To Thread: Led by LSI, Chip Industry Gets On Rebound
(04/26/99, 2:37 p.m. ET)
By Brian Fuller and David Lammers, EE Times
(http://www.techweb.com/wire/story/TWB19990426S0013)
The semiconductor industry seems to
be on a rebound.
As gauged by LSI Logic and other
semiconductor companies that have reported
first quarter financial results, 1999 should be
the light at the end of a dark, three-year
tunnel. "We are now firing on all cylinders,"
said Bruce Entin, vice president of marketing
at LSI Logic, in Milpitas, Calif.
LSI Logic, which has successfully diversified
into telecommunications and wireless and is
now ramping up its newest fabrication facility,
saw first quarter revenue shoot up 41 percent
compared with the first quarter of 1998, to
$457 million. Profits of $11 million exceeded
the consensus expectation of financial
analysts.
Elsewhere, Texas Instruments' net income
jumped to $233 million in the
January-to-March period, against only $11
million in the same period last year, when
DRAM chips still hung around the Dallas
company's neck. In Europe,
STMicroelectronics said its first quarter
revenue declined slightly compared with the
fourth quarter of last year due to "seasonal"
fluctuations. But compared with 1998's first
quarter, revenue shot up 10.8 percent to
$1.113 billion and net income rose 16.5
percent, to $105.1 million.
Zilog, in Campbell, Calif., said bookings
during its first quarter reached $63.5 million, a
$10 million increase from the fourth quarter of
1998.
And Motorola's Semiconductor Products
Sector reported a profit of $47 million for the
first three months of this year, compared with
a loss of $58 million in 1998's first quarter.
Sales were up 4 percent to $1.9 billion, and
orders were 11 percent higher, despite a
decline in Europe.
Lucent, in Murray Hill, N.J., said its non-U.S.
chip revenue was the biggest contributor to a
strong quarter. Overall, microelectronics
revenue increased 21 percent over that
recorded a year ago, to $851 million, as
revenue outside the United States soared 37
percent.
In a conference call with financial analysts,
LSI Logic's CEO, Wilf Corrigan, said most
chip forecasters are in the process of
upgrading 1999 predictions by about 5
percentage points, particularly for companies
that play outside of the PC space.
Reflecting the upbeat but guarded mood of the
industry, Corrigan said he is "cautiously
optimistic" about the remainder of the year. "I
think we'll be biting our nails for the rest of
the year," said Dataquest analyst Joseph
Byrne.
Jim Feldhan, president of Semico Research, in
Phoenix, said he is sticking by his already
optimistic December prediction that the
worldwide semiconductor industry will grow
17 percent in 1999. Semico DRAM analyst
Sherry Garber said DRAM prices have
declined by about $2 per 64-megabit unit since
early March. Compaq's poor results may put
further pressure on DRAM chips and
PC-related chip prices.
Feldhan said he is awaiting World
Semiconductor Trade Statistics numbers for
March, which may not be as strong as
expected. "It may be a stretch to get to 17
percent growth this year. The March numbers
will have to be pretty good to meet my target
for the first quarter," Feldhan said.
Semico said he predicts broadband networking
and digital consumer applications will lead the
industry to faster growth next year and in
2001.
Analyst Byrne, who tracks microcontrollers
and DSPs, said Dataquest is in the midst of
revising its forecast, which now stands at just
under 15 percent for 1999. But the first
quarter was tough for certain companies in
DRAM chips and PC-centric chips, with the
market for 8-bit and 4-bit MCUs "quite soft,"
he said.
At LSI Logic, part of the year-to-year revenue
jump was because of the acquisition of
Symbios Logic. And LSI's top line will grow
further once its $100 million acquisition of
Seeq Technology is approved, bringing
physical-layer (PHY) networking ICs into the
company's portfolio. Overall, revenue for
1999 is expected to exceed $2 billion, and LSI
Logic is aiming at a 20 percent operating
income goal.
Corrigan said he predicted second quarter
revenue would rise 5 to 6 percent, and that the
fourth quarter -- when digital still cameras and
other digital consumer products sell as
Christmas gifts -- will be "extremely strong."
Not By PlayStation Alone
Not long ago, LSI's fate was seen to ride on
one prominent design win, the Sony
PlayStation, and the company seemed one
PlayStation away from disaster. Executives
said the company's current growth is based on
success in diversifying across major markets,
with no one customer accounting for more
than 10 percent of sales.
John Daane, executive vice president for
communications, computer and ASIC
products, said once Dataquest finishes tallying
its numbers for 1998, LSI Logic expects to be
ranked as the leader in cell-based ICs for the
merchant market. The company's "Coreware"
approach to integration -- as contrasted with
full custom designs -- now accounts for about
30 percent of total revenue, and will rise to 50
percent by the end of this year.
Daane said LSI's rapid growth in
telecommunications, to several hundred
million dollars in revenue this year, is key to
the improved picture.
