There's nothing like jumping ahead an hour back to standard time to provide a solid transition for me to the winter season. The skies already are black by 4:30 p.m., and by mid-December it will be dark by 3:30 p.m. And it won't be long before we start seeing the "northern lights" brightening the winter nights. I told you we're in the North Woods!

Chip forecasts are vital,
even when they're wrong

Market forecasting is like predicting the weather. No one really believes these forecasts, but everyone is very interested in reading them. The longer range predictions are the worst. As a former Navy weather forecaster, I could predict the next day's weather with a fair degree of accuracy. But go out three days, and my record was horrible. Even so, every pilot on my carrier was very interested in seeing the forecasts. Same way for the readers of this column--they may not believe them, but they want to read them anyway. Even the long range outlooks. That's why we comment on a lot of these predictions.

With industry analysts now having to constantly revise their 2001 industry forecasts, you'd think they'd be wary of looking out too far. Maybe they believe the old saw that no one ever remembers a long-range forecast, anyhow. In any event, Dataquest was into long range predictions this week, and what they had to say was somewhat surprising.

No, it wasn't surprising that the San Jose researcher believes that it will take a couple of years before boom times start up again--heck, I was talking nine months ago that it would be late 2002 before the good times came back. Like most forecasters, Dataquest is predicting a nearly flat "recovery year" in 2002. It expects global chip sales to inch up just 3% to $152 billion next year.

But its prediction for 2003 was a shocker. Dataquest expects chip sales to boom at an annual growth rate of 30%, making it far more aggressive than most forecasters. I guess I see next year doing better than the research firm predicts and 2003 growing at a slower rate. But who really knows these crazy days.

"The slowdown in capital expenditures in 2001 will likely spill over into 2002, resulting in supply-side tightness in 2003, when a stronger demand side is expected to have returned to the market," explains Richard Gordon, lead semiconductor analyst at Dataquest. He figures that a stronger economy will "likely fuel a PC replacement cycle and a recovery in the wired communications sector." Also, he believes the rollout of 2.5 generation and 3G cellular "will be well under way in the 2003 time frame, boosting demand for silicon-rich handsets." Pretty optimistic, I'd say.

Dataquest is more orthodox when it comes to industry revenue this year. "Continued deterioration in device average selling prices in the third quarter of 2001 means that even a significant improvement in demand in the fourth quarter, resulting in pricing stabilization, will not be enough to prevent the industry's revenue from declining 35% this year." Just like my next-day weather forecasts.

(See Oct. 31 story.)

Global IC sales indicate
market bottom is near

Global chip sales continued to fall sequentially in September, but the end of the long decline may be at hand. Sales slipped 2.5% from August, but it was the third straight month that showed a slowing in the rate of decline.

But September sales amounted to only $10.22 billion, according to the Semiconductor Industry Association, a whopping 44.6% decline from year-ago sales. SIA president George Scalise, however, was beating the drums for a turnaround.

"A broad cross-section of products grew on a unit basis during the September quarter," he says. "We expect this trend to continue in the December quarter, and with inventories coming into balance, we believe this will lead to sequential quarterly growth in sales." The demand drivers, he says, will be PCs, wireless applications, and digital audio devices.

The turnaround was already underway in the Asia Pacific region. It showed a month-to-month increase of 2.6% in September to $3.25 billion, making it the world's largest semiconductor market.

The biggest loser market, according to the SIA, was the Americas, which dropped 6.4% from the previous month to $2.44 billion. This was down a breathtaking 58.6% from the year-ago month. European chip sales fell 0.7% in September to $2.1 billion.

(See Nov. 1 story.)

Hynix gets new life, finally
gets creditor rescue package

Several DRAM producers must have been disappointed this week when Hynix Semiconductor finally put together an $8 billion creditor rescue package. Word was these suppliers as well as some analysts were hoping the debt-ridden South Korean chip maker would go belly up and thus get rid of a lot of DRAM overcapacity.

Reports from Seoul say the largest local creditor bank, the Korean Exchange Bank, has agreed to a package providing $770 million in new loans, a rollover of $4.25 billion of existing loans, and $3 billion in a debt-to-equity swap. But it wasn't clear just how many other domestic banks agreed to go along with the deal, and whether other creditor groups, such as foreign banks and investment trusts had signed on.

The package was expected to reduce the company's debt-to-equity ratio from 381% to 111%, ensuring that the company will have no cash-flow problems next year even if global semiconductor prices remain unchanged.

The Korean Exchange Bank had originally demanded that creditors refusing to accept the latest bailout package should forgive up to 70% of their existing loans to Hynix. Many of the balking creditors reportedly were said to be refusing to forgive such a large amount of the Hynix debt.

