases for all employees, and cutting the pay of senior managers.

"Our customers, world-wide, are facing falling demand for their end products and a softening economic environment," says CEO George Chamillard. "As a result, they are ordering fewer products and services from us. Given the current environment and future outlook, we've had to take these actions to reduce our expenses."

(See March 20 story.)

Micron says PC makers have
used up excess inventories

Want some good DRAM news for a change? Micron Technology--a company that proved a U.S. DRAM maker could survive and flourish despite what the analysts said--reports that PC industry customers have burned off nearly all of their excess DRAM inventories and are now building systems with newly-manufactured chips. This will show up in DRAM shipments to PC makers in this quarter.

Of course, the news isn't all good. Micron's OEM customers in the wireless, telecom, and networking equipment markets still are carrying large amounts of excess chip inventories which is still hurting sales. No estimate on when this will be used up.

Like nearly every chip maker, Micron has cut its capital spending this year-from $2.3- to $2-billion. Micron has already spent half of this and the total for the year won't vary any more than $200,000.

(See March 21 story.)

Is Taiwan pulling plug
on China investment?

The Taiwan government may be trying to slowdown--perhaps even stop--the massive amount of investment now going into China.

This week it withheld approval for Via Technologies and Asustek Computer to make further investments in China, raising speculation on the island that a policy shift aims at dampening investment in the mainland. Via competes with Intel in the chipset market, while Asustek is Intel's biggest motherboard supplier and a major notebook PC vendor.

While Taiwan's Ministry of Economic Affairs claims its decision does not mean a move to a more restrictive policy, analysts are skeptical. "Delaying the approval for high-profile companies like Via and Asustek sends a clear message to everybody: people had better take a break in their investments in the mainland," maintains Tony Tseng, a Taipei-based analyst for Merrill Lynch.

The government is becoming increasingly worried that the growing flow of capital into China could drag the island's already sluggish economy down even more. Asustek's plan to invest $25 million would push up the company's total investment in the mainland to more than $80 million over the past two years.

And in Via's case, the Taiwan ministry noted allegations that Via had improperly used capital that was approved for marketing purposes to build commercial properties on the mainland. Both companies say they will file new applications as soon as possible so that they can obtain approval within a month.

Via has to get approval so that it can purchase a $12 million stake in China's second-largest discount store chain, a move designed to vertically integrate a new sales outlet for Via's computer chipsets and microprocessors. The company is targeting a 50% share of China's chipset market this year, up from 37% in 2000, says spokesman Frank Jeng. Via also is in talks with China's top 10 OEMs, including Legend Holdings. Via also aims, in its first year in China, to take a 5-to-7% share of the CPU market.

(See March 20 story.)

Dataquest caves, slices in half
its cell phone growth forecast

Here's another gotcha! For months, we've been critical of the outlandish forecasts being made by nearly everyone for the cell phone market. Now Dataquest has changed its mind. This week the California market researcher slashed its forecast for growth in the worldwide handset market this year to just over half of what it had projected.

Late last year, the market researcher predicted that unit shipments would grow from 412 million last year to 576 million in 2001, which blew my mind. Now Dataquest says it looks like sales will only "exceed 506.5 million units," cutting projected growth from 40% to 23%. Global sales were up 38% last year.

Dataquest's revised forecast is still higher, however, than many handset makers have been predicting in recent days. But Dataquest still believes the global mobile phones market will continue to have steady growth through 2005, hitting an astounding 740 million units. It wasn't too long ago that some wild-eyed optimists were predicting a billion unit market within the next few years.

The market researcher acknowledges, however, that this market is now in flux. "The market is in a curious situation," notes Peter Richardson, who tracks the market for Dataquest. In the U.S., "high levels of stock carried over from 2000 are depressing new sales from manufacturers in the first quarter." But the picture is completely different overseas. Sales in Europe and Asia/Pacific remain strong, he says, which is the reason why Dataquest is still looking for 23% growth this year.

(See March 20 story.)

Here's a puzzler: why are
IC materials sales still rising?

I can't figure it out but the semiconductor materials business is expected to grow this year despite the current dive in chip sales. According to a new report from The Information Network, this market will increase in 2001 by 15%.

There are several reasons for this bullish outlook, says Robert N. Castellano, president of the Tripoli, Penn., research firm. "First and foremost," he says, "we are seeing the end of the downturn in the semiconductor market, particularly in DRAM pricing and falling inventories, as shipments of motherboards and PCs have begun to rise."

"Secondly," the researcher says, "technology pushes to 0.11-to-0.13-micron are driving the need for higher priced parts-per-trillion purity chemicals." And the third reason, he says, is that there is a "historic lag of one year between inflections in the chemicals markets and the semiconductor markets which is tied to shipping schedules and contracts that have yet to play out following a strong growth year for semiconductors in 2000." Well, we'll see.

This year the silicon wafer market will climb 17.9% to $8.7 billion, while the specialty gas sector is expected to jump 16% to $1.2 billion. Such sectors as liquid chemicals, resists, and electronic gases will all grow nearly 10%, The Information Network predicts.

(See March 21 story.)

Mitsubishi to spend $163 million
to move supply chain to Internet

It looks as if Mitsubishi Electric's semiconductor operation is a lot more serious than most chip companies about moving its supply chain infrastructure onto the Internet. The Japanese chip maker says it will invest $163 million over the next 18 months to implement a global Internet-based system.

It is counting on the new online system to dramatically shorten the time that it takes to ship products to customers around the world as well as to reduce the cost of doing business. Mitsubishi expects to cut its administrative costs by 50% and inventory warehousing and transportation costs by 30%.

