Commentary & analysis of week's chip news
Greetings from Down-East Maine, where we've been running our furnaces all week--due mostly to our foggy coast and sea breeze. But summer is nearly upon us, which should bring us a little warmth. I won't be writing this column next week, since I'm about to take off with my family for a week's vacation to Quebec City. But I'll be back the following week--all fired up and raring to go.
TI scales back its market
forecast for cell phones . . .
We've been telling you for over a year now that folks were going overboard on the outlook for cellular handsets. But most market researchers seemed to think the cell phone's red-hot growth rate would go on forever. Well, the chickens are coming home to roost.
Believe it or not, some analysts are now raising their estimates for cellular handset shipments in anticipation of a second-half resurgence in demand. But the CEO of the largest supplier of ICs to this market now says he has yet to see any significant improvement.
The analysts "don't know--there are no hidden secrets," declares Texas Instruments' Tom Engibous. "It's clear to me that the economy is still decelerating. I just came back from Europe and they are seeing similar thing now that we saw in the U.S. two quarters to a quarter and a half ago."
IC shipments into the handset market continue to be below actual handset shipments, he points out, evidence that handset OEMs are continuing to work through existing inventory.
Handset shipments amounted to between 405-to-415 million units last year, down from nearly all forecasts. As a result, analyst sliced their projections for 2001 to between 425-to-450 million phones. But in recent weeks, they slipped back in their old ways, raising their estimates back to as high as 480-to-500 million unit.
But that doesn't square with what the TI CEO is seeing. "Shipments of cellphones currently are flat to up 15%, depending on who you are talking to," says Engibous. "Yet TI is shipping about half of the chips of what we shipped in the second quarter of last year." Lack of demand, he adds, "is fairly broad across a wide range of communications end equipment."
(See June 11 story.)
. . .As Nokia, the leading supplier,
shocks by cutting back its forecast . . .
If Tom Engibous's words aren't enough to convince you about the slowdown in cellular handset growth, then check out Nokia's swoon this week. The Finnish company, which is now the world's largest cell phone supplier, now believes that worldwide sales of cellular phones will show only "very modest" growth in 2001 over last year's 405 million units.
Earlier this year, Nokia joined the rest of the cell-phone makers by predicting that worldwide sales of these products would range from 450-to-500 million units in 2001. Now, largely because of weak demand in the U.S., vendors are slashing their forecasts of 2001 cell-phone shipments.
"We have recently seen a weakening in market conditions to levels below our earlier estimates," says Nokia CEO Jorma Ollila. "We believe that this slowdown is a result of a general market deterioration--driven by economic uncertainty, the ongoing technology transition, and less aggressive marketing by the operators," he says.
Ollila estimates his second quarter sales growth will be "somewhat below 10%," compared with its year-ago sales, a growth rate that's less than half the 20% rate estimated earlier by the Finnish company.
(See June12 story.)
. . .But research firm claims lower
forecasts could hurt sales outlook
Despite the sharp revisions downward that makers are making now in this year's cellular phone forecasts, one new market study is looking for a boomer year more like people had originally expected. Tokyo's ARC Group is optimistically predicting that 491 million cell-phone handsets will be shipped by the industry in 2001, a big jump of 21% from the 405 million units sold last year.
In fact, the market research firm was critical of people like me who were predicting lower sales results. Sharply lower forecasts carry 'the risk of talking down the market' and could impact the medium-term outlook," in particular the production capacity of some chip makers, ARC says.
The struggling handset business should get a needed boost in the third and fourth quarters after slowing growth hit some regions during the first half, according to ARC. Other analysts have varied greatly in their forecasts for cell-phone shipments this year.
Two weeks ago, Gartner's Dataquest unit predicted the cell-phone industry could still reach 500 million units after end users purchased 96.7 million handsets in the first quarter. Earlier this year, Dataquest cut back its forecast for unit shipments to 507 million handsets from its previous estimate of 576 million.
ARC says that many cell-phone forecasts are too low now, partly because analysts and vendors overestimated demand in 2000. The Tokyo research group says it had predicted that 410 million units would ship in 2000, while other researchers had inflated their projections to 550 million handsets. ARC says its original forecast last year was called "pessimistic" by many. Now it expects to be labeled as "optimistic" with its current forecast. That's certainly what I'd call them.
(See June 12 story.)
IDT's 2nd quarter sales
will fall by nearly half . . .
The chip market still stinks--and is still clobbering chip makers. This week it was Integrated Device Technology's turn to try and get operating costs back in line with a deteriorating market. It's tough--the company is laying off 900 workers, or 18% of 4,900 workers.