"In communications, we wanted to take things
one step at a time and not dilute our efforts,"
he said. "We had a good business with big
ASICs in telecom gear, growing 10 to 15
percent a year with customers such as Alcatel,
Siemens, Lucent and Fujitsu. Then we moved
to network ASICs and cores for ATM
controllers, and then to the Ethernet market."
The wireless business, which has doubled in
recent years, is the next big area, Daane said.
A CDMA chip set, which LSI has used in
Japanese field trials, is "difficult technology
but successful for us. The wireless team has
really done a good job."
Demand is such that Corrigan said this past
week LSI will prolong the life of its oldest fab
in Tsukuba, Japan, and continue
manufacturing there for a few months, then
shutter the facility later this summer.
Meanwhile, LSI is in the process of ramping
up production at the first fab at its 350-acre
campus in Camas, Wash.
Elie Antoun, in charge of LSI's digital
consumer IC business, said the company
enjoys a book-to-bill ratio of 1.2 for its digital
consumer solutions, and predicted DVD
player shipments worldwide will hit 5 million
to 8 million units this year after a disappointing
start.
LSI, which partnered with Sony in the design
of its DVD chip sets, is now producing its
third generation of the set, and will soon
release a two-chip version with a design kit for
the Chinese market, said Antoun, who ran
LSI's Japan operations for five years.
"When China happens, it'll be big," said
Corrigan.
To prepare for an unexpected shift in
business, Corrigan acknowledged LSI has
been in discussions with several major
foundries. In an astonishing display of
open-mindedness for someone so skeptical of
the intellectual-property-to-foundry model,
Corrigan said LSI could offload some of its
capacity requirements to a foundry that would
duplicate LSI's process. Conversely, foundry
partners might be able to use capacity at LSI's
new fab at Gresham if they run short of
submicron capacity, as Feldhan and others are
predicting.
Last month, the Gresham fab was processing
about 700 eight-inch wafers per week, with
plans to ramp up to 3,500 wafers. The fab
could process 5,000 wafers a week if extra
equipment is moved in.
Ronnie Vasishta, director of ASIC technical
marketing at LSI Logic, said the company's
0.18-micron process technology will be ready
for general release this summer, and key
customers are working on designs now that
will help fill out the Gresham facility.
The LSI managers expounded on a common
theme: that complex ICs cannot just be
thrown together by design teams that take
intellectual-property cores from others and
hope to send the design to some distant
foundry.
"You can't deliver something complex unless
you own the whole solution," said Vasishta.
"How do you get a 0.18-micron design
through a factory you don't own?"
Corrigan said he wants people to look upon
LSI as "a methodology company," in which
the essential elements -- tools, core design,
and manufacturing -- "are like a railroad track,
and we are all running on the same gauge."
But that doesn't mean LSI is trying to do
everything in-house. Corrigan disclosed the
company is working with SandCraft, in Santa
Clara, Calif., which is designing a MIPS
core for LSI that initially will be used in
set-top-box applications. Prototyping is
expected late in the third quarter, with
production set for the fourth quarter.
"We see that as our high-end CPU offering,"
Antoun said. "By mid-next year, it's a core."
The SandCraft design, a 350-MHz dual-issue
CPU, will be one of the lead products coming
out of Gresham, requiring 0.18-micron,
four-layer metal technology.
Outsiders agree taking complicated IP designs
to a foundry is difficult.
"It just doesn't work," said Handel Jones, an
analyst with IBS, in Los Gatos, Calif. If you
harden your intellectual property, he argued,
you can reduce implementation time 30 to 50
percent, increase chip performance 20 to 30
percent, and trim chip area by another 20 to
30 percent.
"LSI has had Coreware for six to seven years.
They know what it takes to embed these
blocks and come out with integrated
solutions," Jones said.
Distributed Engineers
Daane said to address the electronics engineer
shortage, LSI has expanded its distributed
engineering model, setting up design centers in
Minneapolis; Dallas; Boulder, Colo.; Tokyo;
and Bracknell, England.
"You go to where the expertise is," Daane
said. "By getting out of the [Silicon] Valley,
you can develop a very, very stable work
force." And he argued that system-on-a-chip
design is where many talented engineers want
to work, and stay. In Minnesota, LSI has lost
two people out of 125 over the past eight
years, he said.
But the idea of passing designs from one team
to the next has not worked out, Daane added.
"It's been tried a few times, and there are too
many obstacles to surmount," he said. "There
are cultural issues, and you miss the personal
interaction that makes a good design team.
You want to have all the people locally who
have the confidence."
Sometimes LSI will distribute a software
team, but even that is becoming less common
now that hardware/software codesign is
becoming a mainstream methodology. "We've
learned what works and what doesn't," Daane
said. "It's still a human endeavor, with people
talking to each other."
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A positive article for the industry and also LSI...
EKS |
