This is reprinted from the Cymer (CYMI) thread, and gives a very interesting picture of where the semiconductor equipment and manufacturing industries.
WRT Broadcom, I am interested in their manufacturing process. Are
they entirely fabless? If so, who does their foundry work? What kind of short and long term arrangements do they have in place?
Regards,
Doug
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Message 11079178
Andrew Vance
If I were a real devilish type person, I would call everyone to arms here to do what the "underbellies" of Silicon Investor's more notorious threads promote. When the shorters get out of hand, these guys tell everyone to pullback there shares and not to let them be lent out. Sorta a concerted effort to create a massive short squeeze and put a world of hurt on the dastardly people that would even consider shorting such a valiant stock. I just wish I need
what the offical instructions would be<GGG>.
I know, EVERYONE request certificates for your shares and pull the rug out from under the shorters. Nah, that wouldn't be nice, would it? Let CYMI run up fair and square and then watch those bozos belly up to the bar to cover. Actually, I wouldn't be surprised to find out that today's rally in CYMI might be a bit of short covering.
I hope everyone is smiling here these days since it has been a long time coming. Then again, my smile is locked in place since WFR has catapulted in price since we exited the contest<GGG>. Damn, my timing was off again<GGG>.
Actually, I am so elated that I would like to post part of today's issue of Radarview below for all that might be interested. This is not meant as a hype of the newsletter or a marketing gimmick, but rather to share a group of stories from this past month that were reprinted as a group, to paint a very rosey picture of what I believe we have in store for us over the short term.
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Excerpt from Opening Commentary of Radarview Vol 3-169
...Moving on, we have decided to present a reading exercise today as a means of presently a few pieces of a puzzle, all in one place and to provide a very concise set of comments relative to what we should expect in the semiconductor sector. As we come out of this downturn and into the recovery, one would expect that the tables would be turned for the better. After all, we should expect to go from a downturn "famine" to a recovery "feast". However, as we have stated before, the "feast" could create other types of problems and "famine."
We will present our observations now, in bullet format, and then follow these comments with an historical set of news releases over this past month, starting with the most recent information.
1. The recovery will have a few bumps in the road as companies compete for limited resources. These resources include plant, property, equipment, labor, commodities, and manufacturing capacity.
2. Commodities: the basic building blocks of all semiconductor devices, the silicon wafer, is experiencing growing demand and a possible issue keeping up with this demand.
3. Internal capacity expansions and new fab construction within the manufacturing sector will exacerbate wafer demand issues. This will create shortages, result in price hikes, and put Fabless semiconductor companies at risk.
4. As fabs fill up and available manufacturing capacity starts to dry up, the spot market prices for foundry services will rise. More importantly, as capacity becomes tighter, the ability to provide upside manufacturing capabilities disappears for these fabless semiconductor companies.
5. The fabless companies are now hit with a double whammy. Rising prices for manufacturing services and limited upside in manufacturing if their order rates jump. They have already negotiated pricing for devices and now could suffer margin degradation if they have to pay
more for serivces from their foundries.
6. As companies scramble to bring on more capacity and ramp up, they compete for personnel resources to operate the equipment and to maintain the Engineering processes. Finding personnel is not only difficult but it takes time to attract and train the new employees. This will constrain growth until these resources can be "productive."
7. Equipment: after existing capacity is ramped, which has been occurring since early this year, the next step is to expand within the confines of the existing facility and/or to build new facilities. Somewhere in all of this chaos is the need to ramp the advanced technologies that have yet made it to fully ramped production. This requires new equipment. The equipment providers now have to ramp to meet demand and run into the same types of resource issues, along with field service and technical support for the increases in orders.
8. The increases in equipment orders stretch out lead times and delivery schedules and creates installation issues as end customer resources are still dealing with day to day production issues and ramping of existing capacity, plus bringing new personnel on board.
9. Eventually, as we have seen so many times, lead times stretch out to unrealistic timeframes that can constrain expansion and new fab production implementation.
10. Plant and Property: a new fab can be brought on line in 14-24 months from the day the first earth mover comes in to break ground on that facility. This assumes that all up front work has been completed (Design, Material availability, Approvals from the appropriate governmental agencies, and available resources to do the actual construction). Bringing up new facilities takes time, as the cleanroom has to be certified, the equipment installed and qualified, and the process is installed, certified, and its products accepted by the end customer.
11. This has been the worst downturn in our history and the requirements for getting into a full-blown recovery will have companies competing for resources at almost every level.
12. We have stated that the first signs of a recovery will be seen at the foundry services first, followed by the in house domestic manufacturers. What is implied is that any issues or directions that they take should be indicative of what we will see throughout the industry as it recovers.
