Fabless firms latest
to miscall outlook

Latest folks to completely underestimate the current industry downturn are the fabless semiconductor companies. Surveyed just two months ago, they predicted a 12% increase in their use of silicon foundries in the first half of 2001. And they made this optimistic prediction at a time when the first quarter was showing a big drop in wafer demand.

The annual survey--from the Fabless Semiconductor Association (FSA)--even shows the fabless companies looking for the chip industry to begin pulling out of its slump in the third quarter. Now, even the FSA believes the recovery won't begin until three to six months after that. "The fabless companies have very little visibility, so we plan to conduct this survey again in a few months, once companies have a handle on the second quarter," explains FSA director Jodi Shelton.

The fables chip companies, of course, aren't the only ones having trouble predicting business trends this year. Most chip industry executives admit there is no clear sign of a recovery ahead, and few of them are predicting with any kind of certainty when the recession will end.

This year's FSA survey does show some interesting trends, however. More than 75% of the wafers purchased by fabless chip companies this year will come from the Big Three pure-play foundries--TSMC, UMC, and Chartered.

The survey also shows accelerating demand for leading-edge chip processing technologies. Nearly 80% of the wafers processed for fabless chip companies next year are expected to be made with 0.25-micron and smaller feature sizes. That compares with 40% last year and 66% expected this year.

The survey also shows the strong growth of third-party contractors in wafer probe services, chip packaging, and testing. Some 80% of respondents used third-party wafer-probe services last year and 95% of them expect to use wafer probe contractors in 2002. Nearly all of the fables companies expect to use chip-packaging services in 2002, up from 94% last year. The use of chip-testing services will grow from 85% of the fabless companies in 2000 to 90% in 2002.

(See April 3 story.)

Chip downturn worst
in nearly two decades?

People are finally beginning to recognize that the current downturn could be the worst the chip market has seen in nearly two decades.

"This is not 1996, and it definitely is not 1998--the current downturn is more like what we saw in 1985," says Dan Niles, analyst for Lehman Brothers. "It's going to be long, it's going to be painful and it's going to last for a while."

"I am not a believer in the V-shaped recovery graph," the chip analyst says. "I think it will be more like a bathtub-shaped, or an L-shaped, one," he adds, with a long, flat bottom. So much for a recovery this year.

"The upturn is still not visible and I would say it is still getting worse," comments the analyst. Fab utilization rates have fallen to the 70% range, meaning that foundries are scrambling for business and big chip companies are seeing their expensive fabs sit idle, Niles says.

Niles says this slump is worse than most because it combines both overcapacity and slackening demand. As a result, he expects semiconductor sales to fall 10% this year, with the DRAM segment taking the hardest hit and declining more than 20% from last year. He sees weak demand in all major end-use categories--PC, wireless, and wired communications, in particular--which is leading to an inventory glut. This will eventually back up the channel to the vendors and lead to price cuts, he says.

Says Jim Kupec, president of UMC's U.S. operations: "It's like we have gone from 100 miles an hour to 10 mph, in about 10 feet." Adds Amkor Technology vice president Bruce Freyman: "This is absolutely the steepest descent of business in our industry, ever." That's saying a lot, Bruce. Remember the early '60s?

"I am pretty bearish, but I think Niles was too pessimistic," declares chip analyst Mark Edelstone from Morgan Stanley. He expects semiconductor sales to slide by 15-to-20% this year. But he doesn't expect the protracted slump that Niles does. "This is going to be a very severe down year," he says, "but we aren't going to see an industry-wide depression."

(See April 4 story.)

Micron pushing DDR SDRAMs
to 30% of output by 4th quarter

Demand for double-data rate synchronous DRAMs is surging now, so Micron Technology says it is steadily increasing production of the faster memory. By the fourth quarter, the Idaho memory vendor expects DDR SDRAMs to account for about 30% of its DRAM output.

