Category Archives: Editors Picks

September 7, 2012 – Intel is lowering its 3Q12 outlook citing sluggish demand amid challenging macroeconomic conditions. The chipmaker says 3Q12 sales will come in about a billion dollars short of expectations, in a range of $12.9-$13.5 billion instead of $13.8-$14.8B, and gross margins will be about a point lower than projected (62% instead of 63%). The firm also said its capital spending for all of 2012 will be on the low end of its $12.1-$12.9B guidance, as it "accelerates the re-use of existing equipment to the 14nm node." Notably, the company also pulled back its full-year forecasts, which it will update in its 3Q earnings report due Oct. 16.

"[We are] seeing customers reducing inventory in the supply chain versus the normal growth in third-quarter inventory, softness in the enterprise PC market segment, and slowing emerging market demand," Intel said in a statement.

Analysts have for weeks been pointing out warning signs about how a variety of macroeconomic concerns are impacting the semiconductor sector. Both Intel and AMD have been predicting a slowdown in 3Q12. "We anticipate the worst 2H for PC sales since inception," warns Citigroup’s Glen Yeung, citing not just the macroeconomic factors but also increasing tablet competition and undetermined Windows 8 timing. "Multiple challenges in the PC space, with slower ultrabooks, weaker OEM commentary and Win8 pricing [are] affecting a more cautious OEM-ODM outlook," adds Vijay Rakesh from Sterne Agee.

Intel’s downgrade though, provides new clarity on just how dismal the environment is becoming. "It

September 7, 2012 – Intel is lowering its 3Q12 outlook citing sluggish demand amid challenging macroeconomic conditions. The chipmaker says 3Q12 sales will come in about a billion dollars short of expectations, in a range of $12.9-$13.5 billion instead of $13.8-$14.8B, and gross margins will be about a point lower than projected (62% instead of 63%). The firm also said its capital spending for all of 2012 will be on the low end of its $12.1-$12.9B guidance, as it "accelerates the re-use of existing equipment to the 14nm node." Notably, the company also pulled back its full-year forecasts, which it will update in its 3Q earnings report due Oct. 16.

"[We are] seeing customers reducing inventory in the supply chain versus the normal growth in third-quarter inventory, softness in the enterprise PC market segment, and slowing emerging market demand," Intel said in a statement.

Analysts have for weeks been pointing out warning signs about how a variety of macroeconomic concerns are impacting the semiconductor sector. Both Intel and AMD have been predicting a slowdown in 3Q12. "We anticipate the worst 2H for PC sales since inception," warns Citigroup’s Glen Yeung, citing not just the macroeconomic factors but also increasing tablet competition and undetermined Windows 8 timing. "Multiple challenges in the PC space, with slower ultrabooks, weaker OEM commentary and Win8 pricing [are] affecting a more cautious OEM-ODM outlook," adds Vijay Rakesh from Sterne Agee.

Intel’s downgrade though, provides new clarity on just how dismal the environment is becoming. "It’s worse than everyone expected […] Their consumer PC business is getting whacked," noted Patrick Wang from Evercore Partners. Adds Barclays’ CJ Muse: "While we believe cuts were clearly in order, the magnitude of the cut came as a surprise (implies ~9M fewer units) and this clearly speaks to the severity of the challenging macro environment, uncertainty in supply chain as to what SKUs will sell, and PC cannibalization by tablets."

Barclays’ Muse also points to the capex cutbacks as another worrisome sign. That Intel is actively seeking to reuse equipment, particularly lithography tools, isn’t a surprise; it’s done so for several nodes now. Nevertheless, "this announcement likely provides a few seeds of doubt as to [the] capex outlook for 2013." And industry watchers are counting on a big bounceback in 2013 semiconductor equipment demand after a flat year in 2012.

