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Technology Stocks : IDTI - an IC Play on Growth Markets -- Ignore unavailable to you. Want to Upgrade?

To: Darrell D. Conrade who wrote (4764)	11/17/1997 7:51:00 AM
From: Harold Engstrom	Read Replies (1) \| Respond to of 11555

The theory here is that IDT doesn't have to build a new facility to make the C6. It is already carrying most of the fixed costs of producing the C6 and is breaking even when its traditional revenue source is very low margin (sram). When adding more high-margin components to the Hillsboro facility, the theory is that profits should soar. The simpler chip should ensure that yields are far higher than competitors with 2-3 times the number of transistors per chip. The smaller die size should make the cost/chip much lower as well. The small centaur team supposedly is making use of clear-logic technology and reducing its R&D and turnaround time on designs - so they should be able to stay near the leading edge. Clear Logic itself should add a great deal of value to IDT (has anyone heard anything about this since the announcement?). My only blind spot is the whole rest of the industry - how does IDT currently stack up in terms of technology, production capability, diversity of products, exposure in the marketplace, etc...?

To: Darrell D. Conrade who wrote (4764)	11/17/1997 12:31:00 PM
From: Rob S.	Respond to of 11555

Darrell, you bring up some worthwhile distinctions. First off, the market for MPUs has matured and it is harder for Intel to use their manufacturing and design muscle to corner the entire market. This maturation is due to the fact that MPU performance is increasing only marginally over previous generations. The highly successful MediaGX introduction is due to it's excellent design characteristics and also to the fact that "enough is enough" as far as consumers needs for performance are concerned. The Compaq Presario 2000 series are "acceptable" rather than sterling products as far as performance is concerned. What sets them apart is that they are "total system designs" -that is that these PC systems were designed from the "ground up" to be sub $1,000 PC products. Marginal performance differences isn't the major issue for this expanding market but ease of use, reliability and low cost of manufacture and end price are. Cyrix worked very closely with Compaq to deliver on that set of requirements. "Why do Dell, Gateway, Compaq, etc. have better earnings . . ." Simply put, these PC players control their markets, IDT, Cyryx, and AMD don't. The perceived value of buying a product from one of the large PC companies is that they can be better trusted to deliver reliable products and service and they tweek all the "warm and fuzzies" that marketing people strive for. Intel has great margins because they conrol their markets (85% of MPU market) and they have saturated consumers thinking through mass advertising that no competitior can yet hope to match. They also ride the wave of their market hegemony by paying back a significant part of every MPU sale to the PC manufacturers in the form of co-op advertising and promo budgets. Things are changing. The market is becoming much more fractured and oriented toward the networking, intranet/internet and consumer applications rather than the previous waves of "fatter and fatter" PC architecure and software (WINTEL) platforms. The enabling pradigms are increasingly to be better suited to the application rather than fatter, feature rich at the sacrifice of refinement and task oriented. IDT's C6 and MIPs derivative chips are commodity products. IDT does not, for the most part, control their markets to near the degree that Intel or the PC giants do. Few end buyers know, or care that hte IC's inside the products have a stamp that says IDT, Wintel, or other IDT trademark. Hopefully, IDT senior management management will shift some it's thinking toward "total systems solutions" to help OEMs better enable new product categories and product entries to capture and control new markets. For now, there are plenty of opportunites for the C6 to fit into exisiting sockets and gain relatively easy design wins. The challenge is to gear up production and produce the parts with high yields. What has prevented Cyrix and AMD from making money in the MPU business was partly their need to break down the psychological gridlock that Intel cast on the PC industry, and a lot to do with being able to produce parts with reasonable yeilds and, therefore, manufactured cost. AMD has only sold a couple million K6 because they have had severe yield problems brought on by the huge die size and complex fabrication processes - 155 sq. mm at 5 metal layers. Cyrix's M2 isn't much better, I think it's at 135 sq. mm at 5 metal layers. The C6 is at only 88 sq mm at 4 metal layers and 0.35 micron fabrication rules. The difficulty of yielding good IC die is a gemoetric relationship - roughly the square of the die size. Not taking into account the simplified manufacturing processes IDT claims for the C6, the yields should be about 4 times that of either the K6 or the Cyrix 6X86MX parts! For several quarters, IDT will be a commodity player in huge and high growth market segments of the PC industry. You can't realy compare them to Intel except from a technical sense. But having the lowest cost (still not proven at this point) of manufacture in markets that increasingly want the most bang for their buck is not a bad place to be. Now it's up to IDT to show investors that they can "Walk the Talk" and "Show investors the Money". We need to see results in manufacutring ramps, yields, and profits before the stock is going to move much.