Intel – Micron – Apple Deal Spawns Stock Sell-off

Alas, Electronic News, we hardly knew ye: RIP. Beware the 800-pound gorilla. And beware nervous investors with itchy mouse fingers and analysts that shoot advice from the hip and and ask questions later..

The news that Intel Corp. was pairing up with U.S. memory maker Micron to make flash memory – and scored a lucrative deal with Apple Computer in the process – sent shares of other flash memory makers tumbling on financial markets around the globe Monday. The tumble continued today.

All the leaders in the flash memory market got hammered. Samsung Electronics, for example, saw its stock close last Friday on the South Korean exchange priced at 627,000 won, then open Monday up at 632,000 won. By the end of the trading day in Asia, it had dropped 621,000 won. It opened Tuesday at 611,000, and closed at the end of the day at 590,000.

A drop of 5 percent, Samsung’s market value shrunk by approximately 5.3 trillion won, or about $5 billion over the 24-hour period between the close of the Korean stock exchange Monday and its close on Tuesday.

Fellow Korean memory maker Hynix Semiconductor saw its stock suffer a similar sell-off; it dropped more than 8 percent over the course of trading Tuesday. Between the close of trading on Monday, when Hynix was trading at 23,400 won, and the close of trading today, when it closed at 21,450, it’s market value shrunk by some 867 billion won, or approximately $835.6 million.

Overall, the Korea Composite Stock Price Index dropped nearly 2 percent today, thanks in large part to the sell-off of Samsung and Hynix.

Japan’s Toshiba, meanwhile, the No. 2 flash memory player behind Samsung (Hynix is No. 3), also saw its stock plunge on the Tokyo exchange, dropping nearly 9 percent. It closed on Monday at 672 yen, opened at 642 and closed at 613 today. Between the close of trading on Monday and the close of trading Tuesday, Toshiba’s market value contracted by 190 billion yen, or nearly $1.6 billion.

Silicon Valley-based flash memory card maker supplier SanDisk Corp., meanwhile, was similarly banged up on the Nasdaq. SanDisk opened Monday at $54.27, but had dropped to $46.34 by the close of U.S. markets yesterday. In after-hours trading it recovered a bit, opening at $47.72, and in late morning trading was selling for $49.23 per share.

While it may be obvious why Sansung, Hynix and Toshiba all got blasted by a stock sell off, the reasons behind the SanDisk sell off appear more convoluted, if not downright confusing. SanDisk licenses its multi-level cell (MLC) technology to all of the NAND flash chip suppliers currently, such as Toshiba and Samsung.

While Intel lays claim to its own MLC technology, Intel is a NOR flash maker, not NAND flash, at least not until yesterday.

But the bears on Wall Street immediately cited a risk of overcapacity in the flash market with the Intel/Micron venture coming online, with many analysts further suggesting the venture would not have to pay royalties to SanDisk. Still others envisioned legal wrangles over intellectual property; Micron has said in the past that it owns Toshiba’s flash memory patents, having brought its DRAM unit previously. Wall Street analysts speculated this could lead to courtroom disputes that might in turn draw SanDisk into the fray.

But the bulls in the market declared that SanDisk could profit from the deal, as well as all the deals with Apple for a guaranteed supply of flash memory. Apple will further drive prices of NAND flash down, or so the bullish speculation goes, and more flash memory suppliers will turn to low-cost MLC technology, improving the licensing revenue stream for SanDisk.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Alas! Poor Margin! I Knew Him, Horatio

Inventory correction or cyclical downturn? That is indeed, the question.

Alas, it's not "I knew him well," you morons! It's "I knew him, Horatio."Those of you who familiar with me know I have a some-time affinity for borrowing from the Bard — that’s William Shakespeare, for all you techie left-brained types — for this editorial space. So I can’t help but suggest that the chip industry is headed for the winter of its discontent.

Of course, it really depends on whom you ask. Wall Street seems to be divided on the issue as to whether current market conditions are a correction or a downturn, even as many companies and executives swear to the former. And regardless of which it turns out to be, it appears as if the equipment and materials suppliers are once again going to prove fortune’s fools.

Of course as an observer of the chip industry, it’s easy to point out that this is hardly a new situation or business climate. It engenders all of a writer’s favorite cliché’s: the more things change, yada yada yada; those who don’t learn from history, blab blah blah, etc., etc. So I’ll skip the pontificating rhetoric and do my humble best to cut to the chase.

