Commentary & analysis of week's chip news, Sept. 10-14, 2001
A sad hello from Down-East Maine, a million miles from the World Trade Center. But we are just as stricken and just as mad as if we would have been had we still lived at our condo on East 64th Street in Manhattan. We too are in pain. We are in mourning and we are in shock. We're still grappling with the unreality of this awful event. The dozens of eye witness e-mails we've received from New York have really hit hard. I can still remember the attack on Pearl Harbor--and this week's attack seems even worse.
Leonard Pitts wrote an open letter to the terrorists in Wednesday's Miami Herald. Here are excerpts.
"You unspeakable bastards. What lesson did you hope to teach us by your coward's attack on our World Trade Center, our Pentagon? What was it you hoped we would learn? Whatever it was, please know that you failed.
Did you want us to respect your cause? You just damned your cause. Did you want to make us fear? You just steeled our resolve. Did you want to tear us apart? You just brought us together. Some people--you, perhaps--think that we are weak. You're mistaken. Indeed, we are strong in ways that cannot be measured by arsenals.
Your attacks are likely to go down as the worst acts of terrorism in the history of the United States. But when roused, we are righteous in our outrage, terrible in our force.
When provoked by this level of barbarism, we will bear any suffering, pay any cost, go to any length, in the pursuit of justice. The steel in us is not always readily apparent. As Americans we will weep, as Americans we will mourn, and as Americans, we will rise in defense of all that we cherish.
You don't know my people. You don't know what we're capable of. You don't know what you just started. But you're about to learn."
Chip business grinds to halt;
is global recession for sure now?
The chip industry this week was nearly at a standstill, as the shutdown of U.S. air traffic due to the terrorist attacks halted the flow of parts and finished products and turned trade and technical conferences into ghost towns.
But after two days of no commercial flying, the go-ahead was given on Thursday by the U.S. government to start flying again. But few cargo planes were flying yet on Friday. There were still widespread delays in U.S. commercial flights as well as in the cargo flights used by chip makers and OEMs. Disruptions in the supply chain were expected to continue.
Most observers believe, however, that the shipment delays will be temporary and that vendors will be able to quickly make up for lost time. Others say that it will take weeks before the supply chain returns to normal.
Stopping all flights proves one thing, however. Air shipments are the backbone of most semiconductor supply chains. The industry probably can cope with a short shutdown, but there is still concern over isolated part shortages and the impact on production lines.
The disruptions come at a bad time for the recession-battered U.S. electronics industry. Most chip makers and OEMs were hit hard by the 2001 downturn, but many of them were hoping to ramp up production in early fall to take advantage of an expected seasonal pickup in demand for PCs, cell phones, and other products.
"Everybody was hoping the Christmas shopping season would boost demand," says Mike Tsai, president of Powerchip, a DRAM maker. "Now it seems any pickup in the DRAM market this year is unlikely."
But other execs figure the impact of the terrorist attacks will be temporary. "Of course, this is going to have an effect on the global economy," acknowledges Stan Shih, chairman of Taiwan's Acer Group, a major supplier of PC systems and laptop computers. "But the impact won't last long," he declares.
(See Sept. 12 story.)
Nokia sees rising cell phone demand;
are excess inventories disappearing?
That excess inventory of 40-million unsold, cellular phones at the start of this year finally may have been sold, according to industry leaders. While that doesn't mean that chip orders for cell phones immediately will soar, the over-supply has been a key factor in slumping chip sales in 2001.
Help may be coming too on the sales front. Nokia now says demand for handsets appears to be picking up in the U.S., while the Asian market continues to show "strong performance." The cell phone leader, which accounts for 35% of the global market, apparently is still sticking with its three-month-old forecast that global shipments will show only "very modest growth" over last year's sales of 405 million units.
The Finnish company did lower estimates for its third quarter, which it will report on Oct. 19. Revenue will fall 5% from the same quarter last year and 2% from the previous quarter. Just two months ago, Nokia had predicted flat-to-5% higher revenues than the $6.82 billion in reported in third-quarter 2000.
Nokia's third-quarter cell phone sales are expected to be flat from a year ago, or $4.91 billion, but 2% higher than the previous quarter, the company says. But the weaker economy and a delay in a transition from mobile voice to mobile data are hurting sales and profits at the company's networks units.
