Commentary & analysis of week's chip news
Greetings from Down-East Maine, where our forests are looking more like the jungle or Washington state's Olympic peninsula these days due to the many thunderstorms we're having. Most of the year, I have a great view of our forests, and the Passamaquoddy Bay and New Brunswick from my home office windows. But now the trees have completely closed these views off--all I can see now are solid trees.
Much of this week's column is devoted to the outlook for next quarter or two, and more to the point: When can we expect a turnaround? I'm sorry to report that the professional forecasters can't seem to agree. But I'm sticking my neck out and going along with my favorite economist, Jean Philippe Dauvin, who doesn't see big things happening until the second half of next year. That would make for a long winter, I fear.
April sales called
worst in 17 years
The chip business stinks. Rather than beginning to pull out of their power dive like some people have suggested, sales in April were even weaker than January's, a notoriously bad month for chip sales. One market watcher even called it the worst comparison in 17 years of data.
Worldwide chip sales in April dropped 5.8% to $13.7 billion, according to the SIA. The year-to-year comparison was even worse, with sales dropping 10.2% from April last year. And May sales being reported by the individual companies were even worse, with companies like National Semi showing sales declining one-third or more from the previous quarter. Wow!
Hardest hit in April was the Americas market, where sales dropped 8.8% from year-ago figures to $3.75 billion. Sounding more and more like a broken record, SIA president George Scalise explains that "the overall demand continues to reflect the inventory correction that began in the fourth quarter of 2000."
But there was one bright spot. Chip revenues in the Asia Pacific region grew 3.4% in April over the previous month to $3.54 billion. Even so, these sales were down 8.8% from the year-ago amount. The sequential increase, first one since last summer, reflects an improved supply-demand balance in the PC market, Scalise says.
But the news was grim from the rest of the world. April chip sales in Japan dropped 6.5% sequentially to $3.35 billion in April and were 2.1% lower than April a year ago. Europe fell 6.2% in April to $3.07 billion compared to the previous month, and went down 7.9% from a year-ago, according to the SIA.
(See June 4 story.)
I don't agree with SIA's
revised chip forecast . . .
The Semiconductor Industry Association did it again. It came out with a revised forecast Thursday that's too bullish to be taken seriously.
The SIA declares that a second-half recovery in worldwide IC markets will pull the chip industry out of its current mess and spur a growth rate of 20.5% in 2002 and 25% in 2003. It does expect chip sales this year to drop 14% to $176 billion, but that compares with its prediction last fall that global chip sales would grow 22% in 2001. Is anyone keeping score here?
Chip executives tried to put the best spin possible on a terrible year by focusing more attention on future years. "The industry has had a 17% compound annual growth rate for the past 40 years and we expect that to continue for the foreseeable future despite periodic cycles," points out Kirk Pond, CEO of Fairchild Semiconductor. "Despite the sales decline . . . this year, the semiconductor market is still projected to grow from $149 billion in 1999 to $283 billion in 2004," he declares.
The latest SIA outlook is similar to one released by the World Semiconductor Trade Statistics (WSTS) group last week, except that the WSTS predicted that global sales would grow 13.9% next year while the SIA is looking for an increase of nearly 7 percentage points more.
(See June 6 story.)
. . . But here's one
I can go along with
One of my favorite chip industry economists seemed to me to be right on the money when he discussed industry trends at STMicroelectronics' annual analyst meeting last week. Some describe it as "muted optimism," but I believe it's reality. The bottom line: no turnaround this year or in early 2002.
"I think we will have to wait until the second half of 2002 to see a strong and long-lasting rebound," says Jean Philippe Dauvin, STMicro's chief economist. He pointed out that the chip industry acted like a tennis ball in nine other downturns, bouncing back as far as it shot down. "If history repeats itself, we could have a strong rebound next year," he says.
The European chip maker already feels a slight uptick in chip sales related to set-top boxes, expects to double its digital subscriber line sales this year, and predicts "significant growth" in DVD products. The company has an array of new products ready for cell phones, set-tops, and DSL that it hopes will fuel a resurgence starting late this year.
For next year, Dauvin paints a cautiously optimistic picture with STMicro revenues that should fall between those of 1998 and 2000. The upturn will start slowly in the fourth quarter as seasonal demand returns, business IT spending picks up, and cell phone inventory is finally worked off, he notes.