What’s still not clear is how much of the sluggishness now acknowledged by Intel is attributable to macroeconomic factors, and how much is attributable to the company’s own product strategy. Outside of its advantages in manufacturing (soon pushing into 14nm) and technology development (see its investment in ASML), Intel isn’t getting much oomph from any non-x86 PC areas (e.g. tablets/handsets). FBR Research’s Craig Berger explains:

In order to grow, Intel needs to ramp ARM solutions into handsets and tablets. Intel’s traction outside of its core x86 processor market seems limited. Intel does not have 4G LTE solutions today (why not??). It does not seem to be pushing highly integrated ARM-based baseband/application processors to effectively compete against Qualcomm and Broadcom (instead saying discrete processors are fine for high-end smartphones…what about the other 1.5 billion handsets?). Intel does not have in-house connectivity solutions that it could eventually bake into its basebands (WiFi and Bluetooth) or RF transceivers necessary to produce a platform solution. If Intel was not going to go all the way with its cellular strategy, then why did it spend multiple billions of dollars to acquire Infineon Wireless?

And then there’s the exploding demand for tablet computers. Berger reminds of the math that roughly 2.5 tablet shipments equals one PC. If Apple and dozens of competitors could ship 85M tablets this year, translates to -9% lower PC unit growth. "In order to grow, Intel needs to ramp ARM solutions into handsets and tablets," Berger concludes. Right now, though, "Intel [is] not taking necessary steps to be [a] real player in ARM-based handsets and tablets," he writes.

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2012 stall could pave the way for a record-breaking 2013

by Christian Gregor Dieseldorff, SEMI Industry Research & Statistics

September 7, 2012 — Consumer and business sentiment has become more important than ever before in the semiconductor industry. As we near the end of the third quarter in 2012, pessimism about the economy prevails given the challenging financial situation in the US, a slowing Chinese economy, and the on-going European debt crisis.

At the beginning of 2012, the outlook for semiconductor revenue was more optimistic, with predicted average growth of about 4 to 6 percent. The macroeconomic situation inspired caution and semiconductor revenue outlook changed to an outlook of flat to 2 percent for this year, with various key companies announcing changes in their revenue outlook. For example, in July, Intel cut its 2012 sales growth target to US$ 55.6-58.7 billion, up 3 to 5 percent from 2011, though Intel expects a stronger second half of 2012. TSMC cut its revenue growth rate by about 1 to 2 percent, expecting a slowdown in 4Q12 and into 1Q13. In July, STMicroelectronics announced it will cut capex for 2012 by 25 percent because of a lower outlook.

Meanwhile, struggling Japanese MCU and Analog/Power-maker Renesas considers options to stay in business, such as consolidating business units or pursuing a fab-lite strategy. Fujitsu announced it will pursue a fab-lite strategy, and recently announced the closure of one assembly and test facility and the transfer of ownership of two other facilities to J-Devices Corp. Also since mid-2012, a number of companies have announced more layoffs — including Siltronic AG, Nokia, Cisco, ON Semi, Google’s Motorola Mobility and Rambus.

2013: Another golden year?

While various industry segments appear to be tapping the brakes, others are revving their engines, hoping for an improved 2013. Increased demand for mobile devices, such as new smartphones, ultraportable PCs, and tablets may push semiconductor revenue higher by 10 percent, making 2013 another golden year.

Semiconductor revenue and capex rise and fall together, such that fab equipment spending generally trends along a similar path.

Frontend fab equipment spending, by product types.
(Source: SEMI World Fab Forecast Reports, August 2012)

In terms of fab equipment spending, 2007 and 2011 were golden years. Although spending in 2012 will decline, it may still turn out to be the third largest spending year on record for overall fab equipment spending.

SEMI’s fab database shows about 200 facilities equipping (including Discrete and LED fabs), suggesting that 2013 has the potential to be another golden year — perhaps an all-time record — with 17 percent growth, almost $43 billion.

Frontend fab equipment spending. (Source: SEMI World Fab Forecast Reports, August 2012)

Key drivers for fab equipment spending in 2012 are the foundries, led by TSMC, Globalfoundries, and UMC with over $10 billion combined spending. Their dominance continues in 2013 with about another $10 billion in spending.

Frontend fab equipment spending by product types, showing largest spending types.
(Source: SEMI World Fab Forecast Reports, August 2012)

Examining fab equipment spending by product type, the DRAM sector is still struggling with declining average selling prices. The industry lost German maker Qimonda in 2009, Powerchip exited DRAM in 2011, and ProMOS is struggling. In order to avoid further ASP declines, DRAM makers ceased investments in new capacity and those who could afford it focused investment in new technologies and upgrading existing fabs. After the bankruptcy of Elpida, at the beginning of 2012, global capital expenditure for DRAM declined to very low levels. This is not expected to change in 2013.