(See Oct. 31 story.)

Hynix moves sales to U.S.,
headquarters may be next

South Korea's Hynix Semiconductor wants its competitors and U.S. customers to know that its financial problems aren't going to knock it out of the DRAM market.

Once it nailed down its bailout package this week, the DRAM giant showed its resolve by shifting its entire sales and marketing operations to the U.S. DRAM competitors "were thinking that Hynix was at its final stage of survival and so they were artificially flooding the market to make Hynix go away," says marketing VP Farhad Tabrizi." That was their wishful thinking."

Moving marketing and sales to the U.S. could be the first step toward an even larger U.S. presence. "Eventually Hynix would like to completely move its headquarters to the U.S. and may be listed in the U.S. financial stock exchange," Tabrizi says.

By early next year, Hynix expects to have reduced its monthly output of wafers from the 240,000 it was producing in 2000 to 180,000. It is also diversifying its product portfolio by producing more flash, SRAM and devices for outside companies. "We will have achieved our goal," Tabrizi says, "if we are running 50% DRAM and 50% other products by 2005."

(See Nov. 1 story.)

VC investing off sharply, but
on track to be 3rd largest year

Venture capital investments made in semiconductor and related companies fell like a rock in the third quarter. Some $818 million was invested in 54 companies, down 62% from the $2.15 billion funded in 92 companies in the same quarter a year ago.

But this drop wasn't as steep as that of overall U.S. venture capital investing, which fell a big 78% from $27.6 billion in the third 2000 quarter to $6.2 billion in the third quarter this year, according to Venture Economics and the National Venture Capital Association (NVCA).

Despite the collapse, venture capitalists raised $34 billion during the first three quarters, putting this year on track to be the third-highest year ever for VC fundraising, according to report. The money is certainly there. As of Sept. 30, Venture capital raised by venture firms but not yet invested (called "overhang") on Sept. 30th was a whomping $45 billion, according to Venture Economics and the NVCA trade group.

(See Nov. 2 story.)

Is ATE business
model broken?

The automatic test equipment industry was put on notice this week. Robertson Stephens analyst Sue Billat says the business model for the ATE industry is broken. "When a piece of ATE that cost $1 million five years ago and $2 million two-years ago ends up costing $3 million today, there is a need for an overhaul," she declares.

The cost of test is running counter to Moore's Law and functional test still represents a vast majority of chip testing, Billat says. "Meanwhile, we are hearing that the design community is very comfortable about producing chips at the 70-nanometer level soon. How do you test a billion transistors?" She called for ATE makers to move to structural testing as an antidote to managing the complexity of dense next-generation chips, especially system-on-chips.

When test costs amount to 2% or more of a chip's entire cost, it could create the same kind of ripple effect the photomask industry is now seeing, Billat points out. "When the costs for masks for photolithographic processing became astronomical, chip makers found ways to start using less masks, forcing a consolidation of that industry," she notes. "The same could happen for test companies if costs cannot be contained."

The ATE industry should continue to drive toward design-for-test and strip testing as alternatives to today's singular testing, but it also should form an association on par with what the process fabrication industry has done, she says. "Since the Fabless Semiconductor Association was founded in 1984, it has been able to help fabless companies balance their business plans with industry supply-and-demand fluctuations," Billat points out. "Something along these lines might help test companies forecast equipment demand in up and down cycles and avoid the consequences of double and triple ordering."

(See Oct. 31 story.)

Intel beats drums
for 2002 market

While Intel CEO Craig Barrett is quick to admit that "this is the biggest slowdown that the industry has ever seen," he went all out this week to put a positive spin on the near-term outlook for the chip market.

He calls the current chip downturn twice as bad as 1985--which up to now was considered the worst year ever for the IC industry. And he expects the PC-based chip market to fall by 25% this year and the communications IC business to decline by 30%.

But "the current turbulence that we're seeing today is not that different than what we've seen before," Barrett declares. And Intel is looking "beyond the turbulence," he maintains.

Long term, he says, Intel is bullish, especially in the wireless, wireline, and, of course, PCs. "The Internet build-out is just starting," he adds. Barrett says Intel's customer base is expanding into new and emerging regions such as Eastern Europe and Latin America.

Intel expects 2002 to be a strong year and is introducing some powerful products, he says, to make this happen. The company expects to roll out a 3-gigahertz Pentium 4 processor and it hopes to ship a Pentium 4 processor for the notebook market in the first quarter. Also next year, Intel plans to ship a 1-gigahertz, low-voltage processor for notebooks and a chip set integrated with a graphics chip.