13. We see a chain reaction starting to occur. Existing capacity is drying up and there is a scramble to bring on more capacity through new construction, purchases of facilities, and by joint ventures. We are also seeing the tip of the "iceberg" as resources become scarce. First it was shortages of IC devices, as companies could not instantly ramp to meet renewed demand. Second was the drying up of the available capacity and the inability to restart some of the "mothballed" fabs. Then we started seeing the demand outpace the supply in certain areas. From there we saw the concerns over scare resources like wafers. From there we are now seeing the next logical step as price hikes start moving up the food chain.
14. We saw DRAM prices rebound first. Then we saw silicon shortages which prompted price hikes and put the industry on notice relative to growing wafer demand as supply became limited and scarce. Finally we are seeing available manufacturing capacity becoming a problem, followed now by the new price increases that are about to be announced by the foundries.
15. We have already seen most of the recent earnings reports out of the equipment sector and have seen orders rise over the past months (book to Bill) as these companies report sequential growth in orders and record bookings. We are close to the historic high point for Bookings and Shipping dollar amounts. We are also hearing reports that some equipment suppliers are selling all the equipment they can presently manufacture.
16. We also reported that we know of a few companies that have hundreds of openings for manufacturing personnel that still need to be filled.
17. As more and more companies reach full capacity and expand from there, pressure for deliveries from the equipment sector will get worse. When this happens, we will start seeing less discounts being negotiated for equipment and we might even start seeing some premiums
attached for service contracts and parts. We might even have price hikes as end users compete for the advanced technology equipment like DUV steppers.
18. We said this recovery would have a few bumps in the road and the following articles from the past month seem to paint an interesting picture as the dominoes start to get knocked over.
Conclusions:
We are entering a stage of this recovery where Fabless semiconductor companies fall prey to the mercy of those that provide manufacturing capacity. This will probably have an negative effect on future earnings until they can pass along these increases to their end customers. But more importantly, upsides in bookings for these companies might create issues with finding a place to manufacture those products. These companies have been scrambling for months to find and qualify other foundries to meet growing demand. Wafer Tech in the Pacific Northwest is one such example as well as the TSM joint venture in Asia. These services will not come cheap and it remains to see at Wafer Tech, how much capacity is going to be dedicated to the
3 US companies that are part of that consortium. Then again, remember that CRUS exited its relationships with both IBM (Micrus) and Lucent (Cirrent) that might be able to fill a void. However, the days of extra margins due to favorable foundry terms during the downturn, will almost assuredly disappear for the fabless companies.
Those companies that manufacture their own devices will be burdened with competing for limited internal resources with which to expand their businesses as external resources become an issue. We are not saying this recovery is going to falter, but when breathers can occur
(AMAT's missed expectations in bookings), it is actually a blessing of sorts, as long as backlogs are growing. We must be very observant of growing backlogs across the industry. If backlogs grow too fast, this might be indicative of the severity of the levels of scarce resources. We should also pay close attention to the improvements in gross margins relative to the degree of capacity utilization at every level. Finally, on the bright side, those companies that were brutalized during the downturn via price concessions should be able to recapture margins and improve their bottom lines as they increase prices back to historic levels. Even with a 10% hike in wafer prices, we must realize that prices fell as much as 40% during the downturn. This is probably the best case for a dramatic reversal of fortunes as the wafer producers run at full capacity and enjoy the benefits of having more demand than available supply. To make matters even more rosy, we believe that supply may not keep pace with demand as more of these new IC manufacturing come on line and as more fabs are built. The supply demand equation should favor the wafer supplier for sometime.
Finally, as you read through the stories, try to formulate a bigger picture beyond each individual story. We believe there is enough data here to convince even the most skeptical reader that there is a great deal more upside to be seen in this industry over the next few years. This is especially true if you just sit back and think of all the non PC type Ics that are going to be required in this wireless information global society.
August 25, 11:00 pm ET - Taiwan Semicon Hiking Foundry Prices
(Reuters) - Microchip giant Taiwan Semiconductor Manufacturing Co on Thursday said it was hiking some of its foundry prices to cope with rising demand. They are only raising foundry prices on certain products, according to Taiwan Semicon's public relations manager. Taipei's Economic Daily News on Thursday said Taiwan Semicon was hiking its foundry prices by 15 to 25 percent for all its clients. Taiwan Semicon, a global leader in made-to-order "foundry' chipmaking, had said that its cumulative January-July sales were up 19.6 percent from the same 1998 period. The firm's capacity was again fully utilized in July as a result of continued growth in the semiconductor industry, officials said. To obtain new capacity to cope with rising demand, Taiwan Semiconductor in June bought a 30 percent stake in Acer Inc's loss-making memory-chip unit, Acer Semiconductor Manufacturing, securing management rights in the process.
