few bits about amd including ramp up of .13 um process at fab 30
The Semiconductor Beat
2001-11-05 12:47 (New York)
SALOMON SMITH BARNEY Industry Note
Semiconductors
The Semiconductor Beat
November 5, 2001 SUMMARY
* How is it the business at Intel--which we consider
Jonathan Joseph a proxy for the group--is at the high end of
+1-415-951-1887 expectations, while U.S. macro indicators are at the
jonathan.joseph@ssmb.com low end? The explanation comes from a look at the
Dunham Winoto relative expectations, geographies, product mix, and
+1-415-951-1875 market segments.
* Following last week's price cuts, Intel's gray
Ramesh Misra market discount/list narrowed 5 pts. to a 15%; while
+1-415-951-1883 P-IIIs narrowed 2 points to 18%. AMD processor
pricing slipped 1% over the week. Demand for
processors continues to be very solid.
* After slipping 6%-10% in the prior week, DRAM
dropped early in the week and then began to firm on
Friday, for the first time in months. By Tuesday,
128Mbs from some brokers fell 5% to $0.85, but
finished at $0.88 (-1%), while 64Mbs fell to $0.46
(-2%). DDR interest continues to build.
* Most Flash parts, other than low-end 1Mbs, fell an
average 4% last week. 32Mbs closed at $10.69 (-6%),
8Mbs at $3.44 (-1%), and 1Mbs at $1.25 (flat).
OPINION: YOU SAY TO-MAY-TO, I SAY TO-MAH-TO.
"It is not worthwhile to go around the world to the count the cats in
Zanzibar....Our life is frittered away by detail...Simplify, simplify." Henry
David Thoreau, in a couple of passages from On Walden Pond (1854), reflecting
on good equity research methods.
We believe Intel's (INTC-$26, 1M) business quarter to date is running at least
at the high-end of the company's guidance of $6.2-$6.8 billion (down 5% to up
4%). On Intel's October 30th conference call, management said that backlog was
strong, and supportive of a normal Q4 (that is, up double digits from Q3). But
macro indicators forced them to take a more cautious approach to Q4 and guide
flat. And just last week they were at it again: the company talked about a "a
second half demand burst," but provided no upgrade to guidance. Why is Intel
Inside so different from Intel Outside?
The macro is pretty well known, and decidedly mixed. The drag, of course, were
the economic fallout from the Sept. 11 attacks in an already weakening economy.
Yes, initial U.S. GDP figures show a 0.4% decline in Q3, compared to consensus
estimates of about -1%, but the unemployment rate added 0.5 percentage points
in October, an all-time record. That could spell doom for consumer spending.
But then we have auto sales, which for GM# (GM-$42, 3M) and Ford# (F-$16, 1M),
which provided financing incentives, are off the charts. For the rest of the
world, when the U.S. catches a cold, they sneeze.
Intel, and most of our other companies, guided very conservatively on their Q3
conference calls: despite the fact that their customers (cellphone makers,
personal computer makers) were forecasting anywhere from 5% (PC) to 25%
(cellphone) growth in Q4, they (the component suppliers), were guiding flat to
down. Intel did that. Yet business is running stronger than guidance quarter-
to-date, we believe. Far from being promotional, the company is as unsure as
the reasons for their current strength as any other observer. Below are some
explanations for the Inside/Outside differences.
Expectations: Some of this apparent discrepancy is definitional. Though we
estimate their order book to be running at $6.9-$7.0 billion for Q4 (up 5%-7%),
the company is guiding analysts to flat revenues. But not a single U.S. OEM we
know of is guiding their own business to flat units in Q4: most are guiding to
a 5%-10% qoq increase (at SSB, our forecast is for a 5% qoq increase).
Product mix: We believe Intel is selling virtually every processor it can make,
with Pentium 4s continuing to run in shortage, despite Intel's promise to meet
up with demand by the end of October. Demand for P4s in the corporate market
appears to be running stronger than expected, which is a surprise to Intel
because the company thought businesses would continue to buy legacy PIII-based
systems, as they qualified P4. In addition, we have heard that Europe is doing
well this quarter, while Asia-Pac continues to be strong. Motherboard makers
are telling DRAM suppliers in Taiwan they are getting only half the P4s they
need. The net impact: Compaq# (CPQ-$9, 1H) has been going to the gray market to
buy P4-1.5GHz parts that it cannot get enough of from Intel. And Dell (DELL-
$25, 3H) is getting fewer units in its daily P4 shipments from Intel than it
had hoped. Relative strength in the P4 is important, mostly because it allows
Intel to keep a distance from AMD and price to monopolistic value. This will
allow Intel to cut prices less sharply, which should result in a rising blended
ASP for the company going forward.
Geos and market segment: Intel's strongest business is not coming out of the
U.S. OEM market, the one easiest for us to monitor. Instead, it is coming out
of the distribution channel in overseas markets, particularly Asia-Pacific,
including China, India, South America, and Eastern Europe. The U.S. white box
market, according to suppliers were are talking with, are seeing strong
demand. Many of these "geos" are market segments that are off our easy radar
screens.
