Paul and ALL, two Articles...Intel Makes Minor Revision To Chipset Road Map
July 22, 1998
ELECTRONIC BUYERS NEWS : Intel Corp. has begun advising its customers of a minor revision in its chipset roadmap, inserting the "440ZX" chipset as an option for low-cost PCs. The 440ZX-a temporary name, according to customers-is designed to be a low-cost version of the company's 440BX chipset. The 440ZX will follow the 440EX chipset currently used with Intel's Celeron processors in "basic PCs" costing less than $1,200. For now, the 440ZX will use a 66-MHz system bus, which has led some customers to believe that a 100-MHz version will be added at a later date. The 440ZX will sample in September or October, with full volume production slated for the first quarter of 1999. An Intel spokesman declined to comment on unannounced products.
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Article...Intel to push shrink effort -- Seeks quick fix to boost microprocessor margins
July 22, 1998
ELECTRONIC BUYERS NEWS : Silicon Valley- In the midst of an internal cost-cutting program and an earnings shortfall, Intel Corp. is preparing to accelerate its manufacturing-process shrink to improve margins on its microprocessors.
The technology shift-from a 0.25- to a 0.18-micron process-was disclosed last week as Intel reported net income of $1.2 billion on revenue of $5.9 billion for its second quarter. Revenue was down both sequentially and from the year-ago quarter, when Intel reported sales of $6 billion.
To correct the downturn, the Santa Clara, Calif.-based company will effect the process change in the first half of 1999, about a quarter earlier than previously stated. When brought to volume-production levels, the 0.18-micron process will yield more chips per wafer, enabling Intel to lower prices while amortizing its production costs over a larger number of dice. The finer line width will result in faster clock speeds as well.
In addition, the advanced schedule will allow Intel to spend less on current 0.25-micron equipment, enabling the company to trim its 1998 capital-spending plan from $5 billion to between $4.5 billion and $4.7 billion.
By disclosing its manufacturing plans, Intel has also fired the first shots across its competitors' bows.
Rival Advanced Micro Devices Inc., for example, spent months arduously converting its Austin Fab 25 from 0.35-to 0.25-micron line widths. The Sunnyvale, Calif., chip maker is not expected to reach 0.18- micron levels until after the turn of the century; and AMD's Fab 30 in Dresden, Germany, won't produce its initial 0.25-micron wafers until next year, according to the company.
National Semiconductor Corp., on the other hand, is currently developing a 0.18-micron process and plans to start production in mid-1999, according to a spokeswoman for the Santa Clara company.
Despite vying for the manufacturing-technology lead, Intel's first 32-bit CPU to be run on a 0.18-micron process will likely be for the mobile arena, analysts said, and will not present an immediate threat to competitors' desktop processors.
"I think new chips like Katmai will gobble up die space, thus keeping the total processor die just where it's always been-between 150 and 200 square millimeters," said Nathan Brookwood, an analyst at Dataquest Inc., San Jose. "AMD's got some time."
Manufacturing prowess is not the only hurdle that Intel must clear, however.
Prior to the earnings report, one of the largest issues looming for Intel was whether PC OEMs had reduced their inventories enough to pave the way for increased chip orders. Such a market condition served as the basis for the company's latest forecast of flat to improved sales in the third quarter and higher revenue in the second half.
"I think what you've got is an ongoing pressure downstream of us, in terms of manufacturers and distributors, to consistently improve the industry production model [by reducing inventories]," said Andy Bryant, Intel's chief financial officer.
Early indications are that PC makers are in a position to pick up orders if consumer demand is there.
Compaq Computer Corp., an industry bellwether, told analysts last week that it had reduced inventories to three-and-a-half weeks, although it declined to make its own second-half predictions.
SoundView Financial Group, Stamford, Conn., estimates that OEM PC sales are growing at a rate of 16.9%, but said sales of PC components are increasing at only 9%. That difference should diminish as OEMs correct inventory levels, said Scott Randall, an analyst at SoundView.
Some observers expanded that positive outlook to include the entire chip industry. "We've gone through the worst of it; we've weathered the storm, " said Mark Edelstone, an analyst at Morgan Stanley Dean Witter, San Francisco. "Intel obviously benefits the most from the correction, but there will be an increased overall demand for semiconductors."
Other analysts viewed Intel's report bearishly, concentrating instead on the company's decline in gross margins from 54.2% to 48.9%. Because generally slow overall PC growth has occurred primarily at the low end of the market, " for next year, we see little compelling reason to expect much change in Intel's revenues or earnings," said Thomas Kurlak of Merrill Lynch Global Securities, New York.
Kurlak added that he believes Intel's share of the microprocessor market has declined about 4%, to 83%.
The very nature of the third quarter makes predictions difficult, because sales typically pick up only in late August and September, Bryant acknowledged.
Intel faces other difficult questions as well, including the general state of demand for PCs, servers, and workstations; the success of the recently introduced low-cost Celeron and high-margin Xeon processors; persistent financial difficulties in Asia; competition from AMD and others; and the unknown effects of government scrutiny.
Geographically, sales in North America and Japan were up for the second quarter, but flat in the Asia-Pacific region and down in Europe.
For the coming quarters, Intel is counting on brisk sales of its latest high-end processor, the Xeon. Intel initially planned to price its top-of-the-line version of the chip at $4,500, but Technology Business Research, Hampton, N.H., now estimates the new processor will fetch only about $3,700.
In today's pricing environment, however, it's the OEM that is finally in a position to dictate prices, according to observers. "It's clearly a buyer's market," said analyst A.A. LaFountain of Needham & Co. Inc., New York. "Now, Michael Dell tells Intel how many microprocessors he will accept this week."
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