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Transition begets opportunity to diversify

Posted: 04 Jan 2005 ?? ?Print Version ?Bookmark and Share

Keywords:outlook? growth? market? demand? ic?

Lee: For the surviving IDMs, it is necessary to improve the capital efficiency of current and future investments.

The semiconductor landscape is significantly changing and the competitive barriers are elevating for integrated device manufacturers (IDMs). Fab costs have risen from $250 million in the 1980s to about $2 billion today. The technical expertise required to deliver productive yields from complex fabs is greater as the industry increases the number of materials in the fab and decreases feature sizes.

Some IDMs may fail to achieve acceptable return on investments due to slower yield maturities and higher investment costs. Hence, the industry is heading toward foundry models and outsourced manufacturing. By 2010, nearly one-third of semiconductor revenues are expected to be delivered by outsourced fab models. For the surviving IDMs, it is necessary to improve the capital efficiency of current and future investments.

Historically, computing applications dominated memory use and consumption. This lack of diversification contributed to the famous boom-and-bust memory cycles. Today, the end-use market is more diverse due to the strong growth of consumer electronics and mobile handset markets. The computing market is also more diverse as server and laptop market growth outpaces desktop computing.

In the more mature, high-volume markets such as desktop computing, it is essential to aggressively drive down manufacturing costs to stay below the historical declining price/bit curve.

As the memory industry goes through multiple transitions, improvements in capital efficiency will be more important in 2005. The dominant products will undergo a transition from 256Mb to 512Mb, and from DDR to DDR2, as manufacturers continue to migrate to 300mm wafer processing. These industry dynamics pressure companies without broad product portfolios and efficient capital spending.

Another strategy to improve the return on investments is to diversify products that benefit from the same investment. This varied product approach can better match production output to market demands, potentially increasing revenues and stabilizing cash flows. For example, some dram manufacturers are entering the nand flash market, which uses much of the same fabrication equipment, and is currently growing faster than the DRAM market. In theory, if a large percentage of the DRAM capacity can be efficiently converted to NAND and other products, the boom and bust cycles could be more moderate in the future.

Some prognosticators view the multifaceted transition from 256Mb to 512Mb, DDR to DDR2, 200mm to 300mm wafers and 110nm to 95nm and 80nm process technologies as the "perfect storm," but other more optimistic strategists view these transitions as an opportunity to segment and diversify.

- Terry Lee
Executive Director, Advanced Technology and Strategic Marketing
Micron Technology Inc.

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