I think it’s too early to call it for sure, but before you accuse of me wimping out, there is evidence that this is indeed an inventory correction. But it may prove to be a painful one for some.

Aside from all the wishful thinking and public statements meant to appease investors and boards of directors, there is some heartening evidence. Graphics chipmaker ATI Technologies, for one, surprised Wall Street, and probably just about everyone else, with its strong quarter, in the midst of what has become a daily stream of downward guidance and preannouncements for calendar Q3, and, shall we say, reluctant, guidance for Q4.

Part of ATI’s good fortunes could be attributable to market share gains, but certainly not all it. So all those graphics chips must be going somewhere. The same could be said of Advanced Micro Devices. It managed to put in a solid quarter as well despite a drop in its flash business; the jump came from growth in processor sales across all of its markets.

Alas, Electronic News, we hardly knew ye: RIP.Now one could argue that market conditions just haven’t caught up with the likes of ATI and AMD. That might be true. Or maybe its just companies that begin with the letter A.

In any event, regardless of whether this is a downturn or a correction, you know there are a lot of chips floating in the channel when your flash business goes down.

But beyond the chip industry, the electronics industry doesn’t seem to be taking the hit that the chip industry has this past quarter. Orders and shipments of printed circuit boards remained in a healthy state as we headed into the final month of calendar Q3. The numbers for North American suppliers would seem to reflect a normal seasonal slowdown, but nothing like what seems to be happening farther up the food chain in the semiconductor biosphere.

This would indeed suggest that what’s happening now is an inventory correction, and the view that the upturn still has legs may indeed be right. A dash of market milk of magnesia and the order digestion will be over.

How Poor Are They That Have Not Patience!

But even if this inventory correction scenario is true, it would seem that Banquo’s ghost will still haunt the equipment and materials suppliers’ party for some quarters to come. As market researchers VLSI Research and Gartner Inc. have been pointing out for sometime now, the industry has once again ramped up a lot of capacity over the past 18 months. A LOT. So much so that VLSI warned months ago that the industry may be overheating.

In fact, Gartner just updated its forecast for equipment spending, noting that 2004 is one of the best years on record, even slightly surpassing the high end of its guidance back in July at Semicon West. But what goes up must come down; while capital equipment spending is on pace to grow 66 percent this year, the market researcher expects equipment spending to decline by 0.6 percent next year, followed by a 16.1 percent decline in 2006.

As Gartner semi equipment analyst Dean Freeman suggested to me, there seem to be two possible scenarios. On one hand, we will have zero growth through 2005 as the industry ramped capacity quickly and now can add it only as needed to meet demand. But the industry will likely move into overcapacity by the end of 2005, simply because it is just plain difficult to manage demand cycles, Freeman observed. History certainly bears that out.

It is also possible that some chipmakers booked early in order to insure order slots and now are pushing them out until they need them, Freeman added. Golly gee whiz, imagine that. That surely has never happened before, huh?

On the other hand, growth could be slowing as a result of slackening demand in the wake of macroeconomic forces, Freeman said. The market has been able to respond quickly and therefore, equipment order push outs. Demand will return as consumer confidence improves after the election and oil prices drop from $50 a barrel to a more reasonable $40 to $45 per barrel, thus freeing up discretionary income. 2005 and 2006 are then slow, with stronger growth rebounding in 2007, he theorized.

Of course, if you’re as cynical as I am, you suspect oil prices will drop before the election, but that’s another topic altogether.

In any event, be it downturn, correction, whatever label you want to ascribe to it, equipment and materials suppliers are likely to have a tough time of it, at least for the next several quarters or so.

Chasseriau's interpretation of Shakespeare's witches in Macbeth.So if you make process or test equipment, or supply materials, I would suggest trying the following process recipe to conjure up the ghost of early 2000:

“Eye of newt, and toe of frog,
Wool of bat, and tongue of dog,
Adder’s fork, and blind-worm’s sting,
Lizard’s leg, and howlet’s wing,–
For a charm of powerful trouble,
Like a hell-broth boil and bubble.”

But I should warn you that this might prove a yield bomber; I don’t know how well a plasma-induced cleaning process removes newt eyes and such from the inside of a process chamber.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Blasphemy Runs Over Dogma

Alas, Electronic News, we hardly knew ye: RIP.As if people didn’t have enough to worry about these days — terrorism, war, toilet-bound economies, mystery respiratory viruses, and the incomprehensible success of reality television — people are worried about Moore’s Law, too.

