Oki: DRAMs Are On The Way Up
By Jim DeTar
From Page One of Electronic News: September 14, 1998 Issue
Breakfast In The Valley
San Jose--Sunnyvale, Calif.-based Oki Semiconductor's parent, Oki Electric Industry Company, Ltd., fits the mold of the old-line, broad-based Japanese company, a conglomerate some might say. Its U.S. subsidiary is in a position to supply many of the chips that go into Oki's systems, as well as being a significant merchant supplier to other targeted markets.
For example, the networking market is a very high priority for Oki's DRAMs and ASICs, according to Bharat Gupte, VP and GM of Oki Semiconductor's Standard Business Unit. In a recent interview over breakfast with the West Coast editors of Electronic News, Mr. Gupte said he is bullish on the DRAM market, that he thinks the long, slow slide in prices is at an end.
"I think we've already seen the bottom," Mr. Gupte said, "because, typically, this is a strong season for the memory business, you know, August through November, because that's when there's a lot of production for back-to-school and Christmas builds. And in the last couple of weeks, we've seen a significant improvement in the spot prices, and it's moved upwards. So the trend is certainly positive."
Additionally, the overcapacity situation that has exacerbated the situation seems to have eased as well, he said. "The other thing that I'm hearing, again, from the spot (market), is there is no product in the channel to get something from brokers. There is nothing available."
The DRAM debacle, combined with the recent overall softness in the semiconductor market, hit Oki hard, although not as hard as some other companies. For example, when asked whether Oki has had to cut back significantly on R&D, Mr. Gupte responded, "We did scale back our capital spending significantly during what we call fiscal '98. That's April of '98 through March of '99.
"I don't have the exact numbers, but we did this consciously back in November, December of last year, when we did our planning. So, you know, we're continuing to invest in equipment, but we did not put in a new facility this year, as an example," as the company had previously planned to do.
In a broad-based interview, Mr. Gupte discussed the reasons behind his optimism that there is DRAM price bounce happening, and the strategy behind the company's various other business segments such as ASICs and foundry work for a variety of customers. EN began by asking about the types of product development that are undertaken here in the U.S. as opposed to those done strictly in Japan."
EN: The product-development engineering that's done here is primarily just in ASICs?
Mr. Gupte: "To a great extent. In the case of ASIC, and in a couple of other areas, we have been growing that now, exploring that a little better here.
"What we tried to do is draw a picture of which segments do we play in, and where do we spend our time and energies. And we've kind of done this by application segment and product segment, so if you look at the different categories here, we've put priorities on certain areas, and a lower ranking in others.
"So, as an example, in networking, if you look at the category across the board, it's a very high priority for all the different product areas.
"We have a sister company here called Silicon Dynamics, which is located in Sunnyvale, as well, and, at this point in time, they're focused almost exclusively on the development of networking chips. And these are standalone, standard devices. We've talked about the eight-port MAC in the past, and that's one of the products that that particular company is designing.
"In addition to that, we have a single-channel PHY (physical layer IC), again, for Ethernet, and this is the 10/100 Ethernet product. We're also developing some ATM parts. We have a framer that's currently ready and then we also have a SAR and other products' coming up.
"So networking is clearly a strong focus for us. Some of the other major areas of interest for us are PCS (personal communication services). Again, this is telecom-related. And then PDAs (personal digital assistants), you know, hand-held appliances."
EN: They have a very large presence in PCS, it looks like.
Mr. Gupte: "Yes."
EN: Is that a primary market for you?
Mr. Gupte: "It is a pretty significant market for us and the areas that sort of play into the products are the telecom devices, the baseband codec, for example. We have a few logic devices and the components. (There are) multiple parts that go into that area."
EN: Is your market primarily in Japan for PCS?
Mr. Gupte: "Actually, in Japan, it's what they call 'PHS,' 'personal handyphones' or 'personal handy systems.' And that has been a huge market for us in Japan.
