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To: jim kelley who wrote (46613)	6/7/1998 9:47:00 PM
From: VICTORIA GATE, MD	Read Replies (3) \| Respond to of 176387

jim kelley we may able buy more dell next week at hi 70 NSDQ100 JUN98 1208.50A -300 Sunday June 7, 4:42 pm Eastern Time Worldwide semiconductor slump to last another year By Kourosh Karimkhany PALO ALTO, Calif., June 7 (Reuters) - The two-year-old worldwide semiconductor slump may drag on due to the Asian financial crisis, lackluster personal computer demand and a worldwide glut of memory chips, industry analysts say. It now appears that the $140 billion worldwide semiconductor industry will not return to its historical annual growth rate of 17 percent for at least another 18 months, experts said. ''It's going to be 1999 or 2000,'' said Mark Edelstone, analyst at investment bank Morgan Stanley Dean Witter (MWD - news). ''It's not going to be this year.'' Some market researcher firms had expected modest growth in 1998 and a big jump in 1999. Those forecasts have been trimmed in recent weeks. Last week, the Semiconductor Industry Association said it expected global sales of computer chips to drop 1.8 percent to $134.6 billion in 1998, largely because of Asia's economic woes. As if to prove the point, the day after the chip forecast came out, Motorola Inc. said it might report a loss in the second quarter because of disastrous chip sales and will lay off up to 15,000 workers in an attempt to cut costs. Other semiconductor companies also have had sobering news in recent weeks. Intel Corp., the world's biggest chip maker, has said it does not expect revenue to increase this year and that it plans to eliminate up to 3,000 jobs. National Semiconductor Corp plans to lay off 1,400 people. Applied Materials Inc., the biggest equipment supplier to the industry, is offering voluntary severance packages. Still, some executives say the industry could recover quickly because of the world's ravenous demand for electronics. ''It's not that bad,'' compared with previous downturns, said George Scalise, president of the Semiconductor Industry Association in San Jose, Calif. Consider what happened last time. Worldwide chip sales plunged 35 percent in 1985 during a vicious international price war and a dropoff in PC demand. This time around, demand remains relatively healthy. Unit shipments of all types of computer chips are up substantially. The trouble is, overcapacity and falling Asian currencies are forcing semiconductor producers to slash prices. Memory chip sales, for example, totaled $40 billion two years ago. Even though the number of memory chips has increased since then on rising computer sales, revenue has collapsed to $20 billion, said Dan Carracino, a partner at American IC Exchange, a commodities firm that trades semiconductors. ''The contract price of a 16-megabyte DRAM (a common memory chip) was $50 in 1995,'' he said. ''It's now in the $2 range.'' Even though some companies have been mothballing chip factories, chip production is increasing because of more efficient manufacturing, Carracino said. And American companies have to compete against Asian producers like Korea's Samsung Electronics. As Asian currencies collapse, Asian products become less expensive on world markets without hurting their companies' profits. ''The memory chip market has gotten even worse than what even the most pessimistic people thought,'' said Nathan Brookwood, an analyst at industry researcher Dataquest. Then there is trouble at companies like Intel and Motorola. Both misjudged the speed of technological advance. Intel, for example, underestimated the power of its own microprocessors. Even its low-end chips, which appear in PCs that cost $1,000 or less, are powerful enough to run all but the most sophisticated software. It cannot sell enough of its high-end chips to keep its profit margins fat. And Motorola, which makes most of its money from wireless phones, pagers and telecommunication infrastructure, misjudged the popularity of a new generation of digital cellular phones and the back-office equipment that makes them work. Now it is stuck with unused inventories of chips for its older products. Sunday June 7, 5:21 pm Eastern Time FTC suit against Intel said to be flawed By Therese Poletti SAN FRANCISCO, June 8 (Reuters) - The government's anticipated antitrust lawsuit against Intel Corp. -- expected to focus on the chip giant's practice of withholding its intellectual treasuresfrom some computer makers -- will probably be flawed, analysts say. On Monday, the Federal Trade Commission is expected to file a lawsuit against Intel alleging the world's biggest chip maker abused its microprocessor monopoly power to bully other high-tech companies. The microprocessor is the heart of the personal computer. The core of the FTC case is believed to be instances in which Intel stopped supplying certain customers with proprietary data about its chips because its licensing agreements with these customers -- notably Intergraph Corp. and Digital Equipment Corp. -- went awry. Workstation maker Intergraph has filed an antitrust lawsuit against Intel because Intel cut off its supply of information about future products when Huntsville, Ala.