The French economist maintains there's no lack of long-term underlying demand for existing applications in communications, consumer, or automotive electronics. But he paints a dour picture for the mainstream computer industry. "We are approaching a structural slowing down of the microprocessor market," he predicts. This year, the PC and U.S. markets generally will bear the brunt of the downturn, declining as much as 30% this year, Dauvin forecasts.
Digital set-top boxes, the first sector to go into inventory correction late last year, could be the first area to rebound. STMicro is now receiving short-term orders for June and July for digital satellite and DVB set-tops, and DVD looks like it could be strong in the second half, the company notes.
In communications, DSL is one of the things that will pull the European company out of this downturn, it says. STMicro's DSL sales are forecast to double to 12 million chip sets this year as the number of subscribers is expected to double to nearly 40 million worldwide.
Existing--not emerging apps--are likely to be the key players in any rebound, says CEO Pasquale Pistorio. "There will be no major new drivers we don't know already, but a further accentuating of the existing applications."
(See June 4 story.)
Here's another forecast
Yet another market forecast came out this week that's even more optimistic than the Semiconductor Industry Association's revised outlook. Semico Research declares that global chip sales will drop only 12% this year, then bounce back in 2002 with a 25% growth rate.
Strengthening demand for semiconductors and the end of inventory corrections will drive next year's recovery, the Phoenix market researcher believes.
Semico already sees signs of inventory reductions and believes this trend will continue for the rest of this year. Also, new product designs are moving ahead, it says, making accumulated inventory outmoded and difficult to sell. As a result, this inventory will be written off if it isn't sold during the second half, Semico predicts.
(See June 6 story.)
Now it looks like PC
unit sales will decline
Chip makers aren't going to get much turnaround help from the PC industry. The picture continues to darken, particularly in the U.S. International Data, one of the two leading number crunchers in this market, has reduced its forecast for both the global and U.S. PC markets, saying that they will decline for the first time ever in unit shipments in 2001.
At the beginning of this year, IDC predicted U.S. unit sales would grow 2.2% this year. Now it says the U.S. economy is in a recession and that, as a result, the PC market will fall 6.3% from 48.4 million units last year to 45.3 million in 2001.
That sure isn't good news and neither is the revised outlook for 2002. IDC believes that the following year won't be any great shakes either. It now predicts that PC unit shipments in the U.S. will run 47.4 million, only a 4.6% growth rate.
IDC has also cut its forecast in half for global market growth this year, chopping it from a gain of 10.3% to only 5.8% over 2000 shipments. The slowing growth was blamed on the U.S. market, which will cause the worldwide PC market to climb from 131.3 million units in 2000 to only 138.9 million in 2001.
The worst news comes in the U.S. consumer market. These PC sales are now expected to fall by 17.3% in 2001 from last year's total. The first quarter was a mess, with consumer PC shipments in the U.S. dropping by 26.4%, according to IDC. The U.S. commercial segment for PCs are predicted to be flat this year, growing only 0.6% over last year.
"With the U.S. clearly in the tank right now, the question is to what extent Europe and Asia will follow," says Loren Loverde, who tracks the PC market for IDC. "The commercial segment in Western Europe is showing some promise, but the consumer segment looks more shaky."
"The heavily export-dependent countries in Asia could also be vulnerable to the U.S. slowdown," the IDC analyst says, "although low penetration rates in many countries leaves room for double-digit growth for the foreseeable future."
PC growth outside the U. S. will be up 12.9% for 2001, IDC predicts, down from 15.1% previously forecast and bringing worldwide growth for the year down to 5.8%.
(See June 6 story.)
HP sees IT sales decline
spreading throughout globe
Hewlett-Packard is now seeing the entire global market for information technology products slowing down as the drop in IT spending begins to spread beyond the U.S. and European markets.
May sales all over the world in both its consumer and enterprise markets were softer than HP had expected. So the Palo Alto computer company has cut its forecast to show sales running flat-to-down 5% in its fiscal third quarter ending July 31.
"While it is still early in the quarter, May was softer than we expected and we are now addressing what is clearly becoming a global slowdown," declares CEO Carly Fiorina. "We are taking additional steps to generate revenues and reduce costs while continuing to implement our long-term growth strategy."
(See June 6 story.)
