Archive for January, 2008

Wall Street wary of equipment stocks, but there are some bright spots

Thursday, January 24th, 2008

Read this insightful analysis of the woes of the semicon industry and surviving in a period of “profitless prosperity” by Steve Newberry, president and CEO of Lam Research, as reported by Bob Haavind, Editorial Director, Solid State Technology.

I summarize his main points here:

  • The current period is marked by accelerating IC growth at a time of declining profitability. However, companies “can’t be prosperous if prices are declining faster than costs.”
  • 15 of the top 40 companies are losing money and 23 are making less profit than needed to stay in the business.
  • The trouble is overinvesting to create excess capacity, trying to force-feed a much larger industry than exists. Too many vendors are trying to capture the same market share through rapid supply line ramps that don’t allow much differentiation.
  • The only sectors found to be financially healthy were analog and fabless, which have low capital investment requirements.
  • In the logic sector, no integrated device manufacturer (IDM) can achieve enough volume to effectively compete with the economy of scale of the foundries. Even Texas Instruments, the only IDM with profit over 10%, is moving from a fab-lite to fab-liter strategy.
  • Even in the foundry sector, all the profits in the past five years were made by TSMC, while UMC, Chartered, and SMIC are not generating sufficient operating profits to sustain growth. An important factor here is that TSMC is able to command a price/wafer premium by offering superior value to its customers in terms of libraries, extra services, design aid, etc.
  • The major effort of most chipmakers was to solve the profitability problem through cutting costs — but a quick analysis showed that even if toolmakers cut their costs enough so that the entire process tool industry made zero profit, it would only offer chipmakers savings of perhaps $5.7 billion, when they need about $11.2 billion to close the profit gap, he believes.
  • Thus, Newberry suggested that chipmakers must focus on better value creation for customers, differentiating themselves while also becoming leaders in efficiency.



Chip makers must shift from fabs to systems

Monday, January 21st, 2008

In the interview to EETimes’ Rick Merritt, Infineon’s CEO, Ziebart mentioned that semiconductor companies need to shift their focus from building fabs to building systems, and they must engage with customers at deep technical levels if they are to survive the current wave of consolidation.

“The major thing giving semiconductor makers a competitive advantage has evaporated. Today everyone has access to the same process technology at roughly the same time. This access used to be what differentiated the best from the worst semiconductor companies, but now it has evaporated, What’s replacing process technology as a differentiator is systems know how, and it must be specific to a market area”, he said.

This has initiated several comments on the blogosphere. Let me add my two penny’ worth to that:

In the past, the process technology was the competitive edge. Later the escalating costs (& risks) involved with building new fabs & developing new processes left one with little option but to pool in resources and consolidate (to compete with the rising prominence of  original pure-play foundries); giving rise to alliance like Crolles and later the Common Platform Alliance. IDMs shared their resources for the basic process and individually derived some spin-offs for differentiation & niche. This competitive edge was further complemented and later more or less replaced with strong IP portfolio which has grown over the years from a block to platform to “platform plus services”.

Moving to system level is a natural progression in this path.

Yes, the differentiator has moved from process technology; but it is due to access to the process techno. This access has become cost prohibitive for any single semiconductor company (perhaps leaving aside a couple with really deep pockets) and hence the scramble to find an alternate place in the value chain to survive.

A point to be noted here is to follow how the foundries have also evolved over this period –  from pure play to design support to building an IP portfolio to……. “systems know how”???

Cheap phones bring chip opportunities

Wednesday, January 16th, 2008

There are 2 different markets for the handsets: feature-rich 3G phones and ultra low-cost (ULC) phones. The former is predominantly the developed countries and the developing countries form the latter.

According to ABI Research, “The developed markets’ high saturation rates mean that over 80 percent of new mobile phone subscribers in the next five years will come from emerging markets.”

These ULC handsets have changed the dynamics of business.

