Semiconductor Capital Equipment Stocks Discussion

Top 361. Aug 8, 2000 7:55 AM

» Kirk - To The Street: Look at the Big Picture

To The Street: Look at the Big Picture
Jonathan Cassell, Editor-in-Chief
<img src=http://www.electronicnews.com/enews/imag...>

With the release of the Semiconductor Industry Association (SIA)'s June numbers, we now have confirmation of what just about everyone in the chip business knew already: the second quarter of 2000 was the best three-month period in the history of the semiconductor industry. April, May and June: three record-breaking months, each outdoing the last, each setting a high-water mark for semiconductor sales.

June sales of $16.6 billion were up 5.2 percent from May and up a whopping 48 percent from June 1999. Second-quarter sales were 41 percent higher than in the same period in 1999, according to SIA figures. For the first six months of the year, sales are up more than 37 percent compared to the first half of 1999.

The outlook for the second half of 2000 is even better. We are still months away from the traditional annual peak of semiconductor sales. In eight of the last 10 years, November was the peak month for chip sales, based on the SIA's historical data for the three-month moving average of worldwide market billings (although September is the traditional peak month based on single-month sales). From 1990 to 1999, the peak month for semiconductor sales in each year has always come in the fourth quarter and never in the second quarter, according to the three-month moving average data.

Though there are some indications that the traditional seasonal pattern in the semiconductor market may have changed somewhat, the past can still be a good indicator of future performance.

Research organizations now are taking another look at their forecasts for 2000, even though most of them have recently upped their predictions.

Longer term, nearly all research organizations are predicting that growth will persist at least through 2002, with some forecasters predicting the boom will last until 2003.

So, with all that being said, Wall Street should be running to cash in on the boom. Instead Wall Street seems to be seeking any excuse to hammer the semiconductor sector.

Two weeks ago, LSI Logic Corp. reported earnings that were in-line with estimates, but revenues that fell short. LSI's problems stemmed from a short supply of parts for chip systems and difficulties in expanding an enterprise resource planning system, not from lack of demand. The news spurred a cut in the company's ratings, a plunge in its stock and a rout on Wall Street that saw the NASDAQ fall by more than 1 percent.

Just last Thursday, a report from Kulicke & Soffa that results for its current quarter would be affected by customer order delays due to substrate shortages sent the NASDAQ, semiconductor stocks and semiconductor equipment stocks tumbling. This despite the fact that it's still far from clear if this shortage will affect the larger chip industry. While the NASDAQ and many of the semiconductor stocks recovered, the whole event still astounds me.

Wall Street should control its knee-jerk reactions to every bit of bad news and focus on the big picture: the semiconductor industry is booming. Silicon Valley calling Wall Street: Get a clue.

-- posted by Kirk

Top 362. Aug 9, 2000 8:31 AM

» Kirk - The Chips Are Down. Way Down

The Chips Are Down. Way Down
A severe shortage puts a squeeze on electronics makers

Business Week (August 7, 2000)

These should be the best of times for Silicon Integrated Systems Corp. The Taiwan company designs chips used in personal computers sold by the likes of IBM (IBM) and Dell Corp (DELL). Yet while global demand for electronics products is soaring, SIS's stock price is off 60% since March. And in the first quarter, the company's profits fell by nearly half, to $46 million, from the same period last year. The culprit: a severe chip capacity shortage that is making it hard for SIS to get its semiconductors to market.

Taiwan chip designers like SIS have become victims of a business model that helped them prosper for much of the 1990s. Lacking their own silicon-wafer and chip-packaging facilities, most contract the work out. The most important suppliers are foundries Taiwan Semiconductor Manufacturing Corp. (TSMC) and United Microelectronics Corp. (UMC). The close-knit relationships between designers, manufacturers, and Taiwan's myriad materials and components suppliers--many of which are a taxi ride away from each other--is key to the island's edge over Japan and South Korea.

But now, with demand for chips used in cell phones and Internet appliances booming worldwide, Taiwan foundries are overbooked by up to 30%. And while they don't overlook their local partners' needs, they often are obliged to favor huge U.S. clients, leaving second-tier companies like SIS in the lurch.