Micron, which has been an advocate of DDR SDRAMs over the rival Rambus design, says it's already offering DDR SDRAM products at "near price parity" with today's mainstream SDRAMs. "DDR SDRAM appears to be the next high-volume architecture," declares marketing head Jeff Mailloux.

Semico Research agrees. "With multiple PC chip sets and non-PC applications being introduced this year, the production ramp for DDR SDRAM is accelerating," says Semico analyst Sherry Garber. She anticipates "steady demand growth throughout the next five years." The market researcher predicts worldwide DDR SDRAM unit sales will hit 400 million this year, growing to about 808 million units in 2002.

Micron is not only fighting the Rambus DRAM architecture in the marketplace, but it's locked in a legal battle with Rambus over patent rights to high-speed interface technologies for synchronous DRAMs and DDR memories. The Boise memory maker maintains that the DDR SDRAM is an evolutionary technology, developed as an industry standard by a wide range of companies, unlike the Direct Rambus format, which is backed by Intel and licensed by Rambus.

(See April 4 story.)

China landrush continues;
Philips sets $1 billion plant

Despite the current industry slowdown, chip makers are still rushing to join the China land rush. Now Philips Semiconductors says it will spend nearly $1 billion over the next five years to build a backend chip-assembly plant in that country.

Philips build the IC-packaging and final test plant in the Suzhou Industrial Park, near Shanghai. The Dutch chip maker figures it will need 3,500 workers to run the plant. Groundbreaking will be in the near future, Philips says, with production slated to begin in the next year or two.

Philips is following a gang of other foreign companies into China's exploding IC-packaging market. Amkor, Asat, GEM, and IBM Microelectronics have all jumped on board in recent months.

(See April 4 story.)

256 megabit DRAMs
from China this year?

It wasn't too long ago that China was considered to be the backwaters of the worldwide semiconductor industry. No more. As the local market and the number of super fabs explode now, we also are beginning to see state-of-the-art products being made there.

How about this shocker. Shanghai Hua Hong NEC Electronics--or HHNEC to its friends--is planning to manufacture the first 256-megabit DRAMs in China starting in August. They will be made on a foundry basis for the company's key partner and investor: Japan's NEC.

The five-year-old foundry--a joint venture between NEC and state-run Shanghai Hua Hong--has an 8-inch fab with turning out 30,000 wafers a month using 0.35-to-25 micron processes. Some 16,000 wafers a month are DRAMs for NEC and the remaining 14,000 wafers go for foundry work such as EEPROMS, IC-card chips, flash memories, SRAM, and other products. "Our market is not only China, but also Asia, Europe, and the U.S.," declares EVP Toshio Ohta.

(See April 4 story.)

EDA sales weren't all that
bad last year, rising 10%

Despite all the complaints recently about the electronic design automation industry not getting its share of the industry pie, it doesn't seem to be doing all that badly. Take the fourth quarter of 2000.

Powered by sales of layout tools for ICs, pc-boards, and multichip modules, the EDA industry returned to double-digit growth in the quarter, marking its third consecutive quarter of expansion, according to EDA Consortium. Sales hit a record $1.05 billion for the quarter, a 17% rise over the year-ago quarter. For the year, worldwide revenue totaled $3.8 billion, a 10% improvement over 1999.

Sales of IC layout tools jumped 58% in the quarter to $250 million and to $778 million for the year, a 24% gain. The Japanese market led the way, generating nearly three times as much revenue for IC layout tools in the latest quarter vs. a year ago, the consortium reports.

Printed-circuit board and multichip module layout tools combined for $114 million in fourth quarter sales, up 25% from the year-ago quarter; sales for the year grew 28% to $422 million. Computer-aided engineering (CAE) revenues reached $507 million in the quarter, up 6% from the year-ago quarter; it continues as the largest EDA tool category, with more than $1.8 billion in 2000 revenues, up 4% from 1999.

North American revenues increased 13% last year to $2.1 billion, 57% of the world market. Western Europe was the second-largest geographic region, with 2000 revenues of $702 million, 19% of the worldwide total. Revenues from Japan grew 7% to $665 million, 18% of the world market.