Flash investments also slowed in 2012. For example, at the beginning of 2012, Sandisk announced a pause in Fab 5 capacity expansion. At the end of July, Toshiba announced it will cut its NAND production by 30 percent. However, SEMI data indicates that Flash investments will pick up again in 2013, with big spenders Samsung (mainly Line 16), SK Hynix, Flash Alliance, and Micron.

Samsung turns attention towards System LSI by converting existing Memory fabs into System LSI and building new ones. Spending on a grand scale, Samsung is predicted to pour over $5 billion in 2012 and over $6 billion in 2013, all into this product type.

Although more fab projects have begun than estimated last year, the overall number of fab construction projects has declined year-over-year. Looking at how this affects investments, in 2012 investments for construction projects are expected to decline by 4.4 percent (from about $6.4 billion to $6.1 billion). In 2013, another 10 percent drop will bring fab construction spending to about $5.5 billion.

Foundries perform much better than other industry segments in terms of installed capacity growth. Foundries are even more necessary given industry consolidation and as more IDMs change to a fab-lite or fabless business model. Examining installed capacity by product type, Flash will overtake DRAM in 2012.

Cutbacks in Flash production in 2012 have improved average selling prices so companies will likely increase Flash capacity in 2013 to meet anticipated demand growth. DRAM capacity investments are at "maintenance level," so no increase of installed capacity is expected in 2013. Samsung’s heavy investments in System LSI will singlehandedly grow SLSI capacity (its $4 billion conversion of Austin, TX fab from Flash to 28nm SoC logic devices).

Promising future

While 2012 may not bring positive growth, it may still end up reigning among the top performing years. As the industry continues to consolidate, with more companies moving towards a fab-lite or fab-less model, traditional foundries continue to expand and some big IDMs ramp their foundry services. Investment "engines" may be idling in the near-term, and those investments could gear up for a smooth acceleration into 2013, driven by high demand for mobile devices.

SEMI Industry Research and Statistics Group: A worldwide dedicated team

Since the last fab database publication at the end of May 2012 SEMI’s worldwide dedicated analysis team has made 296 updates to more than 230 facilities (including 52 Opto/LED fabs) in the database. The August edition of the World Fab Forecast, lists over 1,150 facilities (including 300 Opto/LED facilities), with 76 facilities starting production this year and in the near future.

The SEMI World Fab Forecast uses a bottom-up approach methodology, providing high-level summaries and graphs; and in-depth analyses of capital expenditures, capacities, technology and products by fab. Additionally, the database provides forecasts for the next 18 months by quarter. These tools are invaluable for understanding how the semiconductor manufacturing will look in 2012 and 2013, and learning more about capex for construction projects, fab equipping, technology levels, and products.

SEMI’s Worldwide Semiconductor Equipment Market Subscription (WWSEMS) data tracks only new equipment for fabs and test and assembly and packaging houses. The SEMI World Fab Forecast and its related Fab Database reports track any equipment needed to ramp fabs, upgrade technology nodes, and expand or change wafer size, including new equipment, used equipment, or in-house equipment.

Also check out the Opto/LED Fab Forecast.

Learn more about the SEMI fab databases at: www.semi.org/MarketInfo/FabDatabase and
www.youtube.com/user/SEMImktstats

SEMI
www.semi.org
San Jose, California
September 4, 2012

September 6, 2012 – Spending on R&D by semiconductor companies worldwide is expected to grow 10% in 2012 to a record $53.4 billion, as companies all across the ecosystem try to keep up with more complex IC designs and new process technologies, according to data from IC Insights.

Total chip sales are only expected to increase 3% in 2012 to $321.4B, says the analyst firm (others aren’t so optimistic anymore), meaning R&D as a percentage of sales will rise to 16.2% — right around the 15%-17% where it’s hovered for the better part of the past decade. R&D/sales had been 10%-12% of revenues in the early 1990s, and just 7%-8% of sales in the late 1970s-early 1980s, the firm notes. Chip companies across the ecosphere (integrated device manufacturers [IDMs], fabless suppliers, and foundries) are seeing their development costs rise due to more complex IC designs and new process technologies, currently on 300mm wafers but with 450mm now in progress & due later this decade.