HOT DEMAND. The capacity crunch may be a short-term hiccup. TSMC, UMC, and Singapore foundry Chartered Semiconductor all are spending billions on new wafer fabs. And South Korea's Hyundai Electronics and Samsung Electronics, among the world's biggest producers of memory chips, are devoting some of their capacity to fill outside orders for multimedia chips that are in hot demand. For at least the rest of this year, however, Taiwanese shops will have to find new ways to cope. Those that don't adapt, says Calvin Chang, a Jardine Fleming analyst in Taipei, ''will have to go elsewhere--or go bankrupt.''

One such survival strategy is to look for smaller foundries outside of Taiwan. This option is popular for companies like Sunplus Technologies, designer of chips used in the Furby doll. Major foundries now shun chips used for such low-tech products because they can make higher margins on devices used for more sophisticated gizmos, such as digital cameras or cell phones that access the Internet. So Sunplus hopes to get its chips from Korea.

Other chip designers are building their own silicon-wafer plants. In March, SIS opened a $340 million facility, and it is building two more. ''We need to be in control of our own manufacturing capabilities,'' says product director Alex Wu. Macronix International Co. also is taking this approach. The Taiwanese chip company can only meet 30% of its orders for devices used in hot-selling MP3 players and Sega game consoles. So it is breaking ground on its third wafer fab, at a cost of $1.4 billion.

But building chip-fabrication plants is financially risky. For starters, if demand slows down for their products, the plants' owners can run up huge losses by being stuck with excess capacity. And if they can't recruit top-notch talent to run the plants efficiently, they risk being uncompetitive with their rivals. What's more, they could get cut off for good by a foundry like TSMC, which could devote its capacity to other design houses.

There also is a danger that smaller companies will simply misjudge the semiconductor demand cycle and capsize in the next industry shakeout. Overall chip capacity is expected to expand 30% annually for the next few years, but the Taiwan Semiconductor Industrial Assn. reckons that growth in annual demand for semiconductors produced on the island will slow from about 35% now to single digits after 2003.

So rather than take that plunge, most Taiwan electronics manufacturers will have to wait in frustration. In recent months, for instance, Universal Scientific Industrial Co. has been able to secure only about two-thirds of the chips it needs to build its computer circuit boards. USI's sales still are growing at a 22% clip. But its main customer, IBM, has seen sales of its notebook PCs nearly double this year. So it has had to buy more from USI competitors. Until the demand-supply equation equals out, it will be one of many Taiwanese companies that will have to watch opportunity pass it by.

By Macabe Keliher in Taipei, with Moon Ihlwan in Seoul

-- posted by Kirk

Top 363. Aug 9, 2000 10:17 AM

» Kirk - Anecdotal Story

Anecdotal Story
(I first posted it on SI)

I went to a party Saturday with many that work in the Fiber Division at Agilent. I worked there for many years and left to do my own thing 20 months ago. I still see many on a regular basis. With that said... What amazes me that makes me feel "somethign is different this time" is that the my friends there and at other companies like Intel and Cisco are ALL working hard AND having fun. This is the mid level engineer/manager/secretary types.

At the party, people were not griping about the A stock that went to $160 then back to under $40. They actually seemed happy it was low as it meant they could accumulate MORE with stock purchase plans and ESOPs at lower prices. They plan to be there 5 to 20 years and know a good value when they see it.

I think the people that are nervous are the ones that jump from company to company for the best short term option package and are not concerned in the same way about building something for the long term.

Even at the "nut stock" I write for and help with odd chores, our stock is off 90% and nobody panics, just continues to work hard and invest for the future.

What seems common when I talk to them is the almost limitless opportunities they all see for their careers and the business in general if they just get the needed education to move on or just continue to work hard. One friend is actually putting off early retirement as he is having so much fun working!

I started to invest in this sector in 1995 as I think it will replace the auto and airline stocks as anchors for American Power and importance. It is nice to be associated with many here that ALSO look to the long term. (I also enjoy a bit of playing the in-and-out to add some return with "fun money").

FWIW

Kirk out

PS For the new people, I try to archive some of the better links here: http://pw2.netcom.com/~kirk_69/SemiLinks... The Infrastructure guide to the Chip-making process is a must read if you are not familiar with the processes and Gottfried's charts are another highlight.

