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To: Mr. Aloha who wrote (470)	4/13/1998 11:21:00 AM
From: Paul Dieterich	Read Replies (1) \| Respond to of 582

Intel to cut back-end semi equip expenses, but places heavier emphasis on move to .18 and lower: Intel's fab cuts surprises industry By Jack Robertson SANTA CLARA, Calif.--Intel Corp. here amazed industry analysts by making a quick midcourse correction in fabs to cut production costs for its new Celeron low-priced Pentium II version. As part of the cost-cutting, Intel canceled or delayed major fab equipment orders totaling as much as $100 million with up to five vendors, according to industry reports. Analysts attributed the cuts to a quick switch to manufacture a profitable Celeron chip, not to any slowdown in microprocessor production. Analysts said Intel recently canceled some $30 million in orders with Kulicke & Soffa, Willow Grove, Pa., for 155 unique advanced wire bonders that the vendor was building solely for the microprocessor giant (see April 3 story). They added that the firm was only one of several Intel equipment suppliers that had received order cancellations this month. K&S officials would only confirm that a major customer had canceled the $30 million order for bonders. Morgan Stanley & Co. reported that the K&S cancellation was triggered by Intel's decision to use equipment already installed in its fabs. Other analysts said this was part of Intel's quick-change strategy to cut production costs for Celeron, and probably other chips as well, by extending the life of existing gear. "As a scaled-down Pentium II processor, Celeron doesn't need the next-generation production equipment Intel has been buying," said Byron Walker, analyst with Alex. Brown & Son, of New York. Intel is expected to scale back its 1998 capital equipment budget by several hundred million dollars from the originally projected $5.3 billion, according to a consensus of Wall Street analysts. That would still leave Intel's semiconductor capital spending in the $5 billion range-more than two-and-a-half times the investment of the next closest chip investor, Motorola Inc., which is expected to spend $2 billion in capital investment. An Intel spokesman declined to comment on any aspect of the reported equipment-strategy changes. If the firm adjusted its 1998 capital spending budget, any changes would be announced on Tuesday as part of Intel's quarterly financial report, he added. G. Dan Hutcheson, president of VLSI Research, San Jose, said he was "amazed at how fast Intel was able to adjust production to lower costs" in making the lower-priced Celeron chip. "Giant companies usually can't react as quickly," he said. "When Intel saw the surprisingly strong growth of the sub-$1,000 PC, they moved immediately to change production strategy to make Celeron at a competitive price." Intel's two-year delay in its projected new fab in Fort Worth, Tex., announced last month, also will cause some cuts in the 1998 capital spending budget-although the peak of equipment spending for the Fort Worth fab would have come next year (see March 27 story). The delay in Intel's acquisition of the Digital Equipment Corp. fab in Hudson, Mass., also is slipping some capital spending this year. Intel had projected some $700 million for upgrading the Hudson fab to state-of-the-art 0.25-micron wafer production (see Oct. 27, 1997, story). At the same time, Intel will invest heavily to install a next-generation 300-mm wafer pilot line at its development fab in Hillsboro, Ore., expected to come on line next year. Unlike the economy-priced production strategy for Celeron, the new line requires totally new, leading-edge systems to make the larger-size wafer. Intel is also investing heavily to ramp up for next-generation 0.18-micron feature-size processes as quickly as possible. The 64-bit Merced microprocessor, to be introduced next year, initially will be made on 0.18-micron lines and quickly migrate to 0.15-micron process technology. Intel hopes its new leading-edge processing--well ahead of anyone else's in the industry--will give the firm a competitive jump over its MPU clone rivals.