(See Sept. 11 story.)
Analysts, press blamed
for exacerbating downturn
My wife usually blames me for anything that goes wrong around the house. So you'd think I'd be used to such things by now. Nope, there's this semiconductor analyst in New Tripoli, Penn., who continues to blame negative comments by the press and analysts for making the current chip recession even worse.
"The precipitous drop in semiconductor revenues was due initially to excess inventories and exacerbated by macroeconomic issues," comments Robert N. Castellano, president of The Information Network. But he adds, "an insidious need by analysts and politicians to talk down the economy has eroded consumer confidence, which in turn hastened and accentuated the downturn." Now, however, "all our economic indicators point up," he says. But he is continuing "to monitor consumer confidence carefully in the wake of the Sept. 11 tragedy."
The Information Network, which earlier had criticized press coverage and negative forecasts from other industry analysts, has been running counter to other industry forecasts this year. It predicted, for example, that semiconductor materials revenues would grow 15% in 2001, despite the chip downturn.
In May, the researcher declared the semiconductor recovery had begun and predicted that the chip business would grow 10% in 2001. That was at a time when other researchers were downgrading their outlooks to negative territory. Castellano also accused analysts and industry reporters of clouding the situation by focusing on sequential declines in monthly sales.
Now, the contrarian expects worldwide revenues for semiconductor equipment to grow 12.9% to $40.6 billion in 2002 from $36 billion this year. These sales are expected to drop 26.2% this year.
Castellano expects semiconductors over the next two years to grow steadily--22% in 2002 and 26% in 2003. The next driver that the industry has been looking for to power a recovery may not be a consumer product, he says. Instead, he says, it could be an upsurge in spending on electronic warfare gear and intelligence systems. "This will reverse years of declining military spending," he adds. Making this happen would be this week's terrorist attacks and the proposed U.S. missile defense system.
(See Sept. 13 story.)
Optical scanners keep going
and going--no NGL 'til 2007?
It now appears that next-generation lithography tools will not move into production fabs for at least another six years--at the earliest. At least that's the collective opinion of leading lithography experts attending the Next Generation Lithography Workshop in Pasadena on Aug. 30.
Even so, officials from International Sematech want to accelerate commercialization of the two leading types of NGL technologies: extreme ultraviolet (EUV) and electron projection lithography (EPL).
The survey indicates the 157-nm optical scanners now coming on stream could be extended much further than originally thought--or down to the 65-nm (0.065-micron) process node. This would push out the need for NGL tools to at least the 45-nm (0.045-micron) node, which is due out in 2007 or so. The 65-nm devices could hit the market as early as 2005.
Another possible setback for NGL--especially for the EPL camp led by Japan's Nikon and IBM--is that EPL may be gearing up for only one device generation, the 45-nm node, according to the survey. The rival EUV tools could end up producing wafers at both the 45- and 32-nm (0.032-micron) device nodes. The 32-nm devices are not expected to hit the market until 2009 or so, according to analysts.
(See Sept. 13 story.)
Now Samsung wants to be
No. 1 in smart card chips
The world's largest DRAM supplier continues to go all out--at least promotionally--to diversify. Samsung Electronics has identified another emerging chip market where it wants to become the world's largest supplier.
This time it's smart card chips and Samsung aims to take over the lead by 2005. Big talk, but the South Korean company seems to be deadly serious.
Smart card chips are certainly an emerging market. Dataquest predicts this market will be worth $1.3 billion this year, and will grow at an average rate of 30% annually to $3.2 billion by 2004.
This week Samsung expanded its product offering by beginning volume production of a new 16-bit RISC-based processor for smart-card applications. The 16-bit ClamRISC central processing unit fills out Samsung's existing lineup of smart-card CPUs, which include 8- and 32-bit processors.
The new 16-bit CPU, which runs with either 32 or 64 kilobytes of EEPROM, 128-kilobytes of mask-programmed ROM, and 4-kilobytes of RAM, is aimed at smart-card data storage, computation, and security systems such as wireless communications, e-commerce, and transportation applications.