PROCESSOR VOLUMES STAY FIRM AFTER FINAL ROUND OF PRICE CUTS FOR THE YEAR
Over the next few weeks, we expect Intel to release its first 0.13 micron based
P4 (Northwood) running at 2.2GHz, perhaps coupled with a DDR compatible 845
chipset (i845D, which has been pulled forward from year-end). We had expected a
2.2GHz Willamette (0.18-micron) to be introduced last week with the price cuts,
but that it was pushed out because Intel already has enough of a speed lead
against AMD's Athlon. Why rush the market?
There was a lot of investor concerns last week in regards to the slide in the
Executive Webcast showing the combination of the 0.13-micron process, coupled
with 300mm wafers, would generate only about 25% reduction in cost/die over the
next 24 months. Remember two things: this is not DRAM, which has a constant 32%
per annum average price-per-bit declining cost curve. Until the last couple of
quarters, when Intel was faced with the slowest PC market in 15 years, and AMD
made its strongest competitive bid in 30 years, microprocessor prices have been
relatively flat for a long time. With the success of Intel's "breakaway"
strategy, we expect prices to begin rising in coming quarters. In a rising ASP
environment, a 25% cost reduction will go directly to the bottom line.
We expect AMD (AMD-$12, 1S) to release its new Athlon XP 1900+ processor in the
next few weeks (clocking at about 1.6GHz). AMD is also beginning to ramp up
0.13-micron production at its Dresden, Germany fab, although it may not be
until Q1'02 before the company starts shipping a 0.13-micron processor.
As Intel's new list prices went into effect last Sunday, the discount to list
on Intel processors fell 5 percentage points to 15%. Price cuts on some high-
end P-IIIs were also announced, and as a result the discount to list on P-IIIs
fell 2 pts. to 18%. Brokers report that many of the low-end P4s remain hard to
get. Part of the reason is that total P4 supply is still limited, despite the
fact the company tripled output in Q3 and will double output in Q4. But also
because Intel is seeking to move customers up the pricing/performance "stack",
improving its overall blended average price. This has created something of a
vacuum, into which the Athlon-1.4GHz processors are enjoying a pick-up, and
their gray market prices were up for the second week in a row, as white box
makers and PC OEMs seek to fill the 1.2-1.5GHz SKU for the company holiday
season.
DRAM MUCH MORE STABLE BY WEEK'S END; SOME BROKERS HOLDING OUT HOPE
DRAM market activity was sluggish early in the week but turned somewhat firmer
by Friday. This morning (Monday), early overnight quotes from some Asian spot
markets showed a slight rise ($0.01-0.02) in prices once again to about $0.91.
Brokers from across major geographies told us that trading, in general, was
slow, but inquiries picked up incrementally throughout the week. Market
sentiment was a little mixed; with some complaining about the lack of demand,
but others hopeful that strong orders for processors (initially P4s, but now
even some Athlons) would translate into better demand for DRAM. With reported
strong demand of VIA's (2388TW-NT$90, 1H) P4X266 and Intel's impending
introduction of its i845D P4-DDR chipsets, demand for DDR appears to be picking
up. Currently, spot market prices are running about 10-15% above SDRAM prices.
Overall SDRAM demand remains somewhat tepid, though prices have shown a measure
of stability in the last two weeks. Branded 128Mbs fell a very modest 1% (vs.
10% last week) to $0.88 from $0.89, while 64Mbs traded down to $0.46 (-$0.01, -
2%). Quotes for unbranded parts were running about $0.75-0.85.
Industry trends, as reflected in the SIA data, continues to be headed in a
positive direction. According to SIA data, September DRAM bit growth
accelerated to 79% yoy (vs. a long-term rate of 75%), up significantly from 56%
in August and most likely, a cyclical low of 24% last May. None of this,
however, could have hidden the severe drop in DRAM pricing (down roughly 88%)
in the last year as shipments declined 78%, even in the face of strong unit
growth.
There has been plenty of activity on the consolidation front. Hynix (660KS-
W1,280, 2S) last week announced it would swap about $2.3 billion (at current
exchange rate) in straight debt for convertible debt, get another $770 million
forgiven, gain an inflow of $500 million in cash for operating cash and some
upgrade to its existing plant, and also receive an interest rate reduction
totaling about $320 million per year. Infineon# (IFX-$16, 1S) and Toshiba
(6502JP-Y488, 4H) seem to be getting closer to an agreement in the sale of
Toshiba's DRAM facilities to the German semiconductor maker. Both companies,
along with IBM# (IBM-$110, 1M), have a jointly-developed DRAM process, though
it is not known how many of Toshiba's fabs can be upgraded to 300mm.
FLASH PRICES MOSTLY LOWER
Most Flash components, with the exception of low-end 1Mbs, ended down on the
week. Pricing on 32Mbs (down from $11.31 to $10.69, -6%) and 4Mbs (from $1.50
to $1.40, -7%) declined the most but others traded lower as well with 16Mbs
falling to $6.15 (-$0.03, -1%) and 8Mbs to $3.44 (-$0.04, -1%). Market action
was a little more subdued this week as demand was slow. Broker sources told us
parts from certain suppliers (some AMD configurations were mentioned several
times) are definitely available in greater quantities on the open market than
other manufacturers. As such, the consensus among market players is that prices
on those parts could see some pressure in coming weeks. |