There’s no quicker way to get people’s knickers in a twist here in Sillycon Valley than to intimate that Moore’s Law may get repealed in the near future. To add insult to that injury, just suggest that willingly adhering to the scaling suggested by Moore’s Law in this day and age is just simply a bad idea. It goes over like a lead balloon with the locals. Yet this is just exactly what has begun to happen.

Most notably, perhaps, was Michael Malone’s February essay in the now defunct venture capital magazine Red Herring entitled ‘Forget Moore’s Law’. In that essay he argued adherence to this technological dogma was unhealthy in terms of both business and social impact.

For those of you not familiar with Malone, he is a tech veteran, having covered the chip industry and high tech as a journalist and author for more than two decades. Despite his impressive curriculum vitae, my colleagues in the Fourth Estate almost always identify Malone as a co-founder of dot-com darling eBay. It’s a rather delicious irony, given his recent Silicon Valley blasphemy.

But I digress. Malone was then quoted in a New York Times story in early April along with other Silicon Valley and industry insiders questioning yet again the wisdom of Moore’s Law in today’s economic and social climate.

Now this much trouble hasn’t been stirred up since Benedict Arnold decided he was a Tory. Before I get accused of hyperbole, I will observe that most people in the industry have taken this idea in stride, and many agree with Malone, et al, at least in private. He’s in good company.

But then I’ve also been subjected to and amused by the emotional and indignant reactions of those here and elsewhere within the industry that are aghast that some of Silicon Valley’s own denizens would have the audacity to question the fundamentalist religious doctrine of high tech. I’ve actually heard the word “traitor” come up in conversation.

Then there was one semiconductor market research firm that even described Malone’s words as “what has to be described as heresy.” I’m not making that up; the company devoted an entire research note to the topic.

What’s next? Will we see effigies of Malone burning on the well-manicured lawns of corporate campuses in Santa Clara and north San Jose?

Moohlah is The True Technology Driver

Willam Blake's Blashemer. Jeff Chappell brought culture to the chip industry, if nothing else..But perhaps what makes Moore’s Law such an emotional issue these days in Silicon Valley is that the chip industry is in its worst downturn ever. We’re still waiting for that second half 2001 recovery, and it’s May 2003. People, at least those that are left, are on edge. And some within the industry — not just us muckraking yellow journalists — are beginning to question the wisdom of the two-year technology cycle.

For some time equipment and materials suppliers have been telling me that some of their chipmaking customers are looking at slowing down their business to a three year cycle, while others plan to adhere to the traditional 18 to 24 months. Many suggest that we will see a bifurcation of the industry, with top tier chipmakers adhering to Moore’s Law while second and third tier chipmakers will break it.

But even if this does happen, Moore’s Law still stays on track. It won’t be the end of the world as we know it, at least not anymore so than it is already.

Of course, Moore’s Law and the scaling of ever smaller silicon-based transistors will end someday. I don’t base my logic on the idea that physics will eventually break Moore’s Law; that declaration has been erroneously proclaimed more than once, particularly during the gloom of downturns.

Rather, I’ll just say that nothing lasts forever. But when it does, it’s not like the world is suddenly going to stop using silicon chips. We still use knives even though we have guns and surgical lasers. We still take trains sometimes, even though we have automobiles. We still drive cars, even though we have access to airplanes. We’ll still have a use for silicon chips even when quantum computing or whatever gee whiz stuff does end up succeeding traditional technology at the cutting edge.

Furthermore, it may be a matter of economics and not physics that ultimately constrains the shrinking transistor. And I don’t mean the money in the pockets of the Intels, Infineons and TSMCs of the world, but the pockets of us consumers, which drive the industry in lieu of nonexistent IT spending. How many times have we heard “There’s no market for a 486 processor … a 500Mhz processor … a 1GHz processor …” and so forth? “No one will ever need more than 256Kbytes of RAM … 640Kbytes … 32Mbytes … 128Mbytes …” and so forth? But then it turns out there is, and we do.

Of course if the economy doesn’t improve someday, all bets are off. But, for the time being, as long as people are willing to buy the latest, greatest electronic gizmo, someone is going to figure out the cost effective physics and keep cramming those transistors onto chips, and keep Moore’s Law intact. The semiconductor industry is like a bad Kevin Costner movie in that respect. Build it, and the market will come.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Is the Sky Falling?

