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Technology Stocks : Intel Corporation (INTC)

INTC 34.30

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3:59 PM EST

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To: Fred Fahmy who wrote (67221)	10/23/1998 12:20:00 AM
From: kash johal	Read Replies (2) of 186894

Fred, >re:kash, <Your Fab is running at 10% capacity and you are losing tens of millions of dollars/quarter.> Are you saying that the size/capacity of a Fab can not be planned in accordance with anticipated demand?? This seems backwards. Build a fab of size x and then figure out how to run it at full capacity?> Now you've got it perfectly. That's the whole problem with the semiconductor business. New generation wafer foundries cost $1-2Bn. They are enormously profitable with the right product. And you can only run them for 4-5 years before they are out of date at best. So new capacity when it comes on-line is massive and that's why we swing from excess supply to severe shortage to excess supply. Your fixed costs are major costs, so you need to run them as close to full capacity as possible. Most mid-size semiconductor companies go to outside wafer foundries such as TSMC,UMC,Chartered,IBM. Very successfull outfits like Xilinx,ALtera etc use external foundry exclusively. The problem for the CPU market is that these external foundries are more expensive than your own foundry, and their fab process is optimized for general purpose applications. The CPU market is obsessed with MHZ and very agressive design rules so external foundry is not best solution either. It takes 2-3 years from when you line the money to get the fab running. Then you must have a small development fab in the mean-time to develop that process for production 2-3 years out. Then you need a good enough design that will be competitive in 2-3 years. And you hope like hell that your competition doesn't come out with a better/faster mouse trap. I know it's easy to take partisan slapshots at Jerry and what a crummy manager he is. But remember he's fighting a very big competitor with limited resouces and finances. The risk/rewards if they pull it off are very high, but this is a very tough business in general and the CPU wars is probably as tough as it gets.

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