-- posted by Kirk

Top 364. Aug 9, 2000 8:43 PM

» Kirk - Bear Says correction overdone

Latest Bear Stearns Report on Semis
This is from the AMAT board on Yahoo. I am assuming that it is not a hoax.

"Research Report Semiconductor Industry

8/9/00 8:01 pm
09:00am EDT 9-Aug-00 Bear Stearns (Boucher C/ Wu B 415/772-2953) ADI ALTR CY M
Charles F. Boucher 415 772-2953 cboucher@bear.com 08/09/00
Brian Wu 415-772-3028 bwu@bear.com

Subject: Industry Overview
Industry: Semiconductors

BEAR, STEARNS & CO. INC.
EQUITY RESEARCH

Key Points
*** The sharp correction in chip stocks over the past few weeks (25% since the SOX index recent high in mid-July) is overdone in our opinion. The industry remains fundamentally strong, and the slower growth in wireless handsets is more than adequately discounted in the stocks. We believe investors should begin to buy semiconductor stocks now in front of a likely second half rally.

*** We have completed a comprehensive survey of chip company management and industry contacts. We see no evidence of fundamental weakness in the overall semiconductor industry. Bookings continue to grow, lead times and prices continue to firm, indicating that semiconductor supply is tightening. We expect strong sequential revenue and earnings growth in the second half of 2000.

*** The wireless handset market has experienced a slowdown relative to aggressive expectations earlier in the year. We believe this has freed up a small amount of flash memory inventory from cell phone OEMs, which is being absorbed in an orderly way by the rest of the market. The cell phone market is unlikely to experience extended weakness, and is too small to derail the chip cycle in our view.

*** Rising commodity prices are driving accelerating industry revenue growth. The June WSTS Global Billings Report showed revenue growth up by 48% on a year-to-year basis, and we believe the comparisons will exceed 50% over the next few months. We are boosting our industry growth estimates to 40% for 2000, and 45% for 2001.

*** We believe the chip stocks are discounting the risk of a near-term cyclical peak, which we believe is highly unlikely. We think a cyclical peak is unlikely to occur before the end of 2001. As investors regain confidence in the fundamental strength in the chip industry over the next few weeks, we believe the stocks are likely to undergo a significant rally. "

link

-- posted by Kirk

http://www.infras.com/Tutorial/sld001.htm

Top 365. Aug 9, 2000 9:07 PM

» Kirk - tutorial on the Chip-Making process

Here is a great tutorial on the Chip-Making process put out by "Infrastructure"

I keep that link and other good ones here: http://pw2.netcom.com/~kirk_69/SemiLinks...

Note that the left hand side has all the process steps listed so you can click on one and go straight to the explanation.

Infrastructure did a wonderful job with this.

The 3 drivers for the industry are Copper, 300mm and smaller features.

Copper will replace Aluminum in this slide http://www.infras.com/Tutorial/sld012.htm

300mm is the diameter of the wafer (about 12" compared to today's 200mm or 8" wafers)

0.13um vs 0.18um means the distance between the source and drain in this slide http://www.infras.com/Tutorial/sld008.htm

Going from 0.18um to 0.13um allows you to put more transistors in a given area since you can make them smaller.

So far, most orders are for smaller feature sizes and copper and 300mm are yet to come. AMAT said even with this, 72% of their orders are for the larger 0.18um equipment.

(In college back in 1979, I built a 1mm x 1mm MOS transistor so these are REALLY SMALL!)

-- posted by Kirk

Top 366. Aug 11, 2000 9:09 AM

» Kirk - Moor's Law losing Importance?

GREAT story!

IBM taking Moore's Law by the horns
By John G. Spooner, ZDNN
August 11, 2000 5:45 AM PT
URL: http://www.zdnet.com/zdnn/stories/news/0...

New technology breakthroughs from IBM Research promise to extend the reach of Moore's Law, the chip industry's most closely held measure of performance.

Moore's Law, an observation of Intel Corp. co-founder Gordon Moore, states that the number of transistors in a processor will double every 24 months. Despite falling under scrutiny from time to time, it continues to accurately reflect the progression of chip technology and become associated with increases in processor performance and complexity. Moore's Law in recent years has shortened to reflect a doubling of transistor count and performance every 18 months.