Cypress run rate drops
in half in just 6 months
It seems like all the new advice being handed out by chip makers this spring still can't keep up with the market, which continues to erode. Cypress Semiconductor, which recently cut its 2nd-quarter sales forecast, did it again this week. Its latest estimate calls for a sequential drop of 20-to-24% from the first quarter's $262 million, but now it says the decline will be more like a 29-to-33% fall to the $175-to-$185 million range.
"Business conditions have not materially improved in the market segments that we serve," says CEO T.J. Rodgers. "The computation segment, roughly 20% of revenue, which earlier showed some signs of recovery, has stalled." And while the wireless infrastructure and wireless terminal segments, roughly 30% of revenue, has showed positive movement, inventory levels remain so high that this segment likely will not resume growth until the fourth quarter, T.J. says.
The biggest chunk of Cypress business--wide-area and storage area networks account for half of its revenue--are "practically dead in the current quarter, suffering from both slow end demand and high inventory," Rodgers says. "The WAN segment is not likely to show positive movement till the beginning of 2002."
"Cypress's revenue has literally been cut in half over the last six months--from the Q4 2000 record revenue of $370 million to roughly $180 million in revenue this quarter," Rodgers notes. "Our near-term goal is to endure this severe decline without losing any money." This appears to be an increasingly tough job.
(See June 4 story.)
Xilinx sales to be off as much
as 25% from previous quarter
Xilinx has joined the throng of chip makers revising their quarterly forecasts. It now expects revenue for the current quarter to decline 15% to 25% from what was posted in the March quarter. The PLD supplier previously had expected a 20% drop. The biggest problem for the PLD supplier was the networking equipment OEMs, which account for the vast majority of its customers, are still working through a painful inventory correction.
The past few weeks have seen little pickup in PLD ordering, according to Eric Ross, analyst at Thomas Weisel. "Inventory levels in the networking supply chain are far greater than comparable semiconductor end markets, and will likely experience a longer road to recovery," he predicts.
But Xilinx is trying hard to find a silver lining. Order cancellations and pushouts have "slowed considerably," according to the San Jose PLD vendor, and sales of its Virtex E devices are now running higher than was expected. And while some Wall Streeters viewed that news as bullish, the near-term outlook is still grim.
(See June 4 story.)
Intel sees no surprises
in 2nd quarter numbers
Are you ready for some relatively good news for a change? One of the few chip makers that still says it will make its second quarter estimates is Intel, which reported Thursday that it expects second-quarter revenues to be within its previous guidance--or falling "slightly below the midpoint" of the range it predicted in mid-April. The chip giant still anticipates a seasonally stronger second half of 2001.
With its new estimate, Intel seems to be suggesting that revenues will drop sequentially by 4% to around $6.4 billion vs. $6.7 billion in the first quarter sales. "The second quarter is shaping up pretty much as we expected in April. Microprocessor and flash businesses are on track to meet our forecast, while the networking silicon business is weaker than we had anticipated," says executive VP Andy Bryant.
In April, Intel was looking at revenues of $6.2-to-$6.8 billion for the second quarter, which would mean a sales rate ranging from a sequential drop of 7.5% to an increase of 1.5% from the $6.7 billion in first-quarter sales.
The big chip maker also expects to meet its guidance for second quarter gross margin and expenses. In April, the company predicted a gross margin on 49%, plus or minus a couple points--down from 51.7% in the first quarter. Expenses were expected to run in a range of from $2.2 billion to $2.3 billion. And once again, Bryant reiterated that Intel would not be changing its 2001 capital spending budget (now estimated to total $7.5 billion) or its R&D spending for the year ($4.2 billion).
(See June 7 story.)
Late 4th quarter delivery seen
for Northwood motherboards
Intel is preparing for a late-fourth-quarter launch of its next-generation, 0.13-micron Pentium 4 Northwood processor and reportedly has already shipped samples to the major Taiwanese motherboard vendors. Executives at two of them--ASUSTek Computer and Gigabyte Technology--confirmed this week that they are starting to prepare Northwood boards for the expected 2-gigahertz processor.
"We are talking to customers about having Northwood boards ready late in the fourth quarter for the Intel launch," says ASUStek vice president Jonathan Tsang. "Intel is being very conservative and wants to be sure Northwood is very stable when it is introduced."
