Greetings from Down-East Maine, where we're keeping busy this week trimming trees, bushes, and grass.Daily thunder showers and a warm sun (it hasn't been above 70F all this week) conspire to make everything grow explosively. This spring I could see 180 degrees of the Bay of Fundy and the Canadian off-shore islands from my home office--today all I can see is trees and more trees. I can't even see my fields or across the road. We have been cutting up trees that are as thick as two feet in diameter--they've either been blown down by our ferocious winds or died of old age. Need some fire wood? Drop on by.
Motorola's chip orders
are off a shocking 51% . . .
Motorola's publicity agents must be working overtime these days trying to counter the outpouring of bad financial news from the chip and cell phone giant. It seems like CEO Chris Galvin has been interviewed recently by nearly every major business pub. But the emphasis is nearly always on the problems in the cell phone operations--the chip side of its business is rarely discussed.
But these publications miss an important point. Moto's chip business appears to be just as big a problem for the company as its notorious cell phone operation. That could be seen by digging down to the end of this week's long press release covering the company's second-quarter results.
Chip sales collapsed to $1.3 billion in the quarter, a 38% drop from a year ago and off 12.2% from the previous quarter. Orders were even worse, dipping to $1 billion--a 9% drop sequentially and a 51% decline from a year ago. Moto's chip business turned in an operating loss of $381 million, off more than a half BILLION dollars from the $176 million earnings of the year-ago quarter.
Overall, Moto reported a net loss of $759 million, its second straight quarterly loss, which compared to a profit of $204 million in the year-ago quarter. But its stock rose strongly on Thursday, because analysts had expected a larger loss. Go figure, because Moto is expecting a third straight loss in the third quarter.
Moto characterized its quarterly chip sales in three different ways: down, down significantly, and down very significantly. While Asia/Pacific and Japan were "down," and Europe and the Americas were "down significantly." Standard embedded products were "down very significantly," wireless and network/computing parts were "down significantly," and chips for imaging/entertainment and transportation were just "down." You'd think they could provide percentages.
(See July 11 story.)
. . . but firm still expects recovery
to begin in chips later this year
Despite Motorola's chip disaster in the first half of this year, the struggling giant expects still declining chip industry sales to flatten out in the third quarter after four down quarters and that a global semiconductor recovery will begin later this year.
CEO Chris Galvin is bullish about chips next year, and expects the semiconductor industry to "resume a double-digit growth pattern this year with inventories expected to return to normal levels." Motorola Semi is now predicting the semiconductor industry growth rate will hit 15%-to-20% in 2002. A bit bullish, I'd say.
But Moto "continues to believe that the industry's recovery will begin in the second half . . . as customers work off excess inventories and more normal order patterns return," predicts Fred Shlapak, president of Motorola Semiconductor. Its fabs currently are running at only 50%-to-60% of capacity.
More bullishness: Motorola Semi is ahead of its plans to reduce its annual costs by $1 billion. "Factory shutdowns, intensive inventory management, and required time off yielded $96 million in savings during the second quarter on top of the $65 million realized in Q1," Shlapak notes. The group has nearly completed its announced workforce reduction of 4,000 jobs.
(See July 12 story.)
ST's Pistorio still expects
bottoming out in 3rd quarter
Pasquale Pistorio, CEO of STMicroelctronics, doesn't agree with me about when an industry turnaround will come. In fact, he is optimistic about this year's business trends. "We believe that the industry will bottom-out in the third quarter of 2001," he declares, lining up with Motorola.
But Pistorio does qualify his bright forecast. "Unprecedented poor visibility of the near term demand" continues to plague the chip industry. Pricing pressure and lower plant utilization rates will most likely drive down ST's gross margin to a range of 32-to-36% as compared to 38% in the just-ended second quarter. During the height of last year's good times, ST had a second quarter gross margin of 46.6%.
In this year's third quarter, Pistorio expects ST's revenues to decline sequentially by about 10%-to-15%. And by the fourth quarter, he says, "we expect our revenues and gross margin to improve on a sequential basis." Again he hedges a bit: "This projection assumes inventory work-downs in several of our key end markets, but continued pricing pressures for some products due to industry overcapacity." He adds that ST "could see improved operating profitability resulting from cost reduction programs implemented earlier in the year."
STMicro had a better second quarter than most of the big chip makers. It topped Wall Street's earnings estimate, posting net income of $154.5 million on revenues of $1.59 billion. Revenues were 17.4% lower than the first quarter due to cancellations and push-outs of orders along with price erosion.
(See July 12 story.)