-based Intergraph sued it for patent infringement. A similar set of events occurred with Maynard, Mass.-based computer maker Digital, but Intel and Digital settled their dispute. Intel has argued it had to protect its intellectual property -- its designs for chips that are at the heart of over 80 percent of the world's personal computers -- from legal foes. ''If the disputes are contained within that relationship, they have no significant competitive impact,'' Richard Gilbert, an economics profressor at the University of California at Berkeley, said in a recent interview. ''The conduct that is alleged is not unusual in a licensing arrangement. The question is whether it affects competition generally, and I have not heard anyone make a good case yet.'' Intel is expected to argue that individual transactions with its microprocessor customers have not harmed the competitive landscape and that its customers are free to buy the chips from its rivals -- Advanced Micro Devices Inc. and Cyrix, a National Semiconductor Unit -- as some do. But Intergraph said in its lawsuit against Intel that the company's actions were a serious threat to its core business. ''If you are protecting intellectual property, how is that monopolistic?'' said David Wu, an analyst at ABN AMRO. A spokesman for the Santa Clara, Calif.-based chip giant declined to comment on the impending FTC action. One issue also expected to come up is the definition of a monopoly. While Intel does not deny it has a dominant position in the marketplace, it is expected to argue it is not a monopoly because it does not control prices. The FTC will try to show a pattern of behavior that is abusive of monopoloy power, and the agency is likely to allege Intel does control the market through its technology, which is a standard in the PC industry. Intel chips and Microsoft Corp.'s Windows operating system software form the ''Wintel'' combination found in the vast majority of PCs. The FTC is also looking at Intel's intervention in a 1995 lawsuit Compaq Computer Corp. filed against rival PC maker Packard Bell. Intel came to the aid of Packard Bell, signaling to Compaq, one of its biggest customers, that if it sues Packard Bell, it was also suing Intel. SoundView Financial analyst Scott Randall, discussing his forecast of how the FTC will argue, said, ''There is a doctrine called crucial technology. If you have significant control over the market and there are crucial technologies that you control, that can prevent competitors from entering.'' Ironically, the lawsuit comes at a time when Intel is going through one of its toughest times in over a decade. The company's profit margins are under pressure from tumbling PC prices and it has been forced to cut prices more often in a cutthroat PC market. It has announced plans to cut 3,000 jobs through attrition and layoffs, its biggest job cuts in over a decade. The company forecast flat revenues for the second quarter, but analysts have been worried the company will not meet Wall Street expectations due to the sluggish PC market. ''Everyone shoots at the top dog, and they are getting shot at more than ever,'' said William Tai, a principal with Institutional Venture Partners and a former Wall Street analyst. ''I think all natural monopolies come to an end at an appropriate time. There are larger issues looming for Intel with respect to their earnings than the FTC investigation.'' update NEW YORK--IBM said today it would sell its servers directly to customers as part of a new marketing effort aimed at competing with direct vendors such as Dell Computer. The server market is expected to become much more competitive when Intel announces the powerful Xeon Pentium II processor later this month. The Xeon architecture will allow direct vendors such as Dell and Gateway to offer high-performance systems which rival Unix servers. Xeon systems from direct vendors will also present more of a competitive challenge to veteran server vendors such as IBM. IBM said today that customers may now qualify to purchase Netfinity servers directly and receive support directly. IBM sells its Intel-based servers under the brand name Netfinity. Though IBM will still work through its resellers, "We are also determined to satisfy the needs of those customers who consider a direct relationship with their server vendor to be critical to their enterprise computing needs," said David Thomas, senior vice president and group executive, IBM Personal Systems Group. IBM may face problems with its resellers, however, since this potentially takes business away from them. But this program applies to less than five percent of its business, according to Dave Boucher, general manager of the Advancement Fulfillment Initiative operations at IBM. He added that these are large accounts with more than $5 million in server business with IBM. BA /DELL Rumor Mill GOOD BUY VG