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To: Alastair McIntosh who wrote (14172)	5/29/1998 12:17:00 PM
From: Andrew Vance	Read Replies (1) \| Respond to of 17305

AV--IDTI does not have any major production problems (ala yield issues similar to AMD) and is travelling down what I consider to be a normal yield curve for new devices. Your comment about a quick ramp up if they get a large OEM order has some validity. A good rule of thumb that I like to use is 12 weeks from wafer start to product delivery. This factors in both manufacturing and assembly cycle times but does not include working the order into production which is called the starts queue. The starts queue runs anywhere from 0-6 weeks normally. Given the condition of the industry, I would estimate that many of the fabs are being underutilized. Therefore I think we can assume the queue time is close to zero. Given the above assumption, any large order for IDTI will result in one quarter's worth of deleivery offset and revenue recognition. A large order would probably require close to 4 weeks to work into the production area to prevent creating a bottleneck within the facility. this is true for the majority of all wafer fabrication areas. Even if a fab were totally empty, you would not make all the starts at once but would stagger them to allow for a smooth flow through the 400+ process steps they must traverse. Where IDTI may be running into trouble is their overall capacity in place. I once explained that the Oregon facility was a risky proposition that may not have been timed as well as it could have. They built a building shell of 100 square units (relative numbers are being used) but only fitted out 50 units worth, leaving the rest as "warehouse" space. Of the 50 units they fitted out for the wafer fab, they facilitized and brought in equipment that filled up 25 of the 50 unit's worth of space. So at the beginning this facility was running at roughly 25% of its designed capability. This, of course, was done just as the last industry downturn have occurred. This was one of the reasons for IDTI's 8 quarters worth of "pain". However, INTC is known for expanding during downturns in order to come out of it real healthy. This was not IDTI's intention but they did find themselves in this type of situation. With the transformation of this company and new product and design library introductions, the manufacturing area did ramp up. It seems to me (and I am still trying to verify) that they completely filled the first 25 units of fab since a comment was made 2 conference calls ago that they could have shipped all the CPUs they could make. We also heard they were bringing in new equipment and would be ramping the WinChip in Oregon. This meant that they were probably bringing in and ramping up the other 25% of the original fitted out wafer fab. I think this first 50% is getting real close to being at full capacity and that work is now being done to bring part of the remaining 50% of the full facility on line. Unfortunately, I have not been able to get as much feedback as I would like as to what is happening with this remaining chunk of the building. This space can be brought on line in relative short order considering existing industry conditions. Equipment leadtimes are also at an all time low point allowing for faster implementation and ramp up of a new fab area. IDTI is well positioned to meet the growing demand effectively. Over the course of the past 10 quarters IDTI has re-engineered their company and have redefined it to a point where they are a more technologically advanced business entity as well as a state of the art world class manufacturing operation. From manufacturing capability to design libraries and device portfolio, they successfully "re-invented" their company where it will produce competitive products that will be in great demand in the years to come. They also have a "shell" that is ready for expansion that, theoretically, could close to double their present capacity. Finally, we should not forget that any real fast upside in WinChip orders can be efficiently handled via their relationship with IBM for second sourcing the device. IDTI loses a little bit of margin by having to use a foundry service but they at least can meet the market demand head on. BTW-if any of the readership here works for IDTI or knows someone who works for IDTI in Oregon, you might inquire as to what % of the building is now converted to Fab space and at what capacity the existing fab area is running. Neither piece of information should be proprietary. Andrew