How bad is it for IDT? Well, the company had to cut its forecast for second-quarter revenues dramatically. It now expects to show a 44% sequential decline in second quarter revenues, from $213 million in the first quarter to $120 million.
IDT is also freezing "nonessential" capital spending and requiring non-manufacturing personnel to take time off. It also is freezing nearly all hiring and sharply cutting discretionary spending. IDT estimates it will save $11 million after non-recurring severance costs of $2.5 million are taken in the current quarter.
(See June 13 story.)
. . . While Varian's sales will
drop by more than a fourth
Varian Semiconductor Equipment also was surprised by the direction that business was taking this quarter. "The fundamentals that drive our customers' capital spending plans have not improved during the quarter," says CEO Richard A. Aurelio.
As a result, Varian was forced this week to cut its estimates for revenues in the quarter ending June 30th to a range of $125-to-$135 million. That would be 21-to-27% lower than the $173 million sales it reported in the previous quarter and as much as 35% less than sales in the year-ago quarter.
The Gloucester, Mass., company is cutting more costs to cope with the shortfall. Staff reductions during the past two weeks, including contractors, attrition, and additional reductions, have cut total head count by 20% since Jan. 1st. Varian will also close down its plant for two weeks in July.
(See June 11 story.)
Foundry picture darkens: UMC
falls to mid-40% fab utilization
Now it's United Microelectronics, world's second largest silicon foundry, that has missed its forecast. The Taiwan company is warning investors that it will post an operating loss for the second quarter because the downturn has cut its wafer fab utilization to the mid-40% range, down more than a third from the 70% rate it ran in the first quarter. Two months ago, it predicted a drop to only as low as 50%.
UMC also has lowered its second quarter sales forecast. Two months ago, it predicted second quarter revenues would fall 30% from the first quarter. Now UMC expects a 35% sequential drop and warns the third quarter could also be weaker than the second, despite earlier predictions of a second-half recovery.
"It is difficult to anticipate results for the upcoming third quarter," says CEO Peter Chang. "Visibility remains extremely low and we do not see signposts toward improvement in the demand/inventory situation." he warned. "We cannot rule out the possibility that business condition in Q3 may show further deterioration from that of Q2."
But UMC's drop in fab utilization is not as steep as that of one of its major rivals. Singapore's Chartered Semiconductor Manufacturing, the world's third largest pure-play foundry, warned investors earlier that its factory utilization rate could drop to one-third of its installed capacity during the second quarter. Chartered too is predicting a loss for the second quarter.
(See June 15 story.)
IR's revenues fall 70%
in datacom-telecom sector
Even though it was very bearish about its outlook for sales in the current fiscal quarter, International Rectifier has had to go back and cut its estimates again. Now IR expects revenues for the three months ending June 30th to drop sequentially to the 30-to-35% range, or to $179-to-$193 million from $276 million in the prior quarter.
The big problem is the datacom and telecom chip markets. "We had expected this segment of our business to be down about 50%, but business conditions here have deteriorated even further during the quarter," says CEO Alex Lidow. "We now expect our revenues from this segment to be down about 70%."
(See June 14 story.)
Now, even STMicro
is cutting its forecast
Now the continuing weakness in the chip market seems to be hitting everyone. STMicroelectronics, which had been holding up better than most chip makers, is cutting its second-quarter forecast because customers are still postponing orders. The European chip maker now expects second-quarter revenues to run between $1.55-to-$1.60 billion, below its previous estimate of $1.65-to-$1.8 billion.
What that will amount to is a sequentially drop of 17-to-19% from $1.92 billion in the first quarter. The change reflects weakness in telecommunications and computer peripherals.
Gross margins will drop to about 38% because of lower-than-anticipated utilization rates for the company's 6-inch wafer fabs, STMicro says. But it claims to be maintaining utilization rates of about 85% at its five leading-edge 8-inch wafer fabs.
Memory product revenues will run slightly above the year-ago quarter, but sequentially below the first quarter due to pricing pressures and lower-than-expected demand, according to the company. Smart-card chip sales will be lower sequentially and on a year-to-year basis, it predicts, while digital consumer product revenues will be down from last year but flat with the first quarter.
(See June 14 story.)
LSI Logic finally rolls out
its reconfigurable logic
The years-old battle between low-end ASICs and high-end programmable logic solutions heated up this week when LSI Logic finally rolled out details of a reconfigurable programmable logic function.
Called Bazil, it was developed with two partners--Adaptive Silicon and Ericsson. The Liquid Logic programmable function is designed to give designers the flexibility to partition a block of their system-on-a-chip (SoC) that may need to be reprogrammed later to meet changing standards or customer specifications.
"By incorporating reconfigurable logic on an SoC platform, new types of products become feasible," points out LSI vice president Ronnie Vasishta.