(See Oct. 30 story.)

Intel speeds up
0.09-mm process

Intel is accelerating the development of its next-generation, 90-nm process technology. CEO Craig Barrett says the chip giant now plans to unveil its 0.09-micron process technology "as early as the first quarter of 2003."

Intel's 90-nm process is called P862 and P1262. The P862 process is based on 8-inch wafers, while P1262 is built around 300-mm substrates. The process features copper interconnects and low-k dielectrics.

(See Oct. 30 story.)

Can Samsung grow to No. 2
global chip vendor by 2005?

I was sort of watching CNBC one morning this week I also was shaving at 6:30 am. Yes, we who work out of home offices up in the North Woods still shave. and I heard "expects to be the world's second largest chip maker." And I knew right away that story had to be one of the latest efforts of Samsung's high-powered, PR and marketing team.

And sure enough, I logged in on my PC and got the full story. The world's biggest DRAM producer is now in volume production with its first 300-mm wafer fab. The South Korean chip giant began test operations in July with the 300-mm fab, and by September, the first commercial products were rolling off the line. The firm expects to significantly lower its production costs with the giant fab, which is now using 0.12-micron design rules to turn out 512-megabit, double-data-rate SDRAMs at 2.5 times the rate of today's 200-mm wafer fabs.

Samsung expects to pull into second place behind Intel in 2005 with annual sales of $20 billion, declares Chang-Gyu Hwang, president of Samsung's Memory Division. That's a tall order, but it's not impossible.

(See Oct. 29 story.)

Keep your eye on Microtune,
it acquired Transilica this week

Microtune made a big move this week to fill out its product line and grow even faster. It is swapping some of its shares for a new start-up that rolled out its first product earlier this year. The Plano, Tex., chip company is acquiring Transilica, giving it a fast entry into the embryonic single-chip Bluetooth market.

Microtune will trade $152 million worth of its stock for the San Diego-based chip developer. Transilica is also developing chip products for other 2.4-gigahertz applications, such as 802.11. The deal will enable Microtune to build on its core radio-frequency silicon and systems technologies for automotive applications, cable-modem products, and set-top boxes.

"The Transilica acquisition is a significant investment in our future," declares CEO Douglas Bartek. "We expect the revenues of the combined companies to be in the $120 million range for 2002, an increase of 40% from existing analysts estimates and approximately double the 2001 revenues of Microtune," he predicts.

Despite the acquisition, Microtune still expects to hit break-even in the back half of 2002. About 20% of Microtune's outstanding shares will be issued, probably in November, for all of Transilica's common stock, preferred stock, and stock options. This is one small company I'm going to keep my eyes on.

(See Oct. 29 story.)

The picture brightens
for On Semiconductor

On Semiconductor reported third-quarter sales down 10% sequentially and off by nearly half from the same quarter last year, but the situation was looking a bit better to the former Motorola division

"During this quarter, orders were sequentially up across all product families and the book-to-bill ratio was greater than one for the first time in more than a year," notes CEO Steve Hanson.

But the Phoenix company wasn't yet ready to predict an upturn. It was cautious about the near-term economy and expects fourth quarter revenues "to be flat to slightly down from the thirds quarter," he predicts. 'We anticipate fourth quarter operating margins to be similar to the third quarter as we continue to execute on our cost-restructuring efforts."

For the third quarter, On Semiconductor reported a net loss, including amortization of intangibles and non-recurring charges, of $68.9 million, down from net income of $26.9 million in the third quarter last year.

(See Oct. 29 story.)

Taiwan's UMC seems to be
losing ground to TSMC

The third quarter was another lousy one for United Microelectronics, but the world's 2nd largest pure-play, silicon foundry was beginning to see light at the end of the tunnel. "We believe that this was the bottom for us in 2001 and expect to see a quarter-over-quarter improvement in sales in the fourth quarter," declares vice chairman Peter Chang.

"Even in our worst quarter, our financial position continues to be particularly strong," he notes. "Cash inflows from operations was $147 million with $1.47 billion cash on hand on Sept. 30."

But the third quarter "was another challenging quarter for UMC . . . during which we saw our capacity utilization down to an historical low of 36%," Chang reports. Although it has already spent $891 million in capital expansion, it is cutting $400 million out of this year's $1.5 billion budget.

UMC had a 20.3% sequential drop in third quarter sales to $347 million, which was a 59.4% fall from the third quarter last year. It lost $118 million compared with a net loss of $118 million compared with a net profit of $428 million in the same quarter last year.