Data Encryption Standard algorithms have been integrated into the device to provide higher-speed encoding operations between smart cards and readers. This DES hardware is 10,000 times faster than software-based implementations of the widely used encryption standard, according to Samsung.
(See Sept. 12 story.)
Here's a chip maker
raising its forecast . . .
You know we've been going through a real chip recession when you're shocked by a chip maker predicting an increase in sales. That's what happened to me this week when RF Micro Devices reported that its results for the quarter ending Sept. 30 will "significantly exceed" its expectations.
Revenues will run 30% higher than the $70.1 million it reported in the previous quarter, up from the 10% increase the company was predicting in July.
The Greensboro, N.C., company now expects revenues to reach $91 million and profits to hit break-even in its second fiscal quarter. Revenues will be higher than expected because of stronger demand for microwave monolithic integrated circuits (MMICs) and modules, it says.
"We are seeing increased order activity and revenue growth from multiple customers and across all major 'air interface' standards," declares CEO David Norbury. "We believe this growth is attributable to market share gains, increased end-user demand and normalized inventory levels." The company will report its second fiscal quarter results on Oct. 16.
(See Sept. 10 story.)
. . . and here's another one
doing better than expected
Here's a second chip company that is doing better than it expected. It's almost a trend. Anadigics says it has hit bottom and now expects to report slightly better-than-expected revenues--or $16 million instead of $15.5 million for the third quarter.
The Warren, N.J., supplier of radio-frequency ICs also upped its revenue forecast for the fourth quarter to show a sequential increase to $18-to-$18.5 million, about what it did in the second quarter.
"We feel confident that we have seen the bottom and our fourth quarter outlook is positive," says CEO Bami Bastani. "Our efforts to expand our wireless customer base are succeeding. We began 2001 with one wireless handset customer and we are currently in production with three customers on six platforms--three TDMA and three CDMA."
But profits are another matter. The company now expects to report a third-quarter net loss of 56 cents to 58 cents per share, excluding special charges. In July, it had projected a net loss of 55 cents per share.
Anadigics is planning massive cuts, including layoffs, to get back into the profit column by the second half of next year. It will slash its operating expenses by 30% by early 2002 with layoffs, facilities consolidation, and write-offs of fixed assets.
(See Sept. 10 story.)
Does DoCoMo have lower cost
chip coming for 3G cell phone?
A little German chip company is trying to help get third-generation cell phones back on track after the latest generation system ran into delays this year.
Dialog Semiconductor, which has an engineering team in Tokyo working on the new circuits, signed a pact with Japan's top mobile telephone carrier, NTT DoCoMo, to create complex ICs combining high-voltage and analog circuitry for future 3G handsets.
The new chips' higher levels of chip integration will enable the Japanese carrier to offer new 3G cell phones at lower cost but with more functions for data and video services, according to the German firm.
Higher levels of chip integration should enable the Japanese carrier to offer new 3G cellular phones at lower cost but with more functions for data and video services, according to the German firm. Dialog says it has developed a way to integrate high voltage and analog structures with complex digital IC using standard CMOS processes.
NTT DoCoMo, which delayed the launch of the world's first 3G network in May, is now getting ready to launch its third-generation cellular phone service on Oct. 1. This FOMA service will enable users to download data at up to 384 kilobits per second and upload at 64-kilobits per second.
DoCoMo, which claims 36 million subscribers in Japan, now offers Internet access to users of mobile phones in its i-mode handset. The Japanese firm won't say how much the new generation of 3G phones will sell for, but sources say they will probably cost twice as much as the company's current Internet-linking unit selling for about $500.
(See Sept. 12 story.)
If you can't sell your chip
company, then liquidate it
Here's one way to fix a troubled chip supplier in a hurry that I hadn't thought of. Directors of Opti, a Milpitas, Calif., supplier of controllers for LCD, 1394, and Universal Serial Bus applications, voted this week to shut down the company and sell its assets after it was unable to find a buyer.
If shareholders approve the plan of liquidation on Nov. 12, the company will come to a complete stop. Opti plans to sell its inventory, property, equipment, and intellectual property. It will transfer its patents and other IP to a liquidating trust and distribute the net proceeds to shareholders. Opti believes that most of its assets are readily disposable. As of June 30, its assets included $31 million in cash and approximately 2 million shares of common stock in chip maker Tripath Technology.
