Intel cuts $1 billion from 2002 capex due to 300-mm efficiencies, says CFO
Some analysts believe budget was lowered to protect gross margins
By J. Robert Lineback
Semiconductor Business News
(01/16/02 12:22 p.m. EST)
Intel Corp. surprised many analysts by lowering its capital spending in 2002 plans by nearly 25% from last year's record $7.3 billion. However, the chip giant believes it can get more bang for the buck in 300-mm wafer fabs vs. new 200-mm plants, and during a conference call on Tuesday, Intel executives said the $5.5 billion budget is equivalent to more than $6.5 billion if the company were equipping only new 200-mm (8-inch) fabs.
In the emerging 300-mm wafer era, Intel believes it can put a greater percentage of its capital spending into fab tools and systems while earmarking less money for plant buildings, said Andy Bryant, executive vice and chief financial officer at the Santa Clara, Calif.-based company.
He told analysts that the reduction in capital spending from 2001 was a result of greater efficiency in 300-mm fabs and the "timing of fab technology cycles." Bryant said, "For Intel, a 300-mm world will be a more capital efficient one--which means less capital for each unit of output."
"The capital spending for 2002 would have been in excess of $6.5 billion if we had not transitioned to 300-mm wafers," he told analysts on Tuesday after the company reported better than expected sales of $7.0 billion and a net income of $504 million, including acquisition-related charges, for the fourth quarter of 2001 (see Jan. 15 story).
For the past couple of months, analysts have been debating how much capital spending would be planned by Intel in 2002. Most were anticipating a slight decrease, to around $6.5-to-$7 billion, but some estimates placed the budget as low as $4.5 billion.
Intel "disappointed" the consensus on Wall Street by setting its 2002 capital spending at $5.5 billion, which was $1-to-$1.5 billion below market expectations, according to analysts tracking the struggling semiconductor equipment industry at Goldman, Sachs & Co. in New York. "We believe that the $5.5 billion capex estimate reflects Intel's concerns about their gross margins," said a newsletter to Goldman Sachs subscribers today. The brokerage firm said it believes Intel most likely received more equipment that originally planned in 2001.
In releasing its 2002 spending plans, Intel said it spent a little less than its original $7.5 billion capex budget in 2001.
But Bryant told analysts that the company's huge budget last year has put it into a position to begin shipping the first products from 300-mm wafers in Q1. About half of the $7.3 billion was spent on fab equipment in 2001. In 2002, about half of the $5.5 billion is now earmarked for fab equipment, with the largest portion being 300-mm tools, he said.
"Certainly what we have been doing with $7 billion last year is to try and make sure we have the ability to respond to an upside [in demand in 2002]," Bryant told analysts while fielding questions.
The year of 0.13-micron
Last year's capital spending also equipped Intel's fabs for the transition to 0.13-micron copper processes, which are now being introduced across the company's microprocessor and chip-set portfolio. Intel's planned ramp of 0.13-micron processes target about 50% of its products in the company's Architecture Group by the middle of this year, said Paul Otellini, executive vice president and general manager of the group.
But 2003 will be the big year for Intel's migration to 300-mm processing after beginning the ramp this year. "We don't see a significant portion of the output on 300-mm in microprocessors in 2002," he told analysts on Tuesday. "The bulk of that conversion and the cost impact of that conversion really starts to happen in 2003."
In 2002, about one-third of Intel's capital spending will be used on buildings, but that total is about $1 billion less than last year, according to Bryant. Around $2.75 billion will be used for fab equipment, and about $1.8 billion on "bricks and mortar," with the rest going for chip-assembly, test, and engineering systems, the CFO told analysts.
He said Intel would most likely not try to convert any of its flash memory fabs to logic products, which are currently running close to the company's installed capacity. Intel used to be able to covert its memory fabs to microprocessors and other IC products, but with 0.13-micron copper processes now being used for logic, flash plans are "not as fungible as it was," Bryant added.
Intel is currently not banking on an economic recovery in chip markets during the first quarter, but it does expect to see seasonal trends slightly reduce its revenues--from sequentially flat to down about 8%, said the CFO. Analysts questioned whether the low side of the guidance was too conservative, if Intel believes only seasonal factors will lower Q1 sales from the fourth quarter of 2002.
"I really think we have given you a pretty good estimate, assuming nothing happens in the economy," Bryant responded. "The only thing that would cause me to think differently is if I believed the economy would somehow change underneath us in the first quarter. There are no signs of that right now." He indicated that a recovery could start as soon as after the second quarter, but the chief financial officer would not give an estimate for Intel's 2002 revenues.
"There are just too many variables," he said. |