Using commoditized technology (read “multiple providers”), has given handset makers a wide array of vendors to choose from e.g. Nokia has moved from relying exclusively on TI for baseband chips to partnerships with STMicro, Broadcom and Infineon – thus providing it design flexibility as well as price negotiating power.

A fine example of a low cost phone is Tianyu 8811 which has achieved low costs by using proven, mature technology and adopting a minimalist approach. For a tear down on this product, I suggest to read Jeff Brown’s article 

The recently unveiled $2500 car (named Nano) from India’s Tata is a prime example of achieving low costs with minimalist approach

As cited by C. K. Prahalad, professor of corporate strategy at the University of Michigan Business School, a huge market awaits at The Bottom of the Pyramid.  

Used semicon equipment market - expected strong growth this year

Tuesday, January 15th, 2008

Amidst the bleak forecasts for the semicon industry for 2008 including the projected decline by 10% in capital spending, a sector expected to post strong growth this year is the used semiconductor equipment market. According to a report from Semiconductor Partners in conjunction with Semicon Research, Used semiconductor equipment market is expected to reach $8 billion in 2009

 “As leading edge digital memory and logic manufacturers build 300mm fabs for process technologies of 65nm or less, this will obsolete their 200mm fabs at 130nm or 90nm and some of their 300mm fabs at 90nm,” noted Morry Marshall, Partner – Strategic Technologies at Semiconductor Partners. “Analog and mixed signal manufacturers will have a need for these fabs to meet for expansion to satisfy the growing analog, mixed signal and RF markets.  This creates an opportunity for companies that finance, resell or refurbish used equipment.”

IDMs have re-aligned their fab strategies and are going towards fabless or fablite. Plus the ASP declines have catalysed foundries towards the 300mm wafer path, thus giving a boost to the 200mm used equipment market; in particular  from foundries in Asia. While on foundries in Asia, Chartered has been on the speculation radar

  • Toshiba has recently extended its 2 year collaboration with IBM on 32nm and below to include 32nm bulk CMOS process techno. Chartered with its ties to IBM (Common Platform Alliance) looks set to leverage on this and take away biz with Japanese foundry customers from TSMC and UMC
  • Rumors on SMIC being acquired have been afloat since last year. In April ’07, it was rumored to be taken over by venture capital companies. The latest one this year is that Chartered may acquire SMIC.

With the increasing prominence of the foundries in the semicon space and being pitted against the formidable Taiwanese foundries, the others are poised to increase their share of the pie.



ARM vs. Intel

Thursday, January 10th, 2008

There is an interesting article on ARM vs. Intel competing in the lucrative evolving product category placed in the gap between the smart phone and the laptop computer.

Intel looks set to invade the low power handhelds – a traditional domain of ARM. And its strategy to this effect involves offering X86 processors with leading performance while reducing the power consumption and footprint. ARM meanwhile continues to come up with various processor architectures and cores optimized for its customers’ needs and semiconductor manufacturing capabilities of its licensees.

The question is: Will future mobile handhelds run on an X86 or ARM instruction set architecture?

I summarize here a few points for both parties:

Advantage ARM:

  • The ARM processor was built for mobility from the ground up
  • ARM’s strategy looks to be targeted more on “needs of its customers” vs. Intel’s “what it can do with technology”
  • ARM works along with partners to develop an ecosystem where various entities contribute by building the system with ARM’s core while retaining their differentiating features; vs. Intel’s strategy of setting out a standard, defining the platform architecture and letting others build upon that. The latter has worked for PC and laptop market but may not get the same success in the volatile, different features for different people consumer market.
  • ARM’s TrustZone technology which gives an ARM CPU a secure state

Advantage Intel:

  • It is big & its pockets are deep
  • It has the silicon manufacturing edge
  • It can help OEMs with their branding & marketing
  • Apple may be leading the way in this market and Intel can buy its way back into telephone silicon

The coming months will tell how flat the world has become……