Semiconductors . . . A Gartner Dataquest report that global chip sales are projected to increase by 8.9 percent in 2003 to $167 billion, as a return of information technology spending in the second half of the year is expected to offset the slowdown that began at the end of 2002. The market research firm said the cell phone handset segment will continue to be the major driver for chip sales, but added that a healthier PC market was needed to ensure growth. "There are early signs that the long-awaited corporate PC replacement cycle may indeed be about to begin, but it is too early to say that significantly increased semiconductor sales to this sector are guaranteed," said Richard Gordon, a principal analyst at Gartner.
LSI Logic says it "expects to meet its 2003 first quarter guidance of revenues in the range of $370 million to $390 million." The company anticipates reporting a net loss, ex items, of about $0.18-$0.20 per diluted share versus consensus estimates call for revs of $379.6 million and a net loss of $0.19 per share respectively.
Microtune announced that it obtained a favorable ruling on Friday in its patent infringement lawsuit against Broadcom, as Federal Judge Paul Brown denied all of the summary judgment motions filed by BRCM.
From a marketing point of view, Intel's mobile processor managers at IDF seemed the most upbeat as they get ready to roll out their new Centrino in a couple of weeks. From a sales point of view, however, the server managers seemed to be most positive. The server market, while up slightly on a quarter-over-quarter basis, is "up substantially" from year ago levels, according to Intel managers at IDF. The company saw some server momentum in 4th quarter, which helped boost average prices about 3% quarter over quarter in 4th quarter. According to IDC, server unit shipments continued to increase modestly to about 7% year over year growth in 4th quarter, while PC shipments actually fell back to down about 5% year over year. Some of that server momentum seems to be carrying over into 1st quarter, according to Intel, which could have a modestly positive impact on prices again this quarter. As mentioned last week, e Intel orders are running at the high end of the guidance range provided ($6.5-$7.0 billion), but that 1st quarter as a quarter typically sees a high degree of cancellations, which would pull revenues back toward the consensus estimates. A couple of points:
* Despite the reasonably good server trends in recent months (certainly relative to desktops, which remain lackluster), Intel is not looking for a blow-out market this year. They expect total server shipments to be "flat to slightly up" for the year as a whole. IDC themselves are forecasting about 11% unit growth this year, while our most recent IT capital spending surveys suggest relatively flat growth in hardware spending this year. Therefore, it is not clear that whatever strength the company is seeing in the server market will be sustained throughout 2003.
* A year ago, Intel claimed it had taken $1.5 billion in business away from Sun Microsystems, and planned to take another billion away. A large part of that is due to a fundamental shift from powerful and expensive backend servers running Unix or other OS's on large 64-bit processors like IBM's Power4, Sun Microsystems' UltraSparc III or Hewlett-Packard's PA-RISC 8700 toward low-cost "blade servers" running Linux on P4s (often not even bothering to use the more expensive Xeons).
* This summer, the company will release its third generation Itanium, called Madison. To some degree, Itanium has suffered the same fate the other "heavy metal" 64-bit server processors have---the market is shifting to 32-bit Linux-based operation systems. Nevertheless, Intel continues to refine the Itanium. Madison is a 130nm shrink version, which should improve speed and reduce heat, and also has twice as much cache as the Itanium 2 McKinley (up to 6MB of level 3 integrated cache). Intel sees a million unit opportunity in the Itanium-class processor market, which would only amount to about 1% of total microprocessor unit shipments, but probably upwards of 5% of total dollars, given that Itanium prices are running $1,400, and higher.
Gray market prices for Intel processors slipped ahead of the weekend's 17% price cuts. The discount to list on Intel processors fell two points to 8%, and on P4s by three points to 8%. The price declines were the sharpest on the P4 2.4GHz through 2.6GHz processors, as list prices on these were cut the most. AMD processor prices were flat over the week, even though AMD is expected to match Intel's price cuts. Trading volumes remained light ahead of these cuts, with most of the activity said to be low-end processors out of Asia-Pacific. Some traders were hopeful that volumes could improve somewhat over the next few weeks.