Preliminary testing of Northwood boards has already started at Gigabyte, officials say. As expected, they say that Northwood will use Intel's new 478-pin socket with a new version of the current Pentium 4 Willamette supported by the new Intel Brookdale SDRAM chipset.
In just three months, ASUStek will be shipping AMD Athlon 4 boards with the new Nvidia nForce integrated graphics processor-core logic chipset. "The timing depends on the availability of the Nvidia chipset," notes president Ivan Ho. His company as well as most of the other big Taiwan motherboard suppliers are looking for the new Intel and AMD processors to boost flagging PC sales.
(See June 5 story.)
Via demos chip set that
may boost Pentium 4 sales . . .
The cavalry is coming, the cavalry is coming! To charge up the lagging sales of Intel's Pentium 4 microprocessor. And it was all happening at the Computex trade show in Taipei this week. In a last-minute decision, Via Technologies debuted its Pentium 4 chip set that supports the new double-data-rate SDRAMs.
Via is the first third-party supplier with a Pentium 4 chip set for the mainstream PC market. The company says it will ship the P4X266 chip set in August even though it's still mired in negotiations with Intel over a license for the Pentium 4 bus. In a Via demo at the show, a Pentium 4 with the Via chip set and DDR SDRAMs ran 8% better than one with the Intel 850 chip set and Rambus memory.
Via decided to announce the chip set after getting the first functional set from TSMC last week. "We ran it, saw the results, and knew we had beat Intel with first silicon," says Via marketer Shane Dennison.
Via should be close to a deal with Intel by the time the chip set comes out, predicts one industry source familiar with the negotiations. For most of its history, Via has lived a sort of symbiotic, confrontational existence with Intel, believing that the chip leader will bark at but not bite the company that supplies at least 40% of the market with chip sets for Intel processors.
Industry watchers in Taiwan believe Via is as much as months ahead of its Taiwanese rivals. Analysts speculate that Intel is so eager to ramp up the Pentium 4, especially during the current downturn, that it's unlikely to muddy the picture by trying to deter Via.
(See June 5 story.)
. . . as Intel shows its chip set that
does same job of running SDRAM
Also at Taipei's Computex show this week, Intel is said to be showing samples of its long-awaited Brookdale chip set that will support synchronous DRAM memory for its Pentium 4 microprocessor. The new chip set could give the Pentium 4 a major sales boost.
The Pentium 4 currently is equipped with Intel's 850 chip set, which supports only the Rambus RDRAM memory technology.
Taiwan sources say that the new chip set, to be called the 845, will be supported by several Taiwanese motherboard makers. Giga-Byte Technology, one of Taiwan's largest board makers, showed several products based on the 845 at Taiwan's Computex trade show this week.
For now, Intel says only that it will not deliver Pentium 4 chip sets that support DDR memory until the first quarter of next year at earliest.
(See June 4 story.)
Vendors rush to develop ICs
for market that's 2 years off
It will be several years before there's any market for their products, but several chip makers are going all out now to develop the critical physical-layer (PHY) devices for high-speed OC-768 networks. Carriers aren't expected to deploy these 40-gigabits-per-second networks until 2003 or later.
So far, though, they can't agree on what process technology to use for these next-generation nets. Still in the running are gallium arsenide (GaAs), Indium Phosphide (InP), silicon germanium (SiGe), and even standard CMOS.
Munich-based Infineon Technologies is betting on its proprietary SiGe technology and this week unveiled what it calls the world's first multiplexer/demultiplexer chip set for OC-768 applications built with its new process. SiGe provides lower power consumption than other processes, claims vice president Bob Pierce.
Other chip makers planning to launch OC-768 devices based on their own SiGe processes include Agere Systems and Conexant Systems, while Applied Micro Circuits will introduce parts built by IBM with its SiGe process. But Vitesse Semiconductor will ship its first OC-768 parts in early 2002 using proprietary InP heterojunction bipolar transistors. And Broadcom figures that standard CMOs can serve some emerging OC-768 tasks.
The stakes for devices makers in the OC-768 market are huge. The number of systems based on OC-768 technology will total 30,000-to-50,000 by 2003, analysts predict. That translates into a $120-to-$200 million market for physical-layer devices by 2003, they estimate.
(See June 4 story.)