Worldwide semiconductor R&D spending leaders, sales in US $M.  *Renesas and NEC merged in
April 2010; that year includes combined 1Q results. ** Fabless  *** Foundry  (Courtesy of IC Insights) 

A dozen companies spent more than $1B for the first time ever in 2011. Intel’s R&D expenditures accounted for nearly a third of the top-10 spending, and about 17% of total R&D expenses worldwide. The top 10 overall R&D spenders increased their R&D spending dollars by 12%; top annual increases went to Intel (27% more spending vs. 2011), Qualcomm (25%), and TSMC (23%). IDMs accounted for 66% of R&D spending by semiconductor companies in 2011, dwarfing that of fabless suppliers (29%) and pure-play foundries (5%).

Also noteworthy is the regional distribution of these dollars. By company headquarters, the US represented 57% of worldwide semiconductor R&D spending in 2011, far ahead of suppliers based in Japan (17%), Europe (10%), Taiwan (8%), South Korea (7%), and mainland China (1%).

IC Insights particularly calls out TSMC’s emphasis on R&D spending the past few years. The foundry cracked the top-10 R&D spenders in 2010, nearly lapped the field in R&D/sales growth in 2011, and its 2012 R&D budget is twice what it was just three years ago, according to recent comments by CEO Morris Chang. That’s in addition to the foundry’s capex budget of $8.25B this year, up 13% from 2011. "With the influx of IDMs turning to foundry capacity and major fabless customers needing lead-edge CMOS processes, TSMC is spending more money on both new 300mm fabs and R&D," explains the analyst firm.

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September 5, 2012 – Despite the gloomy economy and softness in consumer LCD products, suppliers of thin-film transistor liquid crystal displays (TFT-LCD) expect moderate growth in both sales and shipments in 2012, according to DisplaySearch. The analyst firm projects sales of TFT-LCD panels to increase 13% to $85.3B, and shipments to rise 8% to 757M units, triggered by strong demand for mobile PCs and LCD TVs.

"The growth in shipments and revenue this year shows that the TFT LCD industry is recovering from price declines and supply chain inventory adjustments, although the recovery looks very modest," stated David Hsieh, VP of the greater China market for NPD DisplaySearch. "Panel makers are quickly adapting to the shifts in demand and developing new technologies, features, and sizes. Chinese LCD makers are rapidly increasing production, and Korean, Japanese, and Taiwanese manufacturers are restructuring and deploying new technologies and processes to improve costs and display performance. It is clear that the TFT-LCD industry has not yet reached maturity but is simply entering a new chapter."


Large-area TFT panel shipments, in millions. (Source: NPD DisplaySearch)

Notebook PC panel shipments are forecast to grow 13% in 2012 thanks to strong promotions for existing models and the recently introduced ultrabook models championed by Intel, according to DisplaySearch. Total tablet PC panel shipments are expected to rise 61% Y/Y. Tablet PC panel makers are targeting shipments of 72.8M units of 9.7-in. panels, including the iPad 2 and new iPad, and private-label tablets. Shipments of 10.1-in. tablet panels are expected to exceed 17M in 2012, while shipments of 10.6-in. panels — most notably Microsoft’s Surface tablet — are ramping strongly in 2H12.

After declining for the first time ever in 2011, LCD TV panel shipments have been expected to swing back to around 6% growth in 2012, due to stronger demand in China: replacements, new models, and the country’s energy subsidy program. LCD TV panel prices rebounded in 2Q12 and prices for some panel sizes are still rising due to tight supplies. New TV panel sizes (28-in., 29-in., 39-in., 50-in., 58-in., 60-in., and 65-in.) also are playing a key role in shipment growth. LCD panel revenue growth will help improve overall large-area LCD panel revenues in 2012, notes DisplaySearch.


Large-area TFT panel revenues, in US $B. (Source: NPD DisplaySearch)

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September 5, 2012 – Global semiconductor sales totaled $24.34B in July, a scant 0.2% increase from the prior month and down -1.9% from a year ago, as macroeconomic challenges weigh down demand particularly in Europe and the Americas, according to the latest monthly data from the Semiconductor Industry Association (SIA).

"July’s sales figures offer some encouraging signs for the global semiconductor industry, but it’s clear that macroeconomic challenges are restricting stronger growth," stated Brian Toohey, SIA president & CEO.

