Following the crazy path of the Hynix- Micron negotiations proved to be a fulltime task for journalists this week. Major developments exploded daily--I must have rewritten my column at least three times! It doesn't look too good for any deal here now, but I still think something like this proposed sale will have to happen--Hynix has no other place to go in the DRAM market.

March sales delight SIA,
outlook still worries me . . .

It gives me a terrific high to report that global chip sales in March turned in the highest month-to-month increase in nearly six years! But I'd feel even better if I believed that this is the start of the next industry upturn. I'm not convinced we're going to see such unbridled growth until another year passes by.

Worldwide chip sales grew 7.2% to $10.75 billion in March from $10.03 billion in February, according to the Semiconductor Industry Association.

The SIA is convinced that forecasters that see the current market like I do both of them are dead wrong. The trade association believes the chip business is recovering from its worst downturn in history, rebounding in the same way that it did back in 1986. But March semiconductor revenues were still 25.4% lower than they were in the same month a year ago.

. . . as DRAMs account
for entire 7.2% growth

"The March quarter sales are another sign that the industry is rebuilding from 2001, with growth in all major geographic regions except Japan, which was flat," says a happy George Scalise, SIA president. "Led by strong DRAM sales, this is a record rise in first quarter growth for the semiconductor industry."

"The sales increase was dominated by a record 82.4% sales rise in the DRAM market," he points out, "with essentially flat sales in other product areas as forecasted," Scalise notes. "The DRAM sales are a result of increased demand and price increases from the depressed levels of 2001."

The numbers were looking better on a quarterly basis too. First quarter growth was 5.6% above the fourth quarter, Scalise says, adding that the increase "indicates that inventory build-up has been worked through and product demand is now beginning to pick up."

The SIA president now expects the rest of the year to continue improving. "The outlook for the second quarter is for single digit sales growth followed by stronger growth rates in the second half of the year," Scalise predicts. "As expected, the semiconductor industry should close out 2002 with modest but sustained overall growth."

(See May 2 story.)

Contrarian Semico still
sees 17% growth in '02

I didn't believe their forecast last fall when they predicted 20% growth for global chip sales in 2002. Calling it a contrarian outlook is putting it mildly. But Semico Research is back, and now its researchers maintain that usually strong sequential growth in chip sales during the first quarter was providing new evidence that this year's recovery in chip sales could be a much stronger than most people are predicting.

Now, based on fresh data from the Semiconductor Industry Association that shows the strongest sequential growth by the chip industry since 1986, the research firm is still predicting 17% growth in semiconductor revenues this year. Other forecasts are looking at growth in the single-digit percentage range.

But Semico makes a strong case, claiming that only once in the past 14 years did first quarter growth exceed the 2002 sequential increase in sales. That was back in 1995. So how did that year turn out? "It turned out to be one of the strongest years on record for the semiconductor industry with 41% growth, the research firm notes. "So 2002 may yet play out like our forecast, Semico says.

(See May 3 story.)

Hynix board shocks by killing
sale of DRAM unit to Micron . . .

The South Korean government was for it, corporate management was for it, and the lenders approved it earlier this week. But someone forgot to get the board of Hynix Semiconductor on board. In a surprising move to me and many other people, its directors rejected the deal selling the memory business to Micron Technology. I had long expected this merger, if only because it was about the only option left for the deeply-in-debt chip maker.

But the board must have been smoking something this week. They unanimously killed the deal that would have brought badly needed consolidation to the DRAM industry. The directors decided that Hynix should remain an independent company.

The board maintains there are too many flaws in the deal worked out by the two managements and the Korean company's many creditors. "The plan overestimates the value of the Micron stock to be paid for the sale of Hynix's memory business, unrealistically presumes the size and timing of contingent liabilities, and is too optimistic in its estimate of the cash flow of the remaining company," the board says.

But the board failed to offer any plan for survival. The spot market, upon which Hynix is heavily dependent, won't help. It has fell steadily in recent weeks after showing strong price increases earlier in the year.

To survive on its own, Hynix has to starting upgrading its current plants immediately and then start building next-generation 300-mm wafer fabs. The Micron deal had the U.S. DRAM giant upgrading Hynix's existing fabs with $1.5 billion in fresh loans from Hynix creditors. Now, after the board's rejection, creditors indicate they will not loan any more money to Hynix. So where does the money come from?

(See April 30 story.)

. . . as new Hynix leaders now
try to sell non-DRAM biz . . .

The rebellous Hynix board now says that it's "confident that with the upturn in the semiconductor industry and new developments in our technology, it is possible for Hynix to successfully exist as an independent entity." Yeah sure, the company that lost $6 billion in the past two years.

On Friday, the chip maker confirmed that it now is focusing on selling its non-memory assets as a way to raise cash and streamline operations. This business is now running at $750 million annually in sales. But one observer speculates this could just be another ploy in the battle to get new financing and debt forgiveness for the surviving company.

