STMicro Takes on Silicon Valley Chip
Makers
By Catherine Bremer
AGRATE, Italy (Reuters) - As a litany of profit warnings illustrate chip
market woes, STMicroelectronics -- the only European firm to take on
U.S. semiconductor giants -- is seizing on its edge in flash memory to
step up its challenge.
While PC-focused rivals grapple with inventory corrections and slow
sales, Franco-Italian St. is cranking up output of flash memory chips,
used in mobile phones and other electronic gizmos, and is investing to
develop ever smarter customized chips.
Flash memory -- which differs from the DRAM memory in PCs as it
stores data even when power is switched off -- holds massive potential
as a key component for a host of handheld devices from personal data
organizers to digital cameras.
Not content with being European leader or with its rise to world number
seven in the industry last year from ninth place in 1999, ST's bubbly
Italian CEO Pasquale Pistorio says he wants to be a top three global
player.
That means keeping ST's edge over industry giants like Intel
in flash memory and in system-on-chip devices which can be
tailor-made for computerized car systems, mobile handsets, TV set-top
boxes, smart cards and similar gadgets.
``We have four percent of the world market and I think we can certainly
gain another percentage point before 2007,'' Pistorio told reporters at
the inauguration of a new 8-inch (200 mm) silicon wafer plant and R&D
center worth $1 billion, near Milan.
``This is about having cutting edge research next door to production
facilities,'' Pistorio said, with a flash of his broad, trademark smile.
``We've shown we can gain market share when the market is going well
and when it is going badly. I'm convinced we can keep on doing better
than the market.''
While ST's rivals are equally determined to cling onto their market
share, the firm's partnerships with powerful clients like Nokia and
Hewlett Packard give it a strong footing.
``Everyone's going to invest in flash memory but St. has every reason to
be optimistic. It got ahead by investing early in the right areas and its
strategic partnerships with market leaders like Nokia means it should be
able to gain market share,'' said analyst Eric de Graaf at ING Barings in
Amsterdam.
SHREWD St. SPARKS TALK OF ``ETNA VALLEY''
The new plant, or fab, at Agrate will boost flash memory capacity by at
least 50 percent by 2002 and underscores ST's conviction that the
future lies in mobile consumer electronics from online car gadgets to
all-purpose handheld computers and not PCs.
The push for lighter, smaller appliances demands tinier, more powerful
chips but deciding which technologies to invest in is fraught with difficulty
as such markets can change tack fast.
Sicilian-born Pistorio turned heads in Silicon Valley, even sparking talk
of an ``Etna Valley,'' after he bet a decade ago that demand for
cellphones would overtake personal computers.
``We certainly have the good weather, the beautiful people and the brain
power to match Silicon Valley,'' Pistorio quipped.
Backed by a realm of industrial partners, St. has poured cash into
developing ``systems-on-chips'' which pack microcontrollers and
processors onto a single silicon sliver, giving it an edge in integrated
chips for complex appliances as larger U.S. and Asian rivals
concentrated on mass-production of standard chips.
At ST's Agrate plant engineers enveloped in head-to-toe bodysuits
work under yellow light and in air 10,000 times cleaner than an
operating theater to etch grooves of 0.18 microns -- 100 times thinner
than a human hair -- into silicon wafers, enabling memory chips of up to
64 Megabits.
The narrower the linewidths -- effectively the grooves down which
electrons flow -- the more complex operations can be packed onto a
single chip. Wider, 8 inch (20 cm) silicon wafers mean more chips can
be produced per wafer than with 6-inch diameters.
So far, chip makers, who once balked at going below one micron, have
defied belief and kept good pace with Intel founder Gordon Moore's
1965 forecast that the power of a chip, measured by how many
transistors fit on it, would double every 18 months.
``With today's linewidths we're already talking about the length that a
human hair grows in one second,'' said ING's de Graaf. One option to go smaller is to use ultra violet
rays for etching, as normal light wavelengths used by today's photo lithography machines are too wide.
St. aims to go beyond 0.18 micron technology to reach 0.13 and 0.10 microns by 2004 and predicts
that by 2014 it will be able to etch circuit lines just 0.035 microns thick -- 0.000035 of a millimeter --
enabling memory power of 4.0 Gigabits.
``U.S. chip makers have pretty straightforward products but they're diversifying so there's a lot of
pressure to keep our performance up, to get smaller, faster and more efficient in terms of energy
wastage,'' said one senior research scientist.
Like a scene from a futuristic movie, clean room engineers, with only their eyes exposed, tread a floor
that rests on subterranean pillars to cut out vibrations and which is perforated with millions of holes that
suck away the air to be filtered some 10 times each minute.
``The atmosphere is pretty intense in there, the pressure is on. Maybe it's a culture thing that Europe is
ahead in mixing lots of functions on one chip,'' the research scientist said.
St. STILL BETS ON H2 MARKET PICK-UP
ST, formed in 1987 from a Franco-Italian merger, kept calm in February as peers like NEC, Philips,
Texas Instruments and Toshiba cut 2001 outlooks.
However it joined a flurry of sector downgrades in January, cutting its forecast for 2001 chip market
growth to 8.0 percent from 25-30 percent and predicting its sales would dip nine percent
quarter-on-quarter in the three months to end-March.
Yet St. is confident it can beat market woes and sees today's downturn, put down to inventory
build-ups, over by the third or fourth quarter of this year.
ST's growth has outpaced the industry average since 1987 as its markets include the stable auto sector
and excludes the flagging PC market, aside from peripherals like printers.
St. forecasts its own markets will grow 15 percent this year, but analysts are hawkish after handset
makers, including Nokia which accounts for over half ST's mobile telecom sales, halved forecasts for
2001 market growth to under 20 percent.
Flash memory should still outpace other semiconductor markets this year and in the coming years,
however.
St. expects its flash memory output to double this year after tripling in 2000. ``This year there is a very
strong slowdown so we only expect to double flash memory output,'' Pistorio joked.
The Agrate plant is turning out 2,500 silicon wafers per week, and capacity is due to reach
4,500-5,000 wafers by 2002, which will be around 30-40 percent of ST's total flash memory output.
Far from sitting back on its laurels, ST, which typically spends 3-4 percent more on R&D than the
industry average and invested 13 percent of sales last year, is forking out $1.5 billion to build another
8-inch wafer fab at Catania in Italy.
``ST's strategy is to always have a new fab built and ready so that the minute we detect a market
pick-up we can switch on the machines and go,'' a company spokeswoman said. |