IBM's latest breakthrough, a new chip transistor design known as V-Groove, will allow the company to stay ahead of the curve of Moore's Law 15 to 20 years in the future, should it find its way into production.

Less than 0.01 micron V-Groove transistors are capable of scaling to channel lengths of 10 nanometers, or lengths of 0.01 micron and below.

Channel length represents the distance electricity needs to travel through a transistor; shorter transistors lessen the distance traveled, delivering greater performance. Right now, IBM, and the chip industry as a whole, is at 180 nanometers, or 0.18 micron. It had been widely believed that 20 to 25 nanometers were a hard stop.

'It isn't just about scaling anymore, where Moore's Law calls for chips to become smaller and faster. It's just not useful to do that.'

"Using this simple technique, we can get channels as small as 10 nanometers or smaller," said Phaedon Avouris, manager of nanometer-scale science at IBM Research.

IBM says its V-Groove technique improves on current photolithography manufacturing techniques, which project an image of a transistor onto a chip, then physically remove excess silicon. V-Groove, in addition to lithography techniques, uses chemicals to create an anisotropic chemical reaction. That reaction burns away silicon faster downward than side-to-side, creating the namesake V-Groove channel. Channels, when produced using this technique, are much finer -- and therefore help eliminate electrical cross talk, otherwise known as the short-channel effect.

The short-channel effect -- which causes electrical interference between transistors located too close together -- had been the barrier to breaking the 20-nanometer mark. Normally, transistors switch on and off rapidly. The short-channel effect prevents this from happening. V-Groove reduces short-channel effects, allowing transistors to be built on this small scale.

With help from university research partners MIT and UCLA, IBM has been able to manufacture test transistors using V-Groove. It is now moving to create test chips using the technology. IBM officials say the experiment proves that it is possible to build chips with channel lengths smaller than previously thought possible. At the same time it proves Moore's Law is alive and well.

"Overall, we are very optimistic. This is a way of making a device to study transistors on a very small scale," Avouris said. "We are not looking for production. We are looking for a meaningful discussion of the limits of a small device. We'll leave it up to the engineers to discover the best way to put this into production."

Carbon nanotubes? IBM won't stop with V-Groove. The company is also exploring changes in materials it uses to manufacture chips.

IBM IBM's next step is research into developing a method of putting the technology into mass production. It would be some time, about 15 years, before the V-Groove, or a similar design, would be used to manufacture chips en masse.

IBM Research, for example, is experimenting with the use of carbon nanotubes, structures made of rolled sheets of carbon hexagons. The nanotubes, in one example, could be made into interconnects between transistors.

The good news is that new discoveries in materials and manufacturing techniques, such as IBM's V-Groove, should sustain Moore's Law more longer than previously thought, ensuring its extension for some 20 to 25 years. Moore's Law, at the same time, should stay true to its roots of accurately reflecting transistor counts.

Despite the breakthroughs that will carry Moore's Law -- and chip performance -- forward for several more years, IBM researchers say that Moore's Law may be losing its relevance as an accurate measure of performance.

Moore's Law no more? Researchers say the microprocessor industry is entering an age where raw performance and simply doubling transistor counts every 18 or 24 months will no longer deliver functionality needed for applications in Internet or other areas, such as communications networks.

Essentially, IBM researchers say, Moore's Law has no ability to predict what features will be needed for future processors.

"My observation is that we're entering an era where Moore's Law is a less valuable tool to tell you where to go next," said Russell Lange, IBM fellow and chief technologist of IBM's Microelectronics Division.

Doubling transistor counts "certainly helps improve technology ... but just merely doing that is not nearly enough these days," Lange said.

"The value proposition is moving out into the Net and bandwidth and changing in many ways," he said. "Certain customers might not need clock speed. They might, for example, want more reliable memory technology."

For many consumers, the question of relevance may ring true. Right now, there is little need to increase performance, as a 500MHz Celeron or Duron chip can run today's desktop applications quite well, never mind a 1GHz or 1.1GHz chip. Taking the argument one step further, for those who spend time on the Internet regularly, it's more important to increase the bandwidth of the connection than to increase the clock speed of a PC processor.

