Intel to cut back-end semi equip expenses, but places heavier emphasis on move to .18 and lower:
Intel's fab cuts surprises industry
By Jack Robertson
SANTA CLARA, Calif.--Intel Corp. here amazed industry
analysts by making a quick midcourse correction in fabs
to cut production costs for its new Celeron low-priced
Pentium II version.
As part of the cost-cutting, Intel canceled or delayed
major fab equipment orders totaling as much as $100
million with up to five vendors, according to industry
reports. Analysts attributed the cuts to a quick switch to
manufacture a profitable Celeron chip, not to any
slowdown in microprocessor production.
Analysts said Intel recently canceled some $30 million in
orders with Kulicke & Soffa, Willow Grove, Pa., for 155
unique advanced wire bonders that the vendor was
building solely for the microprocessor giant (see April 3
story). They added that the firm was only one of several
Intel equipment suppliers that had received order
cancellations this month. K&S officials would only
confirm that a major customer had canceled the $30
million order for bonders.
Morgan Stanley & Co. reported that the K&S
cancellation was triggered by Intel's decision to use
equipment already installed in its fabs. Other analysts
said this was part of Intel's quick-change strategy to cut
production costs for Celeron, and probably other chips
as well, by extending the life of existing gear.
"As a scaled-down Pentium II processor, Celeron doesn't
need the next-generation production equipment Intel has
been buying," said Byron Walker, analyst with Alex.
Brown & Son, of New York.
Intel is expected to scale back its 1998 capital equipment
budget by several hundred million dollars from the
originally projected $5.3 billion, according to a consensus
of Wall Street analysts. That would still leave Intel's
semiconductor capital spending in the $5 billion
range-more than two-and-a-half times the investment of
the next closest chip investor, Motorola Inc., which is
expected to spend $2 billion in capital investment.
An Intel spokesman declined to comment on any aspect
of the reported equipment-strategy changes. If the firm
adjusted its 1998 capital spending budget, any changes
would be announced on Tuesday as part of Intel's
quarterly financial report, he added.
G. Dan Hutcheson, president of VLSI Research, San Jose,
said he was "amazed at how fast Intel was able to adjust
production to lower costs" in making the lower-priced
Celeron chip. "Giant companies usually can't react as
quickly," he said. "When Intel saw the surprisingly
strong growth of the sub-$1,000 PC, they moved
immediately to change production strategy to make
Celeron at a competitive price."
Intel's two-year delay in its projected new fab in Fort
Worth, Tex., announced last month, also will cause some
cuts in the 1998 capital spending budget-although the
peak of equipment spending for the Fort Worth fab
would have come next year (see March 27 story). The
delay in Intel's acquisition of the Digital Equipment Corp.
fab in Hudson, Mass., also is slipping some capital
spending this year. Intel had projected some $700 million
for upgrading the Hudson fab to state-of-the-art
0.25-micron wafer production (see Oct. 27, 1997, story).
At the same time, Intel will invest heavily to install a
next-generation 300-mm wafer pilot line at its
development fab in Hillsboro, Ore., expected to come on
line next year. Unlike the economy-priced production
strategy for Celeron, the new line requires totally new,
leading-edge systems to make the larger-size wafer.
Intel is also investing heavily to ramp up for
next-generation 0.18-micron feature-size processes as
quickly as possible. The 64-bit Merced microprocessor,
to be introduced next year, initially will be made on
0.18-micron lines and quickly migrate to 0.15-micron
process technology. Intel hopes its new leading-edge
processing--well ahead of anyone else's in the
industry--will give the firm a competitive jump over its
MPU clone rivals. |