Europeans get leg up
on lead-free products
U.S. and Asian chip makers reacted angrily a few weeks ago when the European Parliament voted to accelerate by two years the deadline to find lead substitutes by Jan. 1, 2006, for all electronic gear.
Since then, U.S. chip execs have attacked the proposed legislation. But, in contrast, the Big 3 European chip makers may have pulled a coup and gained a competitive advantage over the rest of the world.
Instead of getting angry, Infineon, Philips and STMicroelectronics have been working hard to agree on an initiative to eliminate lead from their semiconductor products. Lead is a critical component of the solder used for pc-board assembly and is widely used in semiconductor packaging.
This week the three chip makers revealed they had agreed on the definition of lead-free (less than 0.1% of any material that replaces a lead-based alloy in their ICs) and that they would be introducing lead-free products by the end of this year--well ahead of any EU deadline.
One of the major barriers to removing lead from electronic products has not been a lack of alternative technologies, point out the European chip makers, but a lack of agreed-upon standards and methodologies for evaluating the quality and reliability of these alternative technologies.
Many different kinds of lead-free solder alloys and soldering processes are being investigated or developed, notes Carlo Cognetti, ST vice president. "To accelerate the transition to lead-free technology," he says, "the electronics industry needs a common approach to quantifying solderability, heat resistance and other issues that affect reliability." So now the question is: where does this leave the Americans?
(See July 12 story.)
Jerry Sanders 'blind-sided'
by weak demand, price collapse
What's the biggest problem today in the chip industry? "Low visibility," of course, in determining future business trends. Almost every chip maker is blaming it for their current string of financial surprises and their constant revision of quarterly forecasts.
Even industry veteran Jerry Sanders is using this excuse now. The CEO of Advanced Micro Devices told analysts this week that he was "blind-sided" by the collapse of flash prices and weak demand in the second quarter. Flash memory is AMD's biggest problem now, he says.
AMD was premature in thinking that the second quarter was the trough of the current downturn, Sanders says, but now he expects a recovery will improve the flash memory segment by the fourth quarter.
A normal seasonal uptick in fourth quarter sales, coupled with a recovery in some of the markets for flash memory products, should enable the company to increase revenues during the fourth quarter and return to "solid profitability," Sanders says. So is your visibility getting better, Jerry?
AMD, which had previously warned shareholders last week, reported a 17% sequential decline in sales to $985 million for the second quarter also watched net income nearly disappear, $17 million vs. $125 million in the previous quarter.
AMD figures its sales could drop 10%-to-15% in current third quarter from the second quarter, if weakness continues in PC processors and the flash memory market. Sales in the third quarter could drop more than $100 million from second quarter revenues, he says, adding that the company would also report an operating loss for the third quarter.
(See July 12 story.)
Atmel sales are falling
twice as fast as expected
Atmel is another big chip maker that was surprised by its second quarter business rate. It previously had revised its expectations that revenues would drop sequentially by 10%-to-15%, but this week it reported that quarterly sales would fall to $367 million, off a whopping 30% from the first quarter.
The surprise was due to continued weakness in the flash market, the European Smart Card business, and its North American distribution business, Atmel says. But the company is looking for a break-even quarter despite the falling sales.
(See July 11 story.)
End of an era for Conexant
Nearly 35 years ago--a lifetime in the semiconductor business--a new world-class process technology, silicon-on-sapphire ICs, was being developed by a division of North American Aviation. I wrote a major story about it. This week the successor company to that aerospace chip operation has gone full circle and is all but pulling out of chip making and new process development.
Conexant Systems is accelerating its transformation to a fabless semiconductor company and will stop working on new manufacturing technology beyond its current 0.13-micron process. The only exceptions will be its gallium-asenide and silicon-germanium technologies. The company says it will also shut down its fabs "temporarily" and reduce workweeks for employees at its assembly and testing facilities.
These are tough times for the chip company. It also is restructuring its manufacturing operations and laying off 450 workers--6% of its workforce. These cuts, combined with a spring layoff of 1,500 workers, will reduce the company's overall headcount by 25% when completed.
"This strategic realignment will allow us to avoid the ever-increasing research and development investments and capital requirements of mainstream digital CMOS process development and manufacturing," says CEO Dwight W. Decker. Conexant is now talking to several CMOS foundries about supplying most of its future wafer requirements.
But Decker says he is still committed to dividing Conexant into two independent, publicly traded companies "as soon as business and market conditions are clearly on a recovery path."
(See July 9 story.)
Canon's litho gear strategy
should be taken seriously
Canon suddenly has started making a lot of noise about taking over the lead in the fast-growing, global lithography business. But talk is cheap--why should we pay any attention to the Tokyo company, which is now running back in the pack as the third largest supplier of wafer-fab exposure tools?