August 24, 1999 - The Fabless Semiconductor Association, representing approximately 10% of the chip industry, forecasts wafer consumption by its members to ensure foundry capacity availability. 1H99 actual consumption was 104% of forecast, 2H99 forecast was increased by 8%, and wafer consumption 1999 overall increased 6%. We view this information as a quantitative reflection of healthy chip industry business conditions.
August 17, 1999 - Wafer Demand Growing, Japan's Newer Metals Group Says
(TOKYO) -- The Committee of Silicon, a group under the Japanese Society of Newer Metals, said that Japan's production of single crystal silicon rose 6.8 percent in the April-June period. Sales increased 4.5 percent as compared with the same period in the previous year, the committee noted. Production grew 27 percent and sales expanded 19 percent compared with the fourth quarter of 1998, the worst quarter on record, the committee said. In early 1999, the committee predicted that both production and sales would increase 3 percent in the year. However, the actual results are likely to greatly exceed the forecasts.
Takaie Yoshizumi, chairman of the committee and general manager of the Sitix Business Unit of Sumitomo Metal Industries Ltd., said an increase of at least 8 percent-10 percent from the previous year is likely (this is his personal view). Yet, wafer makers' total sales growth will remain within a few percentage points of the previous year and these makers will be in the red for the second straight year, due to the significant fall in wafer prices. Wafer makers' investments in plant and equipment are drastically lower than they were a year before, the committee also said.
In 1998, wafer makers' total production was down 11 percent from the year before, to 3,772 tons and the total sales amount dropped by 9 percent, to 3,899 tons. The sector's revenues last year totaled 347.22 billion yen, a decline of 22 percent from those of 1997, and the total
ordinary losses reached 5.76 billion yen, the committee said. (114.89 yen = US$1)
August 11, 1999 - 200mm Wafer Input Hits All Time High; Concern Over Short Supply
(TOKYO) -- Input of 200mm wafers at semiconductor makers worldwide hit an all-time high in April for the second consecutive month, according to a Nikkei Market Access survey. At the same time, wafer supplies are becoming tight. Contrary to the rebounding wafer input, wafer makers' production capacity has been declining because of manpower shortages and intensifying requirements for precision technology. Shipments have reached the limit of the output at present. The 200mm wafer input slumped in 1998 after achieving a new high in October 1997. Wafer makers then engaged in price competition to keep their production lines operating. Wafer prices dropped about 40 percent in 1998. Restructuring spread among wafer makers from the second half of 1998 to early 1999 to tackle the deteriorating business results. Also, intensifying market requirements for wafer flatness to cope with process technology innovations have reduced wafer yields.
Wafer input recovered in 1999 thanks to growing demand for LSIs for use in mobile telephones and other products. However, production capacity of wafers has been declining because wafer makers can increase neither manpower nor manufacturing equipment. Wafer makers
cannot afford to invest, and the prospect of improvement in production capacity is still uncertain. Worldwide concerns about the shortage of wafers and semiconductor chips will grow until wafer makers have started their next round of investments. Appropriate allocation of
wafers on a worldwide basis will become necessary to cope with the problem that the production of microprocessors will cause a shortage of wafers for other semiconductor chips.
The shortage of wafers with a diameter of 150mm or less is more serious. Production lines that can handle these wafers are being phased out. In addition, to raise profitability, wafer makers are transferring manpower to production lines that can handle larger wafers. The prices of small wafers are rising in some regions. In the wake of that, negotiations already have started to raise the prices of 200mm wafers.
August 7, 1999 - Japan Silicon Wafer Makers Plan 10% Price Hike TOKYO (Nikkei)--Japanese silicon wafer producers plan to raise domestic shipment prices by around 10% from October - the first rise in three-and-a-half years, according to the Sunday morning edition of the Nihon Keizai Shimbun (Nikkei). The newspaper said rising demand from makers of personal computers and cellular phones was behind the decision to lift prices. Shin-Etsu Handotai Co., Sumitomo Metal Industries Ltd., Mitsubishi Materials Silicon Corp. and other major companies will soon start price negotiations with semiconductor producers.
Demand has increased since the spring. Monthly global demand for 200mm silicon wafers, the main product, reached a record 3.3 million units in June, 32% more than the monthly average for 1998, industry officials said. The wafer's price has fallen 30% in the past three years, to around Y10,000 per unit, amid softening semiconductor markets. Japanese producers have a 60% share of the silicon wafer market, the Nikkei said. But recent restructuring has left few opportunities to increase production. The market will likely further tighten in the fall as demand usually increases ahead of the Christmas shopping season.