However, chip makers aren't going to take that as permission to stand still. The demand for performance is still very much alive in servers and other infrastructure. This equipment, powered by microprocessors, provide network bandwidth, therefore contributing directly to network performance.

In addition, IBM and Intel agree that, especially with faster Internet connections, software will catch up to and exceed the capabilities of today's desktop processors, requiring more performance there as well. The only variable in this equation, they say, is time.

So what is performance these days? Despite the changes IBM is seeing, the company is racing ahead with its research to develop faster chips. However, IBM researchers say they are also looking at ways to make chips that are more customized for performing the work that needs to be done.

"It isn't just about scaling anymore, where Moore's Law calls for chips to become smaller and faster. It's just not useful to do that," Lange said. "We're spending a lot more time looking ... looking at other design elements."

To that end, IBM is adding to its research new ways of solving processor-to-memory constructions with new kinds of memory structures. IBM is also working with new kinds of chip packaging.

"We've been experimenting with connecting a memory chip with a logic chip," Lange said.

Grafting the two together would increase performance and lower cost. In other applications, two complementary chips, such as a radio chip and a digital signal processor, could be sandwiched together. This direct connection, by itself, would increase performance by eliminating the need for data to flow over a bus.

Meanwhile, IBM has begun putting into production a number of new technologies that it says have the potential to significantly boost chip performance over the short term.

Most recently, IBM added PowerPC processors with SOI (silicon on insulator) technology and copper interconnects to its AS/400 line of servers. The SOI technology increases transistor performance by reducing parasitic capacitance -- a performance hit caused when electrical current is absorbed by the silicon substrate that a transistor rests on. Thanks to the insulator, the chip can push greater amounts of current, which increases performance. Or, using a SOI, a chip can be tuned for lower power, making it better for use in portable electronics.

IBM also plans to boost performance of its RS/6000 S80 servers by adding new PowerPC processors with SOI technology to this family this fall.

The company has announced a number of other new technologies. Many of these new technologies will be resident in IBM's Power4 chip. The chip, which features two 1GHz-plus processor cores on a single chip (a single-chip dual processor), will debut next year in high-end IBM servers.

IBM recently brought up Linux and its AIX operating system on the chip.

It's these technologies, now in production, that will carry IBM forward, while its research division tackles the bigger problems and works to deliver new technology, such as V-Groove, into production.

"A lot of people worry about the end of the industry; how long can this keep going?" Lange said. "Usually, what folks underestimate is how energetic scientists and engineers are when it comes to overcoming hard limits."

-- posted by Kirk

Top 367. Aug 11, 2000 7:40 PM

» Felipe - Price compression

If I can be allowed to group the capital equipment companies with the chip stocks for a moment, I'll make the observation that there appear to be two types of stocks: those that have been hammered and those that have not. While some that have slid have done so for good reason, most of the large cap participants that have fallen are difficult to differentiate (on business fundamentals) from those that continue to sell at elevated PEs and PEGs. Take Intel, for example, and compare it too any of its more specialized brethren. Or Applied Materials, which was darling of Wall Street until it suffered the misfortune of putting out good earnings and strong forward-looking estimates of demand?

Anyone care to offer an plausible explanation that does not simply write this off to investor psychology or the end of the semiconductor cycle (an end that is not yet in evidence)? My question is not rhetorical - there may be a good reason for this correction but I don't see it in the popular press.

Moreover, let me also ask if you think these fallen angels are now selling at a discount, fair value, or have further to fall.

-- posted by Felipe

Top 368. Aug 11, 2000 7:50 PM

» Felipe - Clarification

I'm using Intel as an example of the chip stock that is still selling at a relatively high multiple, especially when you back out investment income which of course is not a sustainable part of their earnings. [I reread my post and realized that my point with regard to Intel was vague at best]

-- posted by Felipe

Top 369. Aug 12, 2000 12:39 PM

» Felipe - Kirk and/or Rande

I posted the messages above last night, and am interested in your comments.

Perhaps it's a silly or irrelevant question. Please feel free to say so if that's the case.

-- posted by Felipe