Analysts, Tool Makers Say No

One would have thought the sky was falling on the semiconductor industry last Thursday morning as technology stocks dropped, with semiconductor capital equipment shares leading the way.

Chicken Little must be an investor.

Alas, Electronic News (the print edition): we hardly knew ye!Assembly equipment company Kulicke and Soffa Industries Inc. (K&S) Wednesday evening announced that it experienced some customer order deferrals and pushouts for ball-bonder tools because of space constraints and wafer and substrate shortages affecting certain customers.

“We hope no one overreacts to this news,” said C. Scott Kulicke, the company’s chairman and chief executive officer.

But overreaction is exactly what happened according to analysts and other equipment manufacturers. The K&S announcement, coupled with reports that Motorola Inc. would reduce its projection of demand for wireless handsets, prompted already nervous investors to sell off technology stocks Thursday.

On Thursday as of noon EDT, the tech-heavy Nasdaq index had lost 22 points, or 0.61 percent, falling to 3,635 after dropping more than 3 percent earlier in the day. Even the consistent performers in the capital equipment industry weren’t immune; Applied Materials Inc. was down $3.56 and closed at $69 per share. The Nasdaq rebounded, however, to close at 3,750, up 101 points.

While many chip stocks, including chipmakers IBM and Intel, ended Thursday on positive notes, equipment stocks remained tepid. The Semiconductor Equipment and Materials International (SEMI) index of equipment companies ended the day down more than three points. Technology stocks in general seemed to be holding their gains on Friday-the Nasdaq was up more than 14 points as of 12:45 p.m. EDT. Equipment stocks, however, continued to be lukewarm; the SEMI index was down another 1.5 points.

No Cause for Alarm

Fat kid in a bunny suit -- that's me!
Well, now I can say it: they were WRONG!

Technology and financial analysts said investor reaction had to do with mixed signals in the marketplace, and not the analog/digital kind.

On one hand, there was the K&S announcement, the Motorola announcement, and recent reports from some companies that near-future earnings may not be as high as predicted. But this tends to be typical for second-quarter reports during the summer, even during an upswing. Furthermore, many companies are posting record earnings and aren’t experiencing the traditional summer slowdown. Also, the Semiconductor Industry Association (SIA) last Thursday reported that world semi sales had topped $16.6 billion in June, a 48 percent year-to-year increase over June 1999 and an all-time record.

“(The SIA) figures are through the roof, which indicates the industry is as good as it can get, and every time we say that, it gets better,” observed Risto Puhakka, vice president of VLSI Research Inc. He added that the stock price of chipmakers doesn’t seem to be getting stronger, however, and some have even declined recently. “We have a lot of mixed signals from the marketplace,” he said.

“The basic thing is that the industry is at full swing, and you see shortages here and there,” Puhakka said. As for sensitive investors and bouncing stock prices, everyone is trying to figure out where it’s going to peak and how soon, he added.

Several analysts noted that assembly equipment companies have much shorter lead-times on orders than front-end tool makers, and that they are the first to feel the effects of a downturn because the assembly industry closely tracks the chip industry in general. This may have been part of the reason investors reacted the way they did, said Dick Greene, principal equipment analyst with SEMI.

“I haven’t seen anything in our data that reflects any particular signs of a downturn,” Greene said.

S.G. Cowen Securities Corp. analysts concluded that the reasons behind K&S’s announcement were essentially the same reasons behind Teradyne Inc.’s previous announcement of lower than expected quarterly earnings, said Tia-min Pang, managing director and equipment analyst.

Pang said that K&S revealed in a conference call Thursday that a Taiwanese subcontractor was primarily responsible for the order push-out because of space constraints at its facilities. Looking to other customers to fill the vacant slots, K&S discovered that other subcontract accounts had tempered their outlook, taking a more conservative approach to near-term spending, Pang said. The company indicated that most of these customers are located outside of Taiwan and for most, the issue is a lack of finished wafers from their foundry fab partners, he added.