August 5, 1999 - UMC to upgrade Nippon Foundry fab, double output by year's end HSINCHU, Taiwan - Silicon foundry supplier United Microelectronics Corp. here plans to spend more than $200 million to upgrade the wafer fab it acquired in Japan last year from Nippon Steel Semiconductor Corp., according to UMC President H.J. Wu. The investment is part of expansion plans announced recently. At that time UMC president Wu said UMC is installing quarter-micron processing at the 8-inch fab in Chiba, Japan, which will be used to service logic and memory foundry customers. UMC has renamed its Japan operation Nippon Foundry Inc. UMC said it hopes to double chip output from Nippon Foundry fab by the end of the year. The Nippon Foundry investment is part of $1 billion budgeted in 1999 by UMC for capital spending in all of its fabs.
August 4, 1999 - Wafer Suppliers Struggle to Cope with Higher Demand
TOKYO (EE Times) - Brisk semiconductor sales have raised requirements for wafers and demand is now approaching production capacity, but wafer manufacturers claim they have no money to increase production capacity. "The demand for 8-inch wafers worldwide has reached about 3.3 million units per month in June and July, according to our estimation," said Takaie Yoshizumi, vice president of Sumitomo Metal Industries Ltd. and acting chairman of the silicon committee of the Japan Society of Newer Metals. "The 3.3 million units is almost equal
to current 8-inch wafer production capacity."
Eight members of the silicon committee - MEMC, Komatsu Electronic Metals, Shin-Etsu Handotai, Sumitomo Metal Industries, Toshiba Ceramics, NSC Electron, Mitsubishi Materials Silicon, and Wacker Chemicals East Asia - supply over 90 percent of world's wafers. Two
other members, Tokuyama and Mitsubishi Materials Polycrystalline Silicon, are poly-silicon manufacturers.
Most manufacturers in the wafer business ran in the red last year because of declining wafer prices, and Yoshizumi said the companies will probably continue to be in the red this year. "In these circumstances, investment on production increase is impossible," he said. "It will be used mostly for upgrading the lines to cope with semiconductor manufacturers' rapid shift to finer process."
While supplies of 8-inch wafers are getting tight, the supply of smaller platters such as 6-inch wafers is even more severe. "Manufacturers are closing smaller wafer lines and shifting employees to 8-inch wafer lines," Yoshizumi said. "The production of smaller wafer is decreasing and demand is now surpassing supply."
August 2, 1999 - Silicon Integrated Systems Sets Up Wafer Manufacturing Unit
(TAIPEI) -- Silicon Integrated Systems Corp. recently established a wafer manufacturing unit that is slated to begin production on a trial basis in February 2000. The new unit is expected to employ 130 engineers by the end of December.
The company's eight-inch wafer plant is scheduled to begin production on a trial basis in February 2000. With the addition of that plant, the annual sales of Silicon Integrated Systems are projected to reach US$1 billion by 2002. Silicon Integrated Systems began building the
eight-inch wafer plant in October 1998. Most of the construction was completed earlier this month. Equipment installation is expected to be completed in November. The new plant will mainly use 0.25-submicron manufacturing know-how. Equipment installed at the new plant will
be capable of manufacturing at the level of the more advanced 0.18-micron technology. Silicon Integrated Systems plans to have 700 employees by the end of the year, and the company intends to transform itself into a developer of Internet-related products.
Silicon Integrated Systems is optimistic about its prospects for the second half of the year. But it remains cautious on earnings, citing pressure of more price cuts and pressure on OEM prices. Hsinchu-based Silicon Integrated Systems registered shipments of 1.5 million to 1.6 million units in June and it is expecting a record performance in the fourth quarter.
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Over the past month, readers were presented with above stories and we built upon each story to fortify our resolve that the directions we were taking in the market were correct. For those that want to do some background research to prove for themselves that the samll investor in
empowered when presented with good information, track the price of WFR by the dates of these stories. You will find that opportunities in the $14.50 to $16 buy zone range was still available after these stories were printed. Fortunately, most of the shares purchased by the readers were in the $8-$12 range, going back to April-May. Not a bad return for a stock we have been obsessively compulsive about. Then again, as you are all aware here, we all have been the same when it came to CYMI during the timeframe and we now have today's 52 week high close to smile about.
BTW - on 7/07 we printed our 1 yr price target for CYMI @$75. We are almost half way there. And believe me, I still think $75 was way too conservative. On 7/07, CYMI closed the session at $24.63, so a $75 target was still a tripling of value. This means that CYMI is up 50% in less than 2 months. Not too shabby for all of the diehard, but wise CYMI investors here.
Andrew
AV |