(See April 3 story.)

Chip sales these days are
a lot like stock averages

Following global chip sales these days is a lot like watching the stock market. The numbers just keep going down, down, down. February's numbers came out this week and global sales dropped 6.9% to $15.49 billion from $16.63 billion in January. And they barely beat the year-ago total, edging up 5.8% over February 2000, according to the SIA.

February chip sales dropped from January numbers in every regional market. The Americas showed the largest month-to-month decline, with sales falling 7.3% to $4.75 billion in February. Asia Pacific sales dropped 7.1% to $3.62 billion in February, and Japan sales declined 6.8% to $3.76 billion. Europe's semiconductor sales fell 6.3% to $3.34 billion.

(See April 3 story.)

LSI Logic to move a third
of production to foundries

LSI Logic is the latest big chip maker to begin de-emphasizing its own manufacturing. The Milpitas, Calif., company will shift a significant portion of its wafer-processing volume to third-party foundries. Current plan is to raise foundry usage to 20% of its processed wafers this year, up from just 6-to-8% in 2000. Eventually LSI Logic plans to outsource nearly one-third of its silicon.

Its new foundry strategy is part of a new deal to develop 0.13-micron copper processes with Taiwan Semiconductor Manufacturing Co. Under the agreement announced this week, LSI Logic will adopt TSMC's 0.13-micron technology and use the Taiwan foundry for a significant portion of its copper-chip volumes.

The effort will combine LSI Logic's transistor modules and other front-end-of-line processes into TSMC's 0.13-micron copper and low-k dielectric technologies, which have been in early production since last December. Within the next few months, LSI Logic plans to make new design libraries available to its customers for copper processing.

Early prototypes from TSMC will be produced in the third quarter, with volume production slated to begin there by the end of this year. The present schedule calls for the jointly developed 0.13-micron process to move to LSI Logic's fab lines by late 2002 or early 2003.

"Over the past year, we have seen an acceleration of true low-k and copper; it has become quite prolific and we now anticipate that all 0.13-micron technologies will be on a basis of true low-k and copper," declares LSI Logic's technology vice president, Ronnie Vasishta.

"We decided the best way to quickly ramp copper into production was to combine development with a manufacturing alliance," he says. "TSMC was already running this type of capability at 0.13 micron. We wanted to make sure we had a manufacturing partner, so this is not just a drive to copper."

(See April 5 story.)

IDT buying fabless
startup in Shanghai

Another U.S. chip maker is diving into the superheated Chinese semiconductor market. In a bold move to enter both the Chinese and the Asian voice-communications chip markets, Integrated Device Technology is paying $80 million in cash to acquire Newave Semiconductor--a four-year-old fabless startup that has more than 70 engineers working at its Shanghai design subsidiary.

The planned acquisition is said to be the largest of its kind involving a U.S. chip company and a major semiconductor operation in China. The purchase is expected to be completed later in April, or once it is approved by government agencies. IDT first moved into China last October when it opened a Shanghai sales office.

Newave's first products are now being sampled by customers; they will formally introduced in the second quarter under IDT's brand name, says Dave Côté, marketing vice president for IDT's application specific standard products. "This acquisition will help us overall in Asia, and it will give us the ability to provide products for the voice-oriented telecom IC market in less time."

The Newave purchase will greatly expand IDT's communications chip efforts in the voice processing and transport segments. "This transaction is primarily focused on gaining strategic design resources in mixed-signal and analog technologies," Côté says. "This acquisition is not just aimed at building products for China--although we do expect to benefit from that--it is for the world markets.

(See April 2 story.)

Bad news from
On Semiconductor . . .

The going gets tougher for On Semiconductor. The Phoenix supplier of discrete, log, and analog parts is accelerating its consolidation plan by eliminating 550 jobs, or 5% of its workforce. That should save it another $100 million.