LSI Logic first talked two years ago about its plans to provide small programmable cores of less than 50,000 gates inside its ASICs. The idea of combining standard-cell logic with a programmable array has been a hot topic in the industry, most notably among FPGA suppliers, which have begun attaching fixed-function cores to programmable arrays.
(See June 11 story.)
Kingston to buy up to 40%
of its DRAMs from Taiwan
Kingston Technology will be procuring more of its DRAMs in Taiwan, not only because it expects to save money, but also because its new strategy is aimed at expanding its business in Asia.
The Fountain Valley, Calif., memory module maker expects to spend 30-to-40% of its $1 billion procurement budget this year for Taiwanese DRAMs. Last year, it purchased only 5% of its DRAMs from the island.
The company regards Japan and China as its most promising markets. It now expects $130 million of its sales this year to come from Japan and Asia, up from $100 million last year. Kingston set up a memory module assembly plant in Shanghai last year to speed delivery to OEM clients on the mainland.
Kingston will buy DRAMs from Winbond Electronics and Mosel Vitelic, as well as DDR DRAMs from Nanya Technologies. DRAMs made by Taiwanese suppliers are usually 5% to 10% cheaper than those you get from Samsung, NEC, Micron, or Toshiba, according to Connor Liu, an analyst with SG Securities in Taipei.
(See June 12 story.)
Why Intel believes
it has outfoxed IBM
Industry experts have long argued that silicon will run out of gas for building ICs over the next 10 years, and as a result, there was an urgent need to develop follow-on technology such as nanotechnology or molecular electronics. But Intel for one doesn't buy that.
And this week the microprocessor giant described new technology it has developed that could mean bulk silicon can be used beyond this decade and that traditional silicon wafer substrates will be viable to fabricated devices with minimum feature sizes of 30 nm or below. Those gigantic R&D budgets may be paying off for Intel.
The chip maker claims it has broken its own speed record for transistors by demonstrating an experimental 20-nanometer device capable of 0.75-picosecond switching speeds. Intel researchers claim the new transistor structure will open the door for development of 20-gigahertz microprocessors by 2007. Last December, Intel claimed the unofficial speed record in silicon devices with a 30-nm transistor capable of 0.85 picoseconds.
The 20-nm transistor will be the building block for Intel's P1266 process technology that's slated to move into production by 2007 with 0.045-micron design rules. This schedule would put it ahead of even such next-generation successors to bulk silicon as IBM's nanotubes.
The development of a 20-nm transistor based on silicon proves we don't have to move into exotic technologies like nanotubes," declares Rob Willoner, Intel market analyst. "IBM has even admitted that nanotubes won't be ready for another decade."
In April, IBM claimed a breakthrough in future transistor technology by developing carbon nanotubes as a potential replacement for silicon circuits. IBM scientists said nanotubes could pave the way for a new generation of ICs when silicon was no longer able to handle device shrinks within the next 10 to 20 years.
(See June 10 story.)
Moto makes it to top tier
of chip makers in China
Motorola Semiconductor has joined the top tier of chip makers in China by running the first run of silicon through its new 8-inch wafer fab in Tianjin. The MOS-17 fab joins Hua Hong NEC Electronics in Shanghai in operating state-of-the-art, 8-inch fabs in China. Two other advanced fabs also are being built in Shanghai by Semiconductor Manufacturing International and Grace Semiconductor Manufacturing.
First wafers were successfully fabbed after just three months, says Joe Yiu, Motorola vice president. The Tianjin fab will continue qualification testing for the rest of this year, with production scheduled to start up in early 2002, he adds. It has the capacity to process 3,000 wafers a week. The fab had been on hold for nearly a year before Motorola began equipping the facility a year ago.
(See June 13 story.)
TI dumps product
that made it famous
There's no time for sentiment any more at Texas Instruments. No operation seems to be safe if it isn't pulling its weight at the Dallas company--even if it is part of the firm's legacy.
TI will exit the dedicated speech-synthesis chip market at the end of the year after it transfers production of its family of speech synthesis ICs to Sensory in Santa Clara, Calif. The chip maker became famous by becoming the first to commercialize speech synthesis products.
The company entered the market in the mid '70s when it developed both a speech synthesizer chip and a learning toy known as the Speak & Spell, which was marketed by TI's consumer products division. The learning toy even made the cover of Business Week magazine illustrating a major story on the pioneering chip maker.
The TI family includes five different chips introduced in the past two years, whose claim to fame is providing the voice box for Furby, the chatty toy from Tiger Electronics. When Sensory takes over production, TI's older speech synthesis chips will be discontinued.