IDT gets chairman
with top credentials
Now here's what I call a good move. Integrated Device Technology, which has been without a chairman for a year, has elected Federico Faggin to the post. I've known Federico for more than 20 years and give him top grades as a technologist and in running chip companies. He certainly has one of the most powerful resumes I've ever read.
One of the developers of the first microprocessor at Intel, Federico is co-founder of and current chairman at San Jose-based Synaptics. A member of IDT''s board since 1992, he has 40 years experience in communications and semiconductor management.
Before Synaptics, he co-founded and was CEO of Cygnet Technologies, which developed an intelligent voice and data peripheral for the personal computer. It was eventually acquired by Everex. He also co-founded and was CEO of Zilog.
In 1968, Federico developed silicon gate technology at Fairchild Semiconductor, the world's first commercial self-aligned metal oxide semiconductor (MOS) process technology. How about that?
(See June 5 story.)
AMD says latest Athlon
can outrun Pentium 4
The battle for lead position in the microprocessor speed race continues hot and heavy. Advanced Micro Devices did what everyone expected them to do this week and launched a 1.4-gigahertz Athlon for high-end personal computers and a 950-megahertz Duron for home and lower-range business systems.
That bumps up the clock rate of the Athlon processor by 100 megahertz, still behind Intel's 1.7 gigahertz Pentium 4. But AMD claims that 1.4-gigahertz Athlon-based systems using double data rate (DDR) SDRAMs can outperform computers based on the 1.7-gigahertz Pentium 4 by up to 40%, based on a variety of benchmarks. AMD claims that PCs built around its latest Duron chip can give a 30% performance increase over systems using Intel's Celeron.
Compaq Computer already is offering systems based on the faster AMD processors and AMD expects Hewlett-Packard, MicronPC, NEC, and several others to announce systems shortly that will be based on the faster processors.
(See June 6 story.)
Will Via's new mobile processor
be trouble for Intel and AMD?
With Taiwan Semiconductor Manufacturing (TSMC) back in the shop cranking out its microprocessors with the latest process, tiny Via Technologies may end up giving the two dominant MPU vendors more than a little trouble.
That was demonstrated this week at Taipei's Computex trade show, when the Taiwan chip company rolled out a mobile version of its VIA C3 microprocessor line based on a 0.13 micron process technology. Via claims its new mobile processor, which runs at speeds of 800-megahertz, is built on the world's smallest die and has the lowest power consumption.
Some models are equipped with Via's LongHaul power management, which can reduce the processor's voltage and clock speed to lengthen battery life. The tiny MPU also includes 128-kilobits of Level 1 cache and 64-kilobits of Level 2 cache. It supports the 100/133-megahertz Front Side Bus, MMX, and 3DNow! multimedia instructions.
(See June 5 story.)
New tool saves time,
money in designing ICs
A new tool may end up saving chip makers a lot of time and money in designing ICs. A San Jose startup claims it is the first company to provide a "look-ahead" engine that predicts and analyzes conflicts between initial IC design concepts and subsequent steps in product development, manufacturing, and test.
Atrenta says it already has 25 paying customers using its software and SpyGlass analytical engine. These customers include Agilent, ARM, Compaq, Hitachi, LSI Logic, National Semiconductor, and Motorola.
The job of developing ICs is getting tougher and tougher with the proliferation of third-party design tools, reusable intellectual property (IP) cores, engineering services, and manufacturing foundries. Atrenta's software automates the collection and use of data and knowledge that's increasingly being distributed among engineering groups and companies in chip development. The SpyGlass engine gives chip developments an early warning of potential design problems that could delay in the launch of new products.
"Historically, the way companies have dealt with this is through lots of documentation . . . or they hold massive design reviews with lots of experts in a room," says CEO Ajoy Bose. "What's needed is an infrastructure or platform to capture these requirements, aggregate them, and then enforce then on a design at an early stage in development." That's what Atrenta's new software package aims to do.
Motorola Semi says that SpyGlass saved it several months in a 12-to-18 month design project "because it cut down design-cycle iterations." And National Semiconductor says the software saved them several weeks to a month on just one chip. The licensing fee for chip-developing companies depends upon the number of users, but for 10 engineers, a subscription fee would be about $50,000 per year.
(See June 5 story.)
If you have any comments, criticisms, or questions, don't hesitate to E-mail us at email@example.com. Have a great weekend!
(Click here for last week's Semiconductor Alert!.)