"But if you look at the basic technology, you know, you're operating at 1850MHz, or 1.9 GHz; and then, in the case of wireless LAN, as an example, you're moving at 2.4 GHz. And the fundamental operating frequency and the way you design the parts is not that different, so they can be readily modified or adapted to suit the appropriate protocol requirements. So we essentially offer solutions for all those operating frequencies.
"And of course, we're very much in cellular, which is primarily at the 850MHz operating frequency. And we have a lot of solutions at the 1.9 GHz."
EN: Is your telecom business unit bigger than your networking business unit in terms of revenue?
Mr. Gupte: "I have to be careful of how I break that out, because I'm talking only about semiconductors now. And so with regard to networking, we have not really been shipping much of any product that's standard devices. We have been shipping ASICs--which incorporate networking macros. So in that regard, networking is a relatively new business for the semiconductor group.
"On the other hand, I can't give you revenue numbers for the networking business in Japan, because Oki has a fairly significant networking-systems business in Japan. So I'm not sure if I've answered your question.
"But in the semiconductor area, the networking revenue is a relative newcomer, where telecom has always been around. I mean Oki has traditionally been a telecommunications company."
EN: Are you talking about digital voice or analog when you're talking to the networking guys?
Mr. Gupte: "Well, I think everything is getting digitized in the form of packets. So even with conversations, you're going to digitize, break it up, into packets, and just transmit it. The only difference is, in the case of data, you just have a lot, a much bigger bitstream or a packet stream. In the case of voice, it's much smaller packets, because how many ones and zeros do you need to multiply?"
EN: Some companies are offering long distance over the network now.
Mr. Gupte: "Absolutely!"
EN: Which will save you money, but the quality, apparently, isn't nearly as good as your standard telephone. So that's where you come in?
Mr. Gupte: "Exactly."
EN: You're developing chips to improve that quality?
Mr. Gupte: "Well, we have echo canceller devices that the telecom companies have been using for--I was going to say 'decades,' but many years. So echo canceller has become a very needed ingredient in the quality of service, especially on the networking side. So in addition to the standard codecs that you had, you need the echo-canceller function. And so that's starting to happen."
EN: The networking guys say, "Oh, the telecom guys don't know what we're doing. They don't get it, you know!" And the telecom guys say the opposite, you know: "The networking guys don't understand voice." But then they're buying all these companies. How do you see it? You're talking to both markets. How long do you think it will take for them to come to a better understanding of this whole data-networking business, and how it's going to meld with the telecom side?
Mr. Gupte: "I think the question you're asking is very pertinent, and there is some truth to that statement, but I think what's happened is, because of what we call 'Internet time,' everyone's realized that you don't have a lot of time any more to go study the problem. And so you've got to move fairly fast. If you look at even the largest telecom companies today, they're not these lumbering behemoths any more. I mean they're becoming a whole lot more agile in dealing with issues
"And I guess it's not appropriate for me to name names, but you know who the major players are. And we're talking to them. And even compared to three or four years ago, they are surprisingly much, much faster than they (used to be) in recognizing what is needed to go merge data and voice.
"And the approaches that each company is taking (are) very different. I mean the telecom guys have much, much better knowledge relative to the networking guys, on, as we were talking about, quality of service--line quality--because this is something that they have dealt with over the last 50, 75 years. They understand the consumer side and what people expect.
"On the other hand, the networking companies have been incredibly successful at what they've done, and it's not because they're slow at doing things. They learn very fast.
"And so, like I mentioned, we're talking about echo cancellation, as an example. And the first reaction was, 'Well, why do we need it?'
"Now that they understand how it impacts what they are doing, and it's really related to voice, rather than data, on the network, they have recognized the need. But in their favor, again, the moment they recognize something, they're very quick to go ahead and execute and implement something.
"So in that regard, if you look at the two strongest competitors in the next couple of years, they will be Lucent and Cisco, not Cisco and Bay Networks."