Formed in 1989, Opti emerged as one the leading suppliers of PC chip sets. But in 1999, it pulled out of the core logic market to focus on controllers for LCD, USB, 1394, and other applications. The company is still profitable. It reported a profit of $444,000 in its latest quarter on sales of $2.1 million.
(See Sept. 10 story.)
Compound semiconductor R&D
could keep Motorola in chip biz . . .
Motorola Semiconductor has been given a deadline to cut its losses, turn itself around, restructure its business, and show an acceptable return on investment. But corporate management isn't saying just how much time the big chip maker has.
The picture isn't all bleak, however. COO Robert Growney did tell Wall Street that the company's recent breakthrough in building compound semiconductors on silicon wafers would play a major role in determining whether Motorola decides to keep its struggling chip business.
"The semiconductor industry has been looking for this discovery for more than 30 years," an enthusiastic Growney says. "This is something that has great consequences for the future and for our company since it is our discovery." Motorola plans to broadly license this technology and already filed more than 270 patents covering basic technology and applications.
"It is a very dramatic change and will have an impact for the future," Growney says, referring to the mixing of electronics and optical circuits on the same IC as well as producing lower-power dissipating ICs for cell phones, and higher performance chips for other communications applications.
The compound semiconductor technology will not change Motorola Semi's bottom line or result in new products any time soon, Growney admits, but it will play a key role in Motorola's long-term plans in semiconductors. In other words, the new technology could persuade Moto to stay in the semiconductor business.
(See Sept. 10 story.)
. . . As chip business starts
getting better for Moto
Motorola was feeling better earlier this week about the improving chip business.
Motorola Semiconductor is seeing "continuing signs of the bottom . . . because sequential orders show an increase over the second quarter," says COO Robert Growney. Those comments came before the terrorist attacks, however.
Its chip unit is now seeing a third-quarter book-to-bill ratio at or slightly above parity, or 1.0, according to Growney. That means new orders are coming in faster now than shipments are going out.
Motorola Semi's management team is now in a new round of strategy meetings headed up by sector president Fred Shlapak. It is "examining alternative business models to accomplish stronger returns," Growney says.
(See Sept. 10 story.)
Do chip company insiders
know something we don't?
Here's a surprise. Insiders at chip companies aren't taking the recent weakness in their stock price as an opportunity to stock up on stocks. "Quite the contrary," points out Paul Elliott at Thomson Financial/First Call. "Insider selling in the group, which never altogether abated, has resurfaced with a real vengeance," he says.
And, he warns, "until those in the trenches stop selling semiconductor stocks, it might be best to wait on the sidelines where it's safe." Elliott says that "it hardly seems logical to presume that insiders would continue to sell these stocks if they sensed a recovery on the horizon."
What's troubling Elliott most about the "persistent insider selling" in semiconductor stock was that so little has changed fundamentally since June. "We have seen precious little evidence that orders have picked up or even that a pick up is imminent--much less that valuations in the group are anymore sustainable in the wake of more than a year of declining revenues."
Does this insider selling mean that the chip industry isn't nearing a bottom in the business cycle or a bottom in the share prices of chip stocks. Nope, says Elliott. "After all, these stocks will invariably turn up before we see a turn in business."
Elliott lists five chip companies where there was significant insider selling this summer. They are: Analog Devices (seven insiders selling 272,601 shares); Broadcom (five insiders selling 390,000 shares); Micrel (seven insiders 223,900 shares); Microchip (seven insiders 218,026 shares); and PMC-Sierra (eight insiders selling 245,465 shares).
(See Sept. 14 story.)
Mitsubishi joins crowd,
cuts forecasts, restructures
Mitsubishi Electric joined the rest of Japan's giant electronics companies this week in cutting its forecast and launching a major restructuring. The culprits were weakness in chips and communications products.
The new sales figure for fiscal 2002 was $33.5 billion, down 9.3% from the previous year. That was a trim of $3.4 billion from last year's $35 billion. The firm is also taking charges of $42.4 million for streamlining its European mobile phone business and $16.9 million for restructuring its North American mobile handset business.
(See Sept. 14 story.)
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