On a positive note, the year/year decrease was actually smaller than it has been since Oct. 2011, the SIA noted. June semiconductor sales were flat from May thanks to declines in the Americas and Europe, and down -2% from the same month a year ago.

The regional outlook remains uneven, he added, with Japan rebounding from last year’s disaster and the Asia-Pacific region holding steady, but Europe and the Americas have lagged behind. Japan (4.2%) and the Asia-Pacific (1.4%) showed year-on-year growth — but both Europe and the Americas saw around -10% declines. Likewise on a sequential monthly basis, Japan (5.4% — its strongest M/M increase in three years) and Asia-Pacific (0.3%) were positive, but Europe was flat and the Americas declined from June (-3.9%). (All numbers represent a three-month moving average.)

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September 4, 2012 – In an analysis of quarterly IC market growth rates, IC Insights pulls up an unusual phenomenon: the performance during the second calendar quarter takes the spotlight in years of better growth, which is counter to historical norms.

Averaging IC market growth over the past 30 years, the third quarter saw the highest Q/Q increase at almost 6%, while 1Q was typically the softest (-1.4%) — nothing surprising there, given seasonal trends of a pre-holiday-season pickup and then letdown. But categorizing the results as "good" vs. "bad" years of IC market growth (defined as 10% annual growth) surfaced a curious trend. In bad years, the first half of the year typically takes the brunt of the slowdown, while the second half usually rebounds. But in good years, the second quarter typically shows the highest sequential growth rate, with 3Q and 4Q slowing but still healthy, and even typically-soft 1Q levels stay in the black (3.1%).

How does this play out in in today’s IC environment? In 2012, IC sales saw negative growth in 1Q but are expected to be in the black through the rest of the year. IC Insights currently forecasts a 10.5% increase in 2H12 vs. 1H12. (Note that others aren’t so upbeat about 2012’s prospects; analyst firm IHS iSuppil now projects a razor-thin decline in 2012 IC sales.)

Another trend the firm teases out of the data: the IC market is becoming increasingly dependent upon seasonal growth in 3Q12. (Not surprising as electronic systems sales have shifted more heavily from business to consumers in the past few decades.) Two of today’s biggest markets are PCs and cellphones, both of which are highly seasonal in nature. Bottom line: expect the IC market to continue its pattern of stronger 3Q seasonality.

Meanwhile, 4Q IC sales have been trending down for the better part of three decades — though in 2012 the expected introduction of new products (smartphones, tablet PCs, ultrabooks) timed for late 3Q12 might give 4Q12 sales a rare sequential boost, by as much as 3% this year, the firm notes.

Average sequential quarterly IC market growth rates, 1983-2012 (f). (Courtesy of IC Insights)

September 4, 2012 — Wafer probe card maker FormFactor, Livermore, CA, has agreed to acquire fellow probe card supplier MicroProbe, San Jose, CA, for $100M in cash and $16.8M in stock. The deal, subject to customary conditions, is expected to close by the end of this year.

MicroProbe generated $87.3M in revenue for its fiscal 2011 (ended Dec. 31), with 46% Y/Y growth and a non-GAAP EBITDA profit margin of 20%.

The combined entity will, according to the companies, be the industry-leading supplier of advanced system-on-chip (SOC) probe cards, with technology leadership in both memory and SOC probe card markets. The entity also will see "improved and immediately accretive financial performance" by the beginning of 2013, they claim.

FormFactor was unseated as the longtime top nonmemory probe card supplier in VLSI Research rankings earlier this year; it now ranks second with $162M in 2011 sales, with Microprobe listed fourth. Combined they would rival Japan’s Micronics ($242M) which assumed the top spot. VLSI projects probe card sales will be flat in 2012 but overall growing steadily over the next five years, reaching $1.5B by 2016.

"This merger is a transformational event for FormFactor," stated FormFactor CEO Tom St. Dennis. "The combined company will have the technology and resources to address semiconductor test requirements across the entire advanced probe card space."

"This merger enables our world-class teams to accelerate innovation in wafer test across our customer base and provides compelling opportunities for our combined employees," explained Mike Slessor, CEO of MicroProbe, who will become SVP and executive officer of the combined companies.