I probably will take this challenge more seriously than most, since as a long-term observer of Canon, I have seen this company deliver over the years on long-term growth goals in U.S. office equipment markets.
In a new five-year plan outlined this week, the company aims to surpass No. 2 ASM Lithography in scanner shipments this year and take over as market leader from crosstown-rival Nikon by 2005.
Its plan is straight forward. "Our strategy is to work even more closely with our customers and to continue to invest in research and development of new tools and technologies, despite the recent downturn," declares CEO Fujio Mitarai.
Canon management has always been patient and it's willing to throw its corporate weight behind this new ambitious plan. "We are firmly committed to becoming the No. 1 supplier of lithography equipment in the world within the next five years," Mitarai says.
But it certainly won't be easy. Last year, Canon trailed its two bigger rivals badly, holding only a 20% share of the $6.1 billion global market for exposure tools, according to new estimates by VLSI Research. Nikon had a 40% market share and ASML a 30% share, according to the San Jose market researcher.
Canon, No. 2 lithography supplier for most of the past decade, expects to regain a substantial piece of this business this year. In fact, it could even surpass ASML as the world's second largest lithography vendor this year, claims Phillip Ware, marketing head for Canon's Semiconductor Equipment Division. Like most tool vendors, Canon is cut its 2001 forecast of litho gear shipments. But the company is still on track to ship between 310 to 320 systems, which might be enough to put it ahead of ASML, Ware says.
(See July 9 story.)
AMD goes for broke:
100% SOI for its MPUs
Advanced Micro Devices is taking another major gamble--committing its entire microprocessor production to silicon-on-insulator technology. Unlike its giant MPU rival Intel, AMD believes SOI technology is required to get the higher performance and lower power consumption needed in next-generation 0.13-micron processors for PCs--especially portable systems.
Two months ago, AMD delayed introduction of its Hammer processors so that it could align the new family with its SOI process roadmap. The silicon-on-insulator sandwich, which was jointly developed with Motorola, is expected to give a 20%-to-30% gain in performance over standard CMOS silicon wafers.
To kick off the switch to SOI, AMD has already started pilot production of 0.13-micron SOI processes in its fab in Dresden, Germany. The plan is to start up volume fabrication by the end of this year and put out 100% of its output with SOI by 2002 or 2003.
(See July 13 story.)
TSMC sales flatten in June,
but UMC sales keep falling
Collapsing market demand for wafer-processing services is certainly not hitting the top two silicon foundries in the same way.
Taiwan Semiconductor Manufacturing, the global leader, not only saw its June sales stop falling sequentially and flatten out versus May numbers, but it believes these results "indicate stabilization." Now TSMC even sees "gradual market improvement for the second half of 2001."
June revenues at United Microelectronics, however, kept falling, dropping 14.4% sequentially to $123 million. They were off a whopping 52% from June last year.
Net sales in June for TSMC amounted to $247 million, but they were still 29.1% lower than the same month a year ago. Revenues in April and May had showed sequential declines, the worst was a fall of 21.4% in April. While the second quarter looks like a 33% drop in revenues from the previous quarter, the company still will earn a "modest profit" in net income.
(See July 9 story.)
Price cutting, market consolidation
hit content-addressable memories
One chip market in major trouble right now is content-addressable memories. CAMs are used primarily in wireline-chip applications, which is one of the hardest hit communications markets.
For years, CAM suppliers designed their products for high-speed, table-lookup applications in routers and other networking gear. But CAMs often are more expensive than traditional DRAM and SRAM chips for table-lookup applications, which tends to limit CAMs in such applications.
Compounding the problem is that there are too many competitors in the CAM business. Originally dominated by only two major competitors--Music Semiconductors and Japan's Kawasaki LSI--the market is now cluttered with a host of players, including Integrated Device Technology, NetLogic, Lara, and others.
Lousy business conditions already are starting a market consolidation. Cypress Semiconductor plans to acquire CAM-chip maker Lara Networks for $225 million. The Cypress market entry in the current market also is causing some vendors to take drastic measures.
Music Semiconductors cut prices this week for its CAMs by a staggering 30%. The chip company claims the price cuts will result in the CAMs moving into new and emerging markets, but the surprising price cut could ignite a price war. And this could accelerate a shakeout among CAM suppliers, many of which reportedly are struggling in the current downturn.
(See July 9 story.)
Standard RF module delivers
integrated voice, data to home
Now this new product doesn't help me a bit--I live out in the woods a long way from any cable. But this week Microtune unveiled a standard, off-the-shelf RF module that delivers integrated voice, video and data to the home from a cable drop to telephones, set-tops, and cable modems.