EN: Do you sell components to Cisco?
Mr. Gupte: "I guess I'm not supposed to mention any customer names, but we do business with all the major telecom companies, and we do business with the major networking companies. That should give you a very good idea as to who we do business with."
EN: Okay. You mentioned that you're coming out with some 16-meg SDRAMs.
Mr. Gupte: "Sixteen-meg SDRAMs, actually, we've been shipping for maybe a couple of years now; but 64-meg synchronous DRAMs, both PC-66 and PC-100, PC-66 started October/November of last year; and PC-100, 64-meg DRAMs, we started shipping a couple of months ago."
EN: You had mentioned that you were also going to be rolling out 16-meg SGRAMs?
Mr. Gupte: "We will be going to 16-meg synchronous graphic RAMs."
Mr. Gupte: "SGRAMs we will do probably in the next few months. We're kind of playing around with samples in our lab currently.
"SGRAM is used strictly for graphics applications. And it's more a matter of the configuration, in terms of how you take the data off the chip and send it to your display. Currently, people are using 8-meg SGRAMs and those are typically at the higher-end systems. So it is performance.
"And to put it in perspective, 8-meg SGRAMs today cost $2.00, $2.50. And then you have 256Kx16 devices that (are) 4-meg devices, and they typically cost less than half that price. And so the standard DRAMs are used in the lower-end machines."
EN: Oh, so that's what you're talking (about), the higher-end workstations.
Mr. Gupte: "Higher-end PCs, particularly anything that's $1,500-plus, is more likely to use graphics RAM rather than the standard DRAM."
EN: The overall downturn in the DRAM market seems to be never-ending. It continues to go on in terms of pricing. Has that hurt Oki very much?
Mr. Gupte: "For us, actually, in relative terms, the DRAM business is smaller than it is in many of the big players. Consequently, it hasn't hurt us as much as, you know, some of the red ink that you've heard or read about in the last few months.
"You mentioned that it's 'never-ending.' I'm a lot more optimistic than that. I think we've already seen the bottom because, typically, this is a strong season for the memory business, you know, August through November, because that's when there's a lot of production for back-to-school and Christmas builds. And in the last couple of weeks, we've seen a significant improvement in the spot prices, and it's moved upwards. So the trend is certainly positive. And it's been that way for a couple of weeks. So I'm hoping, and I feel reasonably comfortable, that it will stabilize and head up.
"And I think many of the industry players are making a concerted effort to help move it in the right direction."
EN: I think it was SGS Thomson that last week said that they were going to close one of their facilities overseas.
Mr. Gupte: "Siemens actually made the announcement that they were going to close their North Tyneside facility."
EN: Yes. Tyneside. And they said at the time that they were the first ones to do that and that nobody else has cut back, in terms of production, significantly; and if that continues, they think that there are going to be serious problems next year. Do you see that?
Mr. Gupte: "You know, as I mentioned, we've seen some improvement already. And you know, the spot market price, for example, is much better today than it was in the middle of July. And so the other thing that I'm hearing, again, from the spot (market), is there is no product in the channel to get something from brokers. There is nothing available.
"And I'm not surprised at that, because when prices were going down, nobody wanted to touch the products. It was like literally you bring it in, build it, and get it out within hours. We're not talking days. We're talking hours. So there's no product in the channel. And I think the Korean companies have also scaled back on their production. They are taking some time off; and typically, in the summer, many of the Japanese companies do take some time off."
EN: Have the build-to-order efforts being done by a lot of the PC companies who are indirect, who have the indirect model, impacted your production? Are you seeing much of a backlash because they want product just-in-time and they're not shelving a lot of components themselves?
Mr. Gupte: "I think there are a couple of things that have changed with this build-to-order model. You know, it's a misconception to believe that this is something new.