Hynix says that it is not pursuing any other alliances and was "looking for various solutions" to raise capital for a 300mm wafer plant, which will need to get off the ground quickly if the company expects to remain competitive.

(See May 3 story.)

. . . and a stunned Micron
pulls out of Hynix talks . . .

The vote rejecting the DRAM merger threw Hynix into a turmoil--CEO Park Chong Sup even resigned in protest over the vote. And Micron executives were stunned by the surprise board vote.

But on Thursday, they apparently gave up. "We are unable to discern a process that would allow the numerous parties involved to reach agreement in a timely manner," Micron CEO Steve Appleton says. "As a result, we are withdrawing from the Hynix negotiations."

Without any deal, Hynix is in danger of scaring off its largest customers. This is something that is "a very real possibility," according to Sherry Garber, analyst with Semico Research."

Analysts said the fate of cash-strapped Hynix was now up to creditors owed more than $5 billion.

(See May 3 story.)

. . . but creditors may fire
board and overturn its vote

The Hynix board's decision to shelve the Micron deal may be short-lived, according to observers. Creditors are expected to convert enough of their Hynix bonds into voting stock to give them the votes to fire the board and overturn the vote.

In any event, it appears the creditors need only wait until May 31, when they can convert the $2.3 billion in Hynix bonds they received in last year's debt-to-equity swap to common stock and take control of the chip maker. Then creditors will be free to set the terms they want for both the Micron acquisition and in restructuring the surviving Hynix non-memory firm. Welcome to doing business in South Korea!

(See April 30 story.)

Flash starts turning
into a sellers' market . . .

Don't look now, but there is some movement in the flash memory market. Some analysts and suppliers are beginning to predict flash will rebound later this year and that is causing some buyers to update contracts and lock in prices.

Lead times will increase by eight weeks or more by the end of 2002, according to some estimates, and some suppliers fear that capacity may become an issue once again.

"For the past 15 to 18 months, customers have not had to worry about lead times," comments Keith Horn, marketing VP at Fujitsu Microelectronics America. "Either they had inventory or knew we had inventory. That's changed. There's now a lead time for flash that can be 8 to 12 weeks for some devices," he says.

"There are some rumors that vendors are hinting to customers that they might have allocation by the end of this year," says Rich Wawrzyniak, analyst at Semico Research. "The problem is: why would they go on allocation? Is capacity all booked up?"

Flash maker Silicon Storage Technology, which uses several foundries for its flash, has had to "scramble" to maintain capacity levels for certain chip lines, according to CEO Bing Yeh. "The surge was unexpected. We're seeing a few products that, if we don't act right now, we'll run into problems with a few months from now," he notes.

. . . with flash sales expected
to increase by 14% this year

Atmel, which sells both discrete and embedded flash, believes high-density supplies could tighten later this year due to a lack of production lines running at 0.18-micron and below. "Fab utilization is improving now and 0.18-micron production is 85% to 90% already," says John Bryant, marketing VP for flash.

But building new fabs now doesn't seem likely. "Even though the flash market is forecast to recover this year, I don't think a great deal of capital expenditures will go toward flash," says Bill McClean, analyst at IC Insights. "Spending for flash is taking a breather," he adds.

Production will come back though. Toshiba, citing improving market conditions, says it will reopen a flash and SRAM fab in Yokkaichi, Japan, that has been closed since October. And Advanced Micro Devices will convert its Fab 25 in Austin entirely to flash production.

So it looks like the flash market will jump this year. Flash sales will increase to $9.3 billion in 2002, up 14% from $8.15 billion in 2001, predicts Alan Niebel, analyst at Web-Feet Research. He also expects shipments to rise to 2.18 billion units this year, up from 1.68 billion in 2001.

"There is a pickup in the market and a lot more demand," says the analyst. "It's more than just NAND flash in digital cameras. There are flash cards in PDAs, network systems, cell phones, and some GPS systems, as well as games and other consumer devices."

"In the past six months, customers have enjoyed artificially low prices and lead times," notes Atmel's Bryant. "I think we'll see the industry go back to a more normal situation. I don't think prices are going to double, but in some cases they could rise 25% or more."

(See April 29 story.)

Despite 10% rise in chip sales, Hill
sees chip gear down by 15% in '02

You might say that Richard Hill, CEO of Novellus Systems, is a bit frustrated by the current outlook.

On the one hand, he sees global semiconductor sales rising by 10% from last year's severe downturn. But he still expects the chip production frontend equipment market to fall 15% this year to $22 billion from $26 billion in 2001.

"In the past two years, I would say that the chip equipment industry was either in purgatory or hell," Hill comments. But "now, there are signs of a recovery," he says, as the chip recovery is finally causing frontend chip equipment orders to pick up after a long and steep decline.