Cable operators, who are hot to offer telephony services over their hybrid coax infrastructures, can use the new module to offer primary-line phone service over a circuit-switched or Docsis voice-over-Internet Protocol (VoIP) platform. It strips off telephone data from the RF broadband signal and permits video and data to be relayed to set-tops or cable modems.
Microtune claims it's the first company to offer a silicon-based RF module that complies with the Docsis spec. Previous solutions have been proprietary designs tailored to a specific network. The new module, priced at $35 each in lots of 10,000, makes it possible to mass produce very complex RF and analog modules at a low cost.
(See July 9 story.)
ASML will ship 193-nm scanner
for 300-mm wafers by year-end
Holland's ASM Lithography figures it will beat its competitors to market later this year with the first 193-nm tool geared for 300-mm wafer processing.
"ASML has clearly taken the lead in the 193-nm market," claims product manager Roger Irwin, with what it says is the world's most advanced argon-fluoride, 193-nm exposure tool for 300-mm wafer processing. ASML currently offers a 193-nm tool based on its 200-mm platform. The two largest scanner suppliers, Canon and Nikon, also supply this type of 193-nm scanner.
The new scanner from the Dutch lithography giant is geared for high-volume production of both 200- and 300-mm wafers at the 100-nm (0.10-micron) node. The system also incorporates the advanced StarLith 1100 lithography-lens, which is developed and manufactured by its long-time optics partner--Carl Zeiss of Germany. The 193-nm optics in the system, supplied by Germany's Carl Zeiss, will enable chip makers to use binary photomasks instead of the more expensive phase-shift masks.
Also developing a comparable scanner line is Silicon Valley Group, which recently was acquired by ASML. The Dutch company already has received orders for its new 300-mm scanner and expects to ship the systems by the end of the year. Reportedly among the first customers will be Philips, Micron, and Taiwan Semiconductor Manufacturing.
(See July 9 story.)
Intel developing memories
based on ovonics and FRAM
The world's leading supplier of flash memories is working hard on three other nonvolatile technologies, but it is not ready to say that one of them could ultimately replace conventional nonvolatile memory. At least not yet.
Intel this week outlined its R&D in nonvolatile memories, hinting that it will center its efforts on a pair of emerging and competing technologies--thin-film and ferroelectric memories. It is developing separate but advanced chip products based on both ovonics unified memory (OUM) and polymeric ferroelectric (FRAM) technologies.
Intel is quietly working with two partners to develop memory technologies in these areas, Sweden's Thin Film Electronics and Michigan's Ovonyx. The chip giant has also been investigating other memory technologies, including magnetic RAMs (MRAMs). But OUM and FRAM appear to be the favorites. Products are not expected to appear in the market for several years.
"We are still moving full speed ahead with flash memories, but today's technologies all have limitations," says Intel vice president Stefan Lai. "The industry is searching for the 'Holy Grail' technology for portable devices," he points out.
(See July 11 story.)
Agere Systems stops
U.S. third-party sales
Agere Systems is dumping its long-term manufacturers representatives and will switch all of its U.S. sales to a direct sales force. All in the interest of saving money, the Allentown, Penn., chip maker claims.
Agere says it will continue to use four major resellers in the U.S. market, which includes Arrow, Impact, Tech Data, and Winncomm. The chip maker will continue to do business with its four major U.S. resellers, including Arrow, Impact, Tech Data, and Winncomm, the Agere spokeswoman said.
The big chip maker will stop using its 10 manufacturers reps "to better serve U.S. customers," says vice president George Holmes. The company will take three months to transition to a direct sales force, switching over on Sept. 30. Agere will add 65 people to its sales team to work with customers now supported by reps.
(See July 9 story.)
Intel confirms flaw
in Xeon MPU design
Doesn't it seem like Intel has more than its share of chip recalls? This week it was the 900 megahertz version of its Pentium III Xeon processor line.
Intel confirms it halted shipments of the microprocessor for high-end servers after it was discovered that the chip would cause a server to crash.
An Intel spokesman says the flaw was discovered in the lab. Actually, the Santa Clara, Calif., company stopped shipping the part in mid-April--only a month after the chip was put on the market.
The company is tweaking its manufacturing process and plans to introduce a new version of the 900-megahertz MPU in August. The server chip is designed on 0.18-micron design rules.
Intel's other Xeon chip lines, including the 700-megahertz version of the Pentium III, are not experiencing this problem, the spokesman says. The Pentium 4-based Xeon lines also are not affected.
(See July 10 story.)
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(Click here for last week's Semiconductor Alert!.)