While the speech synthesis chips represented a relatively small percentage of the company's revenue, TI's departure from the business may have an impact on the overall speech synthesis market. The company has provided a large variety of speech chips to customers for toys, educational products, language translation products, security systems and home monitoring devices.
(See June 14 story.)
Cadence asks judge to order
Avant! to pay $700 million
It doesn't come as any surprise. What Cadence Design Systems wants Avanti and six of its employees or former employees to pay for stealing Cadence source code is a heckuva lot more than Avanti believes it should have to pay. Cadence told the court that it should get $700 million in restitution, while Avanti believes it shouldn't have to pay any more than $1 million.
Cadence has asked the court to order Avanti to pay it $534 million to compensate for lost profits from place and route sales and follow-on product sales and services; $16 million for out-of-pocket expenses such as attorney fees and lost employee time; and $150 million, or 10% interest on those losses.
An Avanti spokesman says that if his company was ordered to pay $700 million to Cadence, that amount "would not break the company." Avanti has reported that it has more than $200 million in cash, and adds the spokesman, the company generates $20 million in cash quarterly.
There are no limits on how much the judge can order Avanti to pay Cadence. The two sides are now suggesting guidelines that they believe the judge should follow in determining restitution. The actual hearing is slated to begin on Monday, June 18th, but it has been postponed twice before. The sentencing hearing is set to begin June 21 and will determine prison terms for five of the defendants in the criminal case. Defendant Gerry Hsu, Avant! CEO, does not face prison time.
(See June 15 story.)
Infineon, Canon join to build
tools for 0.07-micron process
A new partnership could speed up the development of 157-nm lithography tools. Infineon Technologies and Canon will jointly develop the photolithography processes and exposure tools using fluorine (F2) laser illumination sources.
This equipment will be used for volume production of next-generation memory and logic ICs, using process technologies with 70-nm (0.07-micron) design rules. Infineon will work with Canon to speed implementation of a first-generation, Canon F2 exposure system, which is now scheduled to be delivered to the Munich-based company in the second quarter of 2003.
"Timing is very crucial for the introduction of the upcoming shrink nodes and we are confident that such a common program can win valuable months to stay ahead of the competition," says Andreas Oelmann, Infineon vice president.
The initial joint R&D will be done at Canon's Utsunomiya Optical Products Operations and will focus on coming up with data for device manufacturing using 70-nm exposure steps and processes. The R&D work will then move to Infineon's facilities for joint-process development scheduled through 2004.
Process data from "actual device manufacturing" will be used by Canon to develop new 70-nm-compatible F2 exposure systems. These systems are expected eventually to replace the company's argon-fluoride (ArF) laser lithography tool lineup.
Chip makers will need F2-based 157-nm wavelength exposure systems to develop and build ICs with 70-nm design rules, the two companies believe. Systems based on krypton-fluoride (KrF) 248-nm and ArF 193-nm lasers won't be able to pattern fine lines below 90 nm in a production fab, they claim.
(See June 12 story.)
Would you believe someone
is revising revenues upward?
Here is this week's "man bites dog" story. This kind of development is a rare event these days in the chip biz. A contract chip-packaging and testing house actually has revised its revenues forecast upwards slightly for the second quarter.
ChipPac now expects revenues to be flat-to-5% lower than the $90 million it posted in the first quarter. The company previously expected a sequential decline of 5-to-10% in the second quarter.
"All indicators are that we reached a trough for order cancellations and push-outs early in the second quarter," notes CEO Dennis McKenna. "As anticipated, our customers are keeping inventories and forecasts at guarded levels, resulting in a more responsive 'turns' environment." The chip assembler is now seeing "positive signs that some segments, mainly computing, have worked through inventories," he says.
More good news. The firm's cost reduction efforts in the second quarter are helping to offset price erosion. "It should enable us to hit a low double-digit gross margin in the second quarter," predicts CFO Robert Krakauer. But the company is still very cautious about the outlook, he says, "due to ongoing low visibility."
(See June 13 story.)
Picture also is improving
at Microchip Technology
There's light at the end of the tunnel too at Microchip Technology, which says that backlog cancellations and order postponements are "slowing substantially" and inventories at distributors and OEMs are easing.
Based on April and May data, the Chandler, Ariz., chip maker figures it's now on track to hit its sales estimate of $138 million for quarter ending June 30th. It had predicted a 10% sequential drop in revenues than two months ago.
Another bright spot: Microchip is seeing "an increase of customer orders requiring immediate delivery of product, indicating that inventories at some OEM customers may be reaching replenishment levels," notes CEO Steve Sanghi. "We are starting to see an increasing volume of new designs going into production," he says, and "we believe these are signs of a bottom forming." Now that's a neat way to end a column.
(See June 14 story.)
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(Click here for last week's Semiconductor Alert!.)