Hill blames lower chip gear sales this year on continued weakness in capital spending during the first three months. The first quarter was much weaker than the year-ago quarter, he notes, and tool makers probably won't be able to make up the difference in the last nine months.

(See April 30 story.)

AMD speeds up 130-nm schedule,
denies Intel hints of yield problems

I'm going to miss Jerry Sanders. The highly competitive chip pioneer, who retired last week from the CEO post at Advanced Micro Devices, let it all hang out this week.

What set him off was Intel, of course. Asked about Intel's hints that AMD's 130-nm chip yields are suspect, he said, "How to you spell bullshit?" AMD will put its yields against Intel's yields, he added.

After AMD hinted that it could build these chips in cost-effective 200-mm fabs, as opposed to Intel, which is ramping up its devices in more expensive 300-mm fabs, Intel CFO Andy Bryant quickly responded: "Don't believe a word that Intel has a cost problem." He said he was suspicious of chip makers that only talk about "smaller die sizes." The die-size issue is only part of the equation in chip-manufacturing costs, he maintained.

But this week Sanders says AMD's 130-nm process is healthy, and as a result, the chip maker is accelerating the deployment of its 0.13-micron technology by three months. This will pave the way for next-generation products like its Hammer family of 32/64-bit microprocessor lines, he says. AMD originally planned to move its microprocessors into 130-nm technology by the fourth quarter of this year.

Intel reportedly began shipping its 130-nm processors late last year.

(See April 30 story.)

AMD admits losing share to Intel,
but outlines ambitious roadmap

Advanced Micro Devices "opened its kimono" this week on its product roadmap. And it's aggressive.

AMD is pushing its production technology hard now, because it has lost market share to crosstown rival Intel, especially at the high-end of the microprocessor market. "We won't gain any market share at the high-end in the first quarter," acknowledges Chairman Jerry Sanders. "This quarter, Intel has taken the technology lead," he admits.

AMD may be playing catch-up for a while. The company is now shipping its Athlon XP 2100+ family of processors, which compare to Intel's 2.1-gigahertz Pentium 4 chips. But Intel's fastest Pentium 4 chip runs at 2.4-gigahertz.

AMD plans to ship its Athlon XP 2200+ and 2400+ processors in the second and third quarter. In the fourth quarter, In the fourth quarter it plans to deliver the 2800+ model, which is said to compare to Intel's upcoming 2.8-gigahertz.

By year end, AMD expects to close the gap with Intel by delivering its code-named ClawHammer, a line of 130-nm, 32/64-bit processors for desktops and servers. These ClawHammer chips will use the company's existing Athlon brand name once they hit the market.

The company also is sampling its high-end Hammer product called SledgeHammer, which is also based on 130-nm technology. Last week, AMD renamed SledgeHammer as Opteron. "We are sampling Opteron now," Sanders says.

And, he adds, AMD remains on track to ship products based on its next generation 90-nm (0.09-micron) process by the third quarter of 2003.

(See April 30story.)

National Semi adds capacity as
Asian orders unexpectedly rise

The gods are smiling down on National Semiconductor. To meet unexpected demand for chips--especially from its two largest customers, LG Electronics and Samsung--the chip maker is increasing its wafer fab capacity.

While COO Don Macleod is quick to point out that the IC downturn is far from over, overall chip demand is picking up as the inventory glut eases in the marketplace.

National's fab utilization rate was running in the 40% range two quarters ago; "now we're running our fabs in the high 50% range" to meet the unexpected demand in the market, says Macleod. "We're ramping up our wafer and test capacity," he adds.

There currently is an "inventory replenishment" cycle under way in the chip market right now, especially in the flat-panel display and wireless sectors. "We think our inventories are too low," he adds.

For National, Asia has become its most important market. Two years ago, only 30% of its sales came from Asia. "Now, 45% of our orders are coming out of Asia," he says. Samsung and LG, major players in the handset market, are using National's phase-lock loop and other wireless products. Samsung is also a major user of National's display and consumer ICs, he adds.

National sales also are growing nicely among handset makers in Japan and Europe. Its four-chip GSM solution is being used in a handset from the Ericsson-Sony team. And for the first time, National's analog chips are moving into Nokia's handset lines.

(See May 1 story.)

Chip makers battle over
next-generation package

The fight over what design will become the next-generation standard for smaller chip packages for advanced standard logic devices is heating up fast.

Fairchild Semiconductor started it off this week by releasing 50 standard logic functions in its new MicroPak chip-scale package, which is 65% smaller than the widely used SC70 packages. The MicroPak is Fairchild's next-generation package for a wide range of logic and switch functions.