The Motorola spinoff also will trim another 80 positions by attrition. Its cost cutting efforts began after the company lowered its estimates for revenues in early March. The chip maker also plans to accelerate the move of chip manufacturing to lower cost regions.

(See April 5 story.)

. . . and bad news
too from Agilent

Agilent Technologies is trying hard to avoid having to layoff any of its employees because of the collapse of its markets. Convinced that the current downturn will be over shortly, the Hewlett-Packard spinoff has decided to cut the pay of all employees by 10% to cut its current overhead.

I expects to save about $70 million per quarter, as a result. The pay cut began April 1 for 200 senior managers and will start May 1 for the rest of the company. It will remain in force through July 31, but could continue into the next quarter if business conditions don't improve.

're trying to avoid across-the-board layoffs in response to cyclical market conditions," declares CEO Ned Barnholt. "We view the economic slowdown as a business cycle--even though it's deepening and broadening." And he adds: "We value our workforce and need to be ready to meet demand as business conditions improve."

Agilent started curbing its hiring and reducing discretionary spending several months ago. The company also is stopping external hiring and curtailing spending across the board, including purchase of equipment and adding new office space.

(See April 5 story.)

Watch out! Intel is on schedule
to move to next-generation fab

Intel says it has reached a major milestone in its drive to move as fast as it can to the next generation of fab technology. The chip giant has fabbed its first 0.13-micron ICs on 300-mm wafers, keeping it on track to bring 0.13-micron technology into production on 12-inch diameter wafers early next year.

"Intel is the first in the industry to complete silicon using advanced 0.13-micron technology on 300 mm-wafers," claims senior vice president Sunlin Chou. "For Intel, this accomplishment represents the beginning of a new era in cost-effective, high-volume manufacturing."

By now, everyone has heard the promise of 300mm wafers. And it's impressive. Like others, Intel figures that the big platters will lower its production costs by 30% compared with today's 8-inch wafers. "By shrinking the circuit lines to 0.13-microns and increasing the wafer size to 300-mm, we are able to quadruple the output of a standard factory operating today," says Tom Garrett, 300-mm program manager. Making the switch to the bigger wafer also is expected to use 40% less energy and water in production.

(See April 2 story.)

Vitesse buys another firm
to add to technology base

Vitesse Semiconductor is swapping $105 million worth of its stock for a Danish fabless semiconductor company. Object: expand its technology for high-speed ICs for communications and networks.

Called Exbit Technology, it develops chip sets and intellectual property cores for high-speed networks and communications. "The Ethernet products being developed at Exbit are a perfect complement to our existing product families," says CEO Lou Tomasetta.

The company employs 62 people, including more than 40 engineers, in Herlev. It has focused its R&D on gigabit and 10-gigabit Ethernet switching and routing applications with the emphasis on providing complete systems for networking equipment makers.

In the past year, the Camarillo, Calif., company has made several acquisitions to expand its communications capability, including Sitera, FirstPass, and the WAN assets of Philips Semiconductors. Vitesse figures it now can provide one of the industry's most complete solutions for switching and processing of IP, TDM, and Ethernet data from rates of 10-to-40 gigabits.

(See April 2 story.)

The Chinese are coming!
The Chinese are coming!

And I thought the Taiwanese chip industry exploded overnight. Look out folks, here come the Chinese. Surfacing this week was the seventh chip maker that's either building or operating an 8-inch wafer fab in China.

A new Chinese company called Beijing Electronics Holdings has started construction of a 6-inch fab in the capital with an 8-inch plant coming as well, Chinese government officials report. The firm reportedly will go after the silicon foundry business.

Turns out the new chip maker broke ground in December on the 6-inch fab that initially will use a 0.35-micron process. Production will begin next year, promises Feng Hai, deputy director of economics for the Beijing municipal government. He adds that a new 8-inch. 0.25-micron line also "is under way."

There currently are six chip makers that are either running or building an 8-inch fab in China; they are Grace, Huaxia, Motorola, Shanghai Hua-Hong NEC, SMIC, and Shougang NEC.

(See April 2 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!.)