Intel added some details to its new product line at the twice-yearly Intel Developer Forum last week. The quick take on the IDF:
* Centrino, the next generation processor for mobile computers, was more interesting than thought. Though the company has cranked down the clock speed to 1.6GHz to help reduce power, they have also instituted a number of power saving features that allow Centrino to conserve power while improving performance. These include "fusing" micro-ops (kind of packetizing some commands); shutting down parts of the system bus when not in use; and enhanced "speed step" technology, which is varying core speed with the variation in the load. With these steps, Intel is able to get about 10% more performance (Intel was not clear on how that was measured) while increasing battery life by about 82%, compared to the P4-M, to 316 minutes.
* Prescott, the 90nm "compacted" or shrink version of the current 130nm Northwood, on the other hand, was a little less interesting than thought. Originally billed as something more than a simple follow-on to the current family of P4s, it does have some new instructions, as well as an upgraded version of hyper-threading (which allows the processor to carry out two task at once in some applications). Prescott, which has 1MB of on-board cache, double the current generation, will debut in 4th quarter at about 3.4GHz-plus, slightly higher than the current 3.06GHz Northwood. Following Prescott's heels will be "Tejas", which will be compatible with the next generation DDR-2 memory standard, and will ship late next year.
On the manufacturing side, Intel last week announced that it would upgrade its Fab 12 in Arizona to 300mm starting in 2004, and the transition should complete in 2005. Fab 12 is a 25,000-wafer/month processor fab that started production in 1996. Do not believe the announcement represents any change to Intel's 2003 capital spending budget, which should range between $3.5-$3.9 billion. As expected, AMD's joint-venture fab in Singapore, which was to be built with UMC, appears to have been cancelled. AMD had previously said that plans for the fab were under review, however, as the company's fab in Dresden can produce upwards of 30 million processors per year (and about 30% more when production transitions to 90nm in 2004) the company is definitely not likely to run short on capacity any time soon. AMD will ship 27 million processors in 2003.
DRAM prices were mixed last week with DDRs continuing to drop while SDRAMs had a bounce off of intra-week lows. DDR 128Mb fell 1% to $1.75 and 256Mb fell 7% to $3.05; SDRAMs increased with 128Mb and 256Mb each up 9% to $2.31 and $3.47 respectively. Channel Checks. DDR weakness continues to be driven by large supply output and relatively tepid overall demand. Expect DDR to continue to be weak through the late summer months before strengthening heading into the fall. SDRAM parts did bounce this week as they were oversold. SDRAM supply has been taken off line for several quarters now making supply output rather limited. There is price support here for SDRAM in the $3.00-$3.50 range for the next quarter or so, primarily due to limited supply. Contacts seem to think that bit growth in 1st quarter will be between 0% -5% sequentially, at the low end of the range given by Micron Technology. Micron's bit growth modeled at 5% for this quarter. ProMOS continues to dump its output in the spot market due to its cancelled alliance with Infineon, and we have heard some chatter that Mitsubishi is clearing its DRAM inventory ahead of its memory operations merger with Elpida next week, contributing to spot market weakness.
Other DRAM News. Micron announced a restructuring plan aimed at improving its financial and operational condition. The company said it is trimming 10% of its workforce to align costs with current business conditions, and is also looking to identify products with the greatest market opportunity. Further details remain scarce as management is still working through where the cost cutting will come from and what the financial implications are. However, that management intends to book the charge in the current quarter. Moving to DDR400, the memory platform to support Intel's upcoming Springdale chipset, most major vendors were qualified by Intel this week including Samsung, Hynix, Infineon, Elpida, and Mosel-Vitelic. Micron says it should be qualified sometime next week. In other news, Digitimes reported that Elpida was forming a manufacturing arrangement with the Chinese foundry Shanghai Manufacturing (SMIC). Not surprisingly, Micron Technology's CEO Steve Appleton, in an interview with the wire service opined that the foundry model is not a viable one for DRAMs. We agree, though a Elpida/SMIC venture could put out a lot of DRAM before coming to that conclusion themselves.
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