UMC seems to be losing ground to its chief competitor, Taiwan Semiconductor Manufacturing. The world's largest foundry actually reported growth in the third quarter and improving net income. And it expects to grow sequentially by 15% in the fourth quarter.

(See Oct. 29 story.)

Are Taiwan's DRAM vendors running,
not walking, from commodity DRAMs?

Taiwan's big move into DRAMs a few years ago couldn't have come at a worse time. Just as production really got rolling, the global DRAM industry moved from feast to famine. Spot price for an industry standard 128-megabit DRAM, for example, fell more than 90% during the past year to less than a buck a chip. No one can make money on that kind of price tag, much less the Taiwanese.

One way to save a DRAM vendor from such disaster is to get the heck out of the mainstream DRAM business. And that is what it looks like Winbond Electronics is doing. Taiwan's leading DRAM maker is closing a 5-inch wafer fab by the end of 2002. It will also stop developing 0.11-micron, stacked DRAM technology and focus its R&D on specialty DRAM markets and flash memory products.

No upturn in DRAM pricing is expected no sooner than the second half of next year, so Winbond is trying to phase out its commodity DRAM production at its 8-inch wafer fab. By the end of 2002, the chip maker hopes to move entirely into flash memory production and specialty DRAM products such as low-power DRAM for mobile devices and high-speed DRAM for graphics applications. About half of Winbond's total capacity is now in logic chip production and it is trying hard to grow that end of the business.

One big uncertainty now at the Taiwanese DRAM vendor is when it will start working on its announced 12-inch wafer fab. The company froze the project last spring. Analysts say Winbond will lag other local competitors when business turns up because it delayed the construction of this 12-inch fab.

Right now, the Taiwanese DRAM suppliers are losing their shirts. This week Winbond reported after-tax losses of $189 million for the first three quarters. Other Taiwanese DRAM suppliers are running up similar big losses. Powerchip Semiconductor expects to lose $217 million this year and ProMOS Technologies looking at a $188 million loss.

(See Oct. 31 story.)

PC motherboards using Intel's
latest chip sets due at Comdex

Taiwan's big PC motherboard makers are counting on Intel making an announcement at Comdex in Las Vegas so they can introduce their designs incorporating Intel's new double-data-rate DRAM chip set.

The next-generation chip set for the Pentium 4 is due to be announced in January and could give the PC market a kick because of its improved performance over the current single-data-rate i845 chip set.

Such motherboard makers as Asustek Computer, Gigabyte Technology, Microstar International, and Elitegroup Computer Systems, are expected to run performance tests at Comdex hotel suites, but not on the floor of the show. "I'm sure Intel is going to announce something at Comdex," says a source at Asustek.

(See Oct. 30 story.)

Taiwan may keep its
chip-set lead after all

Even though Via Technologies doesn't have a Pentium 4 chip set licensing agreement from Intel, the Taiwan company is shipping a lot more double-data-rate DRAM chip sets for the Pentium 4 than many analysts had expected.

Via reports shipments of its DDR chip sets in October surpassed its monthly target of 1 million. Via's allegedly illegal use of Intel's P4x266 chip set and C3 microprocessor has triggered lawsuits in Germany, Taiwan, United Kingdom, as well as the U.S.

Taiwan's Silicon Integrated Systems, which already has an Intel license for its 645 chip set, is also going full blast. "All of Taiwan's tier-one and most of the tier-two motherboard makers are scheduled to launch SiS645-based products by the end of November," the company says. Later in November, SiS will launch a joint effort with Asustek Computer to promote its new P4S333 boards--which support the SiS645 chip set--in Beijing, Shanghai, and three other major Chinese cities. SiS's goal is to ship 4.5 million 645 chip sets in the fourth quarter of 2001, up from 3.6 million in the previous quarter ago.

The combined shipments from Via and SiS suggests that Taiwan is likely to maintain its No.1 spot in the chipset market. Four out of five PC motherboards turned out globally are currently made in Taiwan. "With Intel introducing the P4 platform, there have been concerns that Taiwan wouldn't be able to extend its top ranking in the PC 133 platform to the P4 race," says Eric Chen, analyst for SG Securities in Taipei.

Now Taiwan may be able keep its lead, he predicts. And how November and December sales go should tell whether Taiwan can keep its lead. In the PC 133 market, Intel now has a 45% market share, while the Taiwan companies--Via, SiS, and Acer Laboratories hold 55%, analysts estimate.

(See Nov. 1 story.)

We welcome your feedback, comments, criticisms, or questions. E-mail us at bhenkel@aol.com. And remember: God bless America!