"Together, we are in position to focus on delivering leading wafer probe solutions to meet the needs and roadmaps of logic and memory semiconductor device manufacturers," added FormFactor chairman Carl Everett.

Three leaders in their respective fields have formed a technology alliance to bring a new glass cutting technology to market. InnoLas Systems GmbH licensed process technology developed by FiLaser LLC and will use ultra-short pulse lasers produced exclusively for InnoLas by LUMERA LASER GmbH. This complete turnkey system designed for glass, sapphire and brittle materials cutting will be available exclusively through InnoLas’ worldwide sales network.

Conventional laser cutting is based on rapid heating leading to vaporization and material removal. This process is not only slow, but it also leads to unwanted micro-cracks and a rough surface finish. Material cut with conventional laser processes require post-processing in order to remove the unwanted damage. These subsequent grinding and polishing steps are costly and time consuming. Filament cutting, on the other hand, uses ultra-short laser pulses in the picosecond range that cut brittle materials via plasma dissociation. This new process ensures lower surface roughness, high bend strength, and faster processing speed. This new laser cutting technology works especially well on chemically strengthened glass and sapphire, which have been difficult to cut with conventional methods. Filament cutting thus enables a higher quality, throughput and yield in the production of touchscreen displays for smart phones and tablet PCs. Further areas of application include Si, SiC, and GaAs at very high speeds.

Richard Grundmüller, CEO InnoLas: “This innovative laser cutting technology gives us access to new markets, where we can leverage our core competencies in laser machining and glass handling in order to offer our customers a clear competitive edge.”

Jeffrey Albelo, CEO FiLaser: “We have created a novel laser process technology that is at the nexus of physics and materials science. It is purely disruptive and will provide our customers with a compelling motivation to acquire this capability. We believe the combination of these leaders in their respective fields will produce world-class results and will aid in putting this capability into the hands of our customers with speed and 24/7/365 reliability. Looking ahead, we have great expectations as the application potential spans far beyond glass, sapphire, and wafer singulation."

Dr. Achim Nebel, CEO LUMERA LASER GmbH: “LUMERA LASER is delighted to be part of this new partnership. LUMERA has been the leader in ps-laser systems for quite some years and our lasers’ capabilities are a perfect fit for this new application. Up to now the field of glass cutting had mostly been the domain of high average power CW lasers. The FiLaser technology utilizes unique aspects of our ultra-fast lasers providing a fast and high quality solution.”

August 30, 2012 – US-based investment firm Kohlberg Kravis Roberts and Co. (KKR) reportedly is seeking to snap up struggling chip firm Renesas for ¥100 billion (US $1.3B), weeks after domestic peer Elpida similarly welcomed outside help following filing for bankruptcy earlier this year.

Local media reports that Renesas, which is projecting a ¥150B ($1.9B) net loss for its current fiscal year, had been seeking roughly the same ¥100B from parent companies (NEC, Hitachi, and Mitsubishi Electric) who own 90% of the chipmaker, but was only granted half that (~¥50B). (Renesas’ market capitalization is only around ¥120B-¥130B, point out the Yomiuri Shimbun and The Wall Street Journal.) In July the company announced ¥43B in cost reduction efforts, including some downsizing and closure of production lines and in excess of 10% workforce reduction. In May it expanded an outsourcing deal with TSMC to hand over all 40nm embedded flash production for its MCUs.

Reports (many citing the Nikkei) suggest KKR wants a controlling stake (>50%), and KKR officials want approval from Renesas’ ownership within weeks or even days. (And KKR isn’t alone — other private equity funds have pitched for an investment stake in Renesas in recent months, according to Reuters.) The Asahi Shimbun reported that senior officials at Renesas parents indicated they would approve the KKR deal, though other investors expressed worry about protecting the company’s technology and leadership in its key market for automotive controllers.

Nevertheless, overall investors like the move — since the news broke on Wednesday (Aug. 29), Renesas’ shares have closed about 35% higher on the Tokyo Stock Exchange.

KKR is no stranger to investing in the semiconductor device sector. In 2005 it carved out Agilent’s semiconductor business to create Avago, and was among a consortium that carved out NXP Semiconductors from Philips in 2006. In the past KKR has also been reported to have pursued UMC and packaging outsourcer UTAC.

(Image via Shutterstock)

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