This was consistent with Teradyne’s announcement that customers in Korea and Singapore had eased spending because the number of available finished wafers was less than anticipated, according to S.G. Cowen. The firm concluded that Teradyne and K&S share a mutual customer, Amkor Technology, that contributed to both companies’ announcements. Amkor reported quarterly earnings Wednesday night. The packaging and test company said that its fab utilization rates were 75 percent, which could mean one of three things, according to Pang. Either Amkor experienced a lack of wafers to test and package during the quarter, lost market share to its Taiwanese competitors or Amkor and Teradyne’s specific market segment is experiencing softness, Pang said.

“In digging deeper, it appears to be customer-, (geography-) and chip-application-specific,” Pang concluded. “We’re not seeing it anywhere else, just these two companies.”

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

But Soft! What Nasdaq Through Yonder Chasm Drops?

William Shakespeare had a thing about the fickle nature of things. Everything was fickle: women, pride, time, love — even whole countries. But nothing was as fickle as fortune in Elizabethan times. In King Henry V, Shakespeare tells us all about “Fortune’s furious fickle wheel.” In Romeo and Juliet, the Bard’s young heroine reminds us that “O fortune, fortune! All men call thee fickle.”

Alas, Electronic News (the print edition): we hardly knew ye!One wonders what the Bard would think about the modern-day stock exchange. Here, even good news can spawn a Nasdaq nosedive. I refer of course to Semiconductor Equipment and Materials International and the trade group’s release of equipment book-to-bill figures for April. It was another record month, but the ratio of bookings to orders wasn’t quite as high as last month’s ratio, which paved the way for the Nasdaq to plummet to a record low. Fickle fortune(s), indeed.

What would Shakespeare make of the rise and fall of Silicon Valley’s sometimes nebulous empires, and the ebb and flow of more wealth in a day’s time than one could accrue in an entire lifetime in the 16th and 17th centuries?

Would he be perhaps inspired by the fickle nature of the stock market?

I like to think so.

Thus, without further ado, The Royal Shakespeare Electronic News Company gives you:

Much Ado About Money

This is not an original Shakespeare play. Dramatis Personae: CEOnicus, King of Siliconia; Adminio, assistant to the King; Shareholdio; Day Traydbalt; Analysto

ACT I. Scene 1. The King’s corner office.

CEOnicus: Adminio! Take thee note of my words.

Adminio: Yes, m’lord?

CEOnicus: To my citizens tell: Trade reporters, investors, employees, lend me your ears. Orders are up! Throughout all there is a most glorious backlog! Three shifts slave through night and day, sun and moon to ship our fair products! Now do not tarry, Adminio: To the Web you must post! Let the e-mail go forth!

Adminio: Yes, m’lord.

CEOnicus: Oh, brave new world that has such circuits in it!

ACT II. Prologue.

Analysto: Ah, orders are up, and backlog there is still in the Valley of Siliconia.

The Land of the Dragon beyond the rising Sun makes overtures, The East seeks more chips from the West!

`Tis true, said orders are not up as much as last month, But beware the ides of fiscal year! It is foretold, and we are prepared.The second-quarter doldrums we must not rue, for Siliconia is in the midst of an upswing!

Scene 1. Day Traydbalt’s cubicle

Traydbalt: Mon dieu! Margin, margin, wherefore art thou, oh margin! I am ruined! I spy thine shrinking book-to-bill! Curse fortune’s fickle fate, that I did not sell yesterday! Sell, Sell! Oh fie on you, little mouse! Thou canst not click fast enough!

Scene II. The King’s corner office. He is studying his PC.

CEOnicus: Oh a pox on this fickle market! Our stock plummets! O God! God! How weary, stale, flat, and unprofitable seem to me all the uses of this world!

Shareholdio: CEOnicus! A pox on thee, thou fobbing folly fallen eggshell! Why dost our stock droppeth?

CEOnicus: Alas, it is that vile Day Traydbalt! He shall taste the bite of my sword! Had all his hairs been lives, my revenge had stomach for them all!

ACT III. Scene 1. A corner Starbucks in Siliconia

CEOnicus: Aha! Thou ruttish fly-bitten puttock! Traydbalt, you shalt taste my steel wrath!

Traydbalt: Nay, CEOnicus, I beg you for my life! I am poor and near penniless now! For my gambles have paid me dearly! Woe is my fickle fate!

CEOnicus: Alas, I have not the strength to slay thee! Pity hath seized my heart. Men at some time are masters of their fates: The fault, dear Traydbalt, is not in our margins, but in ourselves, that we are underlings.

Analysto: To this screed must all subscribe: All’s well that ends well.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.