"When you're on allocation, the OEM tries to keep as much product as possible. When you're in an over-supply situation, the vendors sit with all the parts. So it's always feast or famine. There's rarely this smooth flow that everyone envisions.
"The one change that has occurred is the introduction of a third party that may be building the SIMMs, as an example. All of that previously used to be done by the vendor himself or herself. And, you know, over the past few years, that has changed. And the value that the third-parties bring is time. They can do this within a day or two days, so they've got things set up where they do tremendous volumes of batch processing."
EN: You're talking about systems integrators?
Mr. Gupte: "I'm talking about companies like Smart Modular or Kingston, where, you know, you ship your loose parts. They will build them up in the form of SIMMs or DIMMs and then ship them to wherever the systems are being built. But in order to get SIMMs or DIMMs in the exact configuration that the system requires on that particular day, requires a different production model.
"As I mentioned when we were talking about batch processing, if you look at most semiconductor vendors, their whole thinking is very continuous-production oriented. So it's a different mindset and you have to operate somewhat differently in order to satisfy that requirement. So in that respect, that's been the fundamental change, and you just have to put the appropriate model in place in order to support it."
EN: Are you doing more online/intranet types of transactions with your OEMs?
Mr. Gupte: "You mentioned 'intranet,' and right now, it's primarily EDI (electronic data interchange). So it's not so much over the Internet yet, but I expect that we will move towards EDI over the Internet, because, again, then you have a standardized protocol that you can use, as opposed to having to do specific modifications for EDI requests for each customer.
"It's real interesting because in the EDI loop it's not strictly between your customer and yourself anymore. You've got a third-party build-to-order company, as an example, that may be in the loop. And, to complicate matters further, you may be shipping a product to a subcontractor for your systems manufacturer. So you may have four different players involved. If you look at what's happening, the logistics process is becoming much more complex, but people are using a lot more electronic systems in order to try and manage that."
EN: So you have a direct EDI link to one of your suppliers or customers?
Mr. Gupte: "I would say to almost all of our major customers."
EN: Right. And that's done over some type of a direct T1 line?
Mr. Gupte: "Yes. It's basically a dial-up system, so they just transmit the data to you, and it gets downloaded to your system."
EN: Is there a benefit to taking that system over the Internet? Because you said you might move to that. I just wondered what the benefit is.
Mr. Gupte: "I think there are two things, two issues, that will have to be addressed. Number one is if you do it over the Internet, there are likely to be more standard protocols. Right now, there's an ANSI (American National Standards Institute) format that is used. But when you receive EDI orders from someone, they have to be reformatted to match your internal system. So there is some formatting/deformatting that's occurring on the transmission side as well as the receiving side.
"And if you go to the Internet, hopefully there's a standard protocol that you're dealing with across the entire customer base. So you're not customizing this each time for each customer. So that would be the advantage.
"On the flip side, there are security issues."
EN: The only reason I asked was because Dell Computer is really pushing this communication with its suppliers over a secured Internet line.
Mr. Gupte: "Right. And, in fact, they have that with their customers, as well. And I think Dell is probably an excellent model to study on how to use the Internet for business.
"It's real interesting, actually. We received the award from the Direct Marketing Association for the best Web site for business-to-business. Let's see what it was called. Yes. 'National Direct Marketing Association Best Business-to-Business Electronics.' Because we've got a closed-loop system set up where, when somebody comes in and asks for information, we make sure they receive it. We have a follow-up mechanism. We have salespeople contact them if requested. And we provide a lot more information than just standard data sheets."
EN: I noticed from your backgrounder that it says "Oki is also a leader in packaging technology." Is that a large revenue source for you, packaging?
Mr. Gupte: "We typically do the packaging primarily for ourselves; but, as an example, chip-on-board, or chip-on-glass were things that we do somewhat uniquely. And if you look at the automotive business, they tend to require as compact a structure as possible, over extended temperature ranges, as well. So those are some of the things that we specially developed." |