Mitsubishi has a very ambitious set of goals. It wants to respond to a customer's demand forecast within 48 hours, commit to a delivery date within 24 hours of a customer order, ship chips to any customer within 48 hours of "available-to-promise" commitment, and "ultimately" create server-to-server links between Mitsubishi and customer systems.

"We will flatten organizational layers to cut decision-making and information response time and will link our 10 worldwide production facilities with our global sales offices and customers," says Koichi Nagasawa, who heads Mitsubishi Semiconductor. "We will start connecting major customers this summer," he adds.

(See March 22 story.)

Here's new way to download,
evaluate IP cores over Internet

Now this sounds like a good idea, if it works. Scotland's Simutech has launched a new service that enables designers to download and evaluate intellectual-property (IP) chip cores over the Internet.

Called eValab, it's billed as a "try before you buy" IP brokerage service for the rapid development of SoC products. The service is being run jointly by Simutech, the Scottish Enterprise, and the Alba Centre in Livingston, Scotland.

The new service, which ran for six months in a pilot stage, permits designers to download, evaluate, and simulate a variety of IP cores. It already has been endorsed by foundries such as Chartered, Taiwan Semiconductor, and United Microelectronics.

Accessible from any portal, the service should "dramatically reduce the front-end design bottlenecks in chip design," says Steve Glaser, vice president of marketing. It should save designers "a significant amount of time and money in the process of selecting the necessary components to develop system-on-a-chip designs."

(See March 19 story.)

Photomask biz looks great
long term, but lousy short term

Here we go again. If you want a strong outlook for a market, then you should look for the long view forecasts being made by researchers. They are usually far more bullish than those predictions made for just the year ahead, which often conflict with the longer range outlook.

Take photomask services, for example. A week ago, revenue for lithography masks was expected to more than double over the next four years to $5.5 billion in 2004, according to a new report from The Information Network.

But take a look at the latest forecast for the short term by the No. 2 producer, DuPont Photomasks. The U.S. vendor now predicts that its revenues for the quarter ending March 31 will grow sequentially by just 1-to-5% from the prior three-month period instead of 5-to-11% previously forecast.

While The Information Network predicts a lot of growth in the global market, it does sees industry consolidation turning this market into a tight, three-way race between one Japanese vendor and two U.S. suppliers.

Dai Nippon Printing led the worldwide market last year with more than a 25% share of merchant photomasks. The Japanese vendor was followed closely by DuPont Photomask.

It was a different story in North America, where Photronics led the market last year with more than a 45% share. The Jupiter, Fla., firm was followed closely by DuPont. In Europe, Dupont was the leader with more than a 40% share. The Texas company was followed by Photronics. In Japan, Dai Nippon led the market with more than a 50% share. In second place was Toppan Printing. And in Asia, DuPont topped reticle suppliers with nearly a 30% share, while Taiwan Mask followed closely.

(See March 19 story.)

Samsung going all out
in its Rambus gamble

Samsung Semiconductor is really banging the drum for Direct Rambus DRAM. But it does look now as if this major gamble by the South Korean chip maker may be paying off.

Sales of RDRAM-based products "have been very strong," the company says, despite the severe downturn in the overall DRAM market. RDRAMs currently are going into game machines and systems based on Intel's Pentium 4 microprocessor.

The company now claims to have surpassed the $1 billion sales mark for chips based on Rambus Inc.'s RDRAM technology. And it plans to quadruple its RDRAM shipments in 2001 to about 20 million units per month.

This major expansion is part of Samsung's plan to dominate the RDRAM market. This year the company hopes to grab half of the RDRAM-based memory business. It predicts the market for RDRAMs will double from 300 million units in 2001 to 600 million units in 2002.

(See March 19 story.)

TSMC again cutting
its capital spending

It seems almost like a weekly occurrence. Taiwan Semiconductor Manufacturing cut its capital spending again. The world's largest silicon foundry is slashing another $500 million out of its budget. In February, TSMC slashed this budget from $3.8 billion to $2.7 billion. Now it intends to cut this spending to as low as $2.2 billion--a long way from what Intel still plans to spend this year. TSMC has long wanted to beat out Intel as the chip maker with the world's largest capital spending outlay.

United Microelectronics, TSMC's biggest foundry rival, has already reduced its spending to $1.5 billion, down by nearly half from its earlier budget of $2.9 billion. John Hsuan, UMC chairman, says that the downturn is dragging on longer than he expected. "The winter of the IC industry has come," he adds.

And it ain't going to get much better anytime soon, says foundry watcher Barrio Liu, analyst at Prudential Securities in Taipei. "TSMC's and UMC's sales in the second quarter are expected to be even lower than the first." He predicts that sales at both companies will drop 10-to-15% from the first quarter.

(See March 19 story.)

Mitel recruits CEO
with chip experience

When a company is being turned into a pure-play chip maker, it really needs a CEO with strong semiconductor industry experience to grow and prosper. That's undoubtedly what Canada's Mitel thought as it begins the transformation to a pure-play chip maker by splitting off its communications equipment business.

So the Ottawa company went out and recruited one of the more recognizable names in the semiconductor industry. It has hired Patrick J. Brockett as its new CEO. Brockett, who joins Mitel in April, succeeds Kirk Mandy, who will become vice chairman.

Brockett joins Mitel after a 22-year career at National Semiconductor where he was executive vice president heading up its largest division, the Analog and Wireless Group. The move was widely seen as a blow to National, since Brockett ran one of the few shinning operations at National. The Analog and Wireless Group had sales of approximately $1.5 billion last year.

One of the challenges facing Mitel and Brockett will be to develop a stronger identity in communications chips, a business that has been overshadowed by its equipment operations.

(See March 21 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!.)