But a day later, standard logic allies Texas Instruments, Integrated Devices, and Hitachi introduced their quad flat, no-lead (QFN) packages with 14, 16, and 20 contacts for gate and octal-bit width devices. These packages are aimed at a different market than Fairchild's package, which is aimed at six-terminal logic and switch functions. But both sides are battling each other for the smallest, reliable format in standard logic chips.

The Maine chip maker's MicroPak measures only 1.45-mm by 1-mm, but the chip-scale package (CSP) sports relatively large 0.2-mm by 0.3-mm contact pads for strong joint integrity on surface-mounted printed-circuit boards. They are aimed at products and switches that are used in cell phones, personal digital assistants, and a wide range of other products.

The TI team claims its new surface-mountable QFN packages are up to 62% smaller than thin-scale small outline packages (TSSOP) with the same number of contacts and bit widths. TI will initially introduce QFN packaging in its logic technologies for gate and octal functions. Full production is scheduled to ramp in other advanced BiCMOS and CMOS technologies later in 2002 and into 2003, according to TI.

Part of TI's strategy is also to offer second sources for QFN packaged logic. Both IDT and Hitachi are planning to release products in the QFN package later this year. The QFN package is suited for portable consumer electronics, TI says, with a smaller footprint and less weight than the TSSOP packages. The 20-pin QFN has a footprint of 15.75 square millimeters.

(See April 30 story.)

Taiwan's UMC doubles
its capital spending plan

Another big guy has decided to beef up its capital spending this year because of the improving outlook for semiconductor sales.

Taiwan's United Microelectronics is doubling its capital spending budget to $1.6 billion, double its original plan of $800 million set at the start of this year. The new target is an increase of 45% from the $1.1 billion it spent in 2001.

UMC's wafer fab capacity utilization has moved up to 50% from 48% in the fourth quarter and the foundry predicts it will reach 70% in the current quarter.

The foundry reported a 12.8% sequential decline in net sales to $349 million from the fourth quarter, but it posted its first net income in three quarters. Net income was only $6.2 million, but it compares with a net loss of $108 million in the fourth quarter. It went into the black thanks to $79 million in non-operating income. This includes gains from the sale of 2.86 million shares in MediaTek, a fabless chip company spun out of UMC in 1997.

UMC canceled the sale of 8-inch wafer production equipment from Fab 8 B due to a strong pickup in demand for older 0.35- and 0.25-micron processing technology, says CEO John Hsuan.

The foundry now expects its revenues in the second quarter to show strong sequential growth from the first quarter with capacity utilization rising to 70% from 50% in the first quarter. UMC figures its operating margin will return to positive territory in the second quarter.

(See April 29 story.)

Nvidia expects to hit record
profits in April 28th quarter

Nvidia is still humming along. Its strong growth continued in its fiscal quarter ended April 28.

The high-flying graphics and multimedia chip supplier expects to report revenues increasing sequentially by 14-to-16% to a record $570-to-$580 million in the fiscal first quarter. Wall Street had been expecting $534 million.

The company is estimating earnings per share of 45-to-48 cents vs. 41 cents in the year-ago quarter. Wall Street has been predicting earnings of 42 cents per share, according to First Call/Thomson.

Net income for the quarter is now expected to run between $79-to-$84 million, up from $73 million in the prior three-month period.

Just two months after Nvidia reported it was under review by the U.S. Securities and Exchange Commission for certain accounting practices, the company disclosed it was restating its results for the first three quarters of fiscal 2002 and for fiscal years 2001 and 2000.

As a result, total net income for the three-year period will increase by about $1.3 million. Net for fiscal 2002 will go up $2.1 million, while its 2001 net will be cut $3.7 million and its 2000 net will go up $2.9 million. The restatement comes after an extensive review directed by Nvidia's independent audit committee, assisted by the law firm of Cooley Godward and forensic accountants from KPMG.

"The audit committee conducted a complete and thorough review of all matters raised over the past three fiscal years and we believe the resulting restatement is appropriate," said CEO Jen-Hsun Huang.

(See April 29 story.)

For first time in six quarters,
Maxim starts building backlog

Maxim Integrated Products worked its magic again in the first quarter. It reported revenues of $258.5 million for the quarter ended March 30, up 4% from $247.1 million in the previous quarter.

"Maxim's third fiscal quarter was encouraging in many respects," says CEO Jack Gifford. "Bookings were up in every geographic region and in all but one of our business units. Cancellations continued to fall," he says, "to 5% of net bookings in the third quarter."

"For the first time in six quarters, we have begun to build backlog which, if continued, should improve visibility in future quarters," Gifford says.

Net income amounted to $66.7 million, a 39.3% drop from the year-ago period, but a 6% increase from the previous quarter.

Third quarter bookings were $299 million, a 30% increase over the second quarter's level of $230 million. Turns orders received during the quarter were $140 million, a 12% increase over the $125 million received in the prior quarter.

(See April 29 story.)

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