Tuesday, August 30, 2011

From "Solar" to "Technologies:" What prompted GT Solar and OPEL Solar to change their names

Both OPEL Solar International (OPL) and GT Solar recently dropped the "Solar" moniker, becoming OPEL Technologies Inc. and GT Advanced Technologies Inc. (GTAT), respectively.

GTAT calls this a "rebranding and new corporate identity," since it has been marketing more crystal growth equipment to the LEDs manufacturing market, and aims for a broader customer base than the solar industry alone. Tom Gutierrez, president and CEO, says GTAT will "continue to look for strategic expansion opportunities into other adjacent markets."

GT Solar acquired Crystal Systems Inc. in July 2010, beginning the expansion beyond solar equipment. Silicon growth for solar cells and sapphire growth for LEDs are complementary technologies, but require different capabilities and serve different customers. Learn more at www.gtat.com.

OPEL Solar International became OPEL Technologies Inc. to avoid "confusion" about the company's two segments: high concentration photovoltaic (HCPV) solar panels and solar tracker systems, and III-V semiconductor device development.

For OPEL Technologies Inc., a new website was launched at www.opeltechinc.com. For OPEL Solar Inc. (solar) the website remains www.opelsolarinc.com. ODIS Inc. (semiconductors) has a new website, www.ODISinc.com.

The name change and website development allows each segment of the company recognition in the marketplace and unrestricted growth, said Leon M. Pierhal, OPEL CEO. CPV and III-V semiconductors are related technologies, as III-V semiconductor materials enable photovoltaic modules to capture a wider range of the solar spectrum. However, customers and applications can vary widely.

--Meredith Courtemanche

Friday, August 26, 2011

Notes from SEMI's Silicon Valley Lunch Forum: don't take off the economy's training wheels too quickly!

Speakers at SEMI's Silicon Valley Lunch Forum (8/24/11, Santa Clara, CA) spoke of the "uncertain economy" and asked the rhetorical question, "is it time to panic?"

Brian Matas, VP at IC Insights, noted that the temporary "solutions" to economic woes being implemented in the U.S. are impacting overall IC growth. Likening economic stimulus to a set of training wheels on a bicycle, Matas said that taking the wheels off must be done carefully, seeming to imply that politically, the U.S. may have gone from stimulus to austerity too quickly. Responding to a question about quantitative easing 3 (i.e., QE3), Matas said that it would be a good thing for the economy if the Fed were to implement it.

Dean Freeman, Research VP at Gartner, warned that rising semiconductor inventory levels are causing a drop in ASPs. Furthermore, the financial meltdown is impacting consumer spending - something to keep in mind when approximately 60% of all ICs sold worldwide are due to consumers. Of particular note: Japanese consumers are reining in spending as a reaction to that country's disastrous earthquake earlier this year and U.S. consumers are also spending less. As a result, Gartner expects slow growth for the next two years until the supply/demand outlook improves. Capex spending is forecast to increase by about 11% in 2011 driven by Intel, foundry and NAND spending, said Freeman. Semiconductor capex should see strength from 2Q11 through 2013 before retrenching. The research firm will be issuing its complete forecast update in September.

Dan Tracy, Sr. Director, Industry Research and Statistics at SEMI, told forum attendees that materials suppliers are seeing a significant slow down in the third and fourth quarters as a result of an over-reaction to the disaster in Japan earlier this year. Additionally, higher prices for gold and other metals and raw materials, as well as higher prices for oil are impacting the cost of materials manufacturing.

-- Debra Vogler

Thursday, August 25, 2011

Apple begins post-Jobs era

Steve Jobs has left Apple Inc. for stints before due to serious health problems. Today, Apple's CEO and figurehead announced that he would resign from the company, leaving it in the hands of Tim Cook.

With Apple hugely influential to the semiconductor and MEMS markets, with rumors of a solar foray in the works, Job's departure could have ripple effects throughout the electronics supply chain.

Tim Cook, Apple's COO, will take over as CEO. Cook took the reins during Jobs' most recent medical leave in January, and Apple's Board of Directors seemed pleased with his abilities. He takes the job with Jobs' recommendation. As COO, Cook was previously responsible for all of the company's worldwide sales and operations, including end-to-end management of Apple's supply chain, sales activities, and service and support in all markets and countries. He also headed Apple's Macintosh division and played a key role in the continued development of strategic reseller and supplier relationships, ensuring flexibility in response to an increasingly demanding marketplace.

Steve Jobs' legacy at Apple can hardly be overstated. In a letter to shareholders and consumers, Jobs stated that "Apple's brightest and most innovative days are ahead of it," adding that he would continue to contribute to the company in a new role.

Apple shares fell on Jobs' announcement, but Wall Street analysts remained uniformly behind Apple's succession plan and business prospects, says Rex Crum, MarketWatch. Apple shares remain up about 14% since the first of the year. The sell-off will be short-lived, analysts agree, as new buyers leap at the lower stock price for the successful company, and influential market watchers come out in support of Cook's leadership.

Friday, August 19, 2011

What to look for in AMAT's 3Q11 results

What to expect from AMAT's forthcoming (Aug. 24) fiscal 3Q11 results? Few surprises, limited visibility, and simultaneous weakness in both chips and solar, warn Wall Street watchers.

Stifel Nicolaus' Patrick Ho, Citi's Tim Arcuri, and Barclays' CJ Muse generally agree that an industrywide order trough is imminent. The problem for AMAT, Ho notes, is that it's a convergence of troughs in not only semis but also solar, as well as FPD, so there's no safe harbor from known semi industry cyclicality. Ho's newly revised 2001 estimates: $10.7B sales and $1.45 EPS, down from $11.1B and $1.55. [Update 8/22: Caris & Co.'s Ben Pang wades into the discussion, noting that the back-to-school season isn't much of a boost this year, either; he thinks AMAT will meet Street expectations for 3Q but probably not 4Q.]

Citi's Tim Arcuri is more bearish, anticipating "very poor guidance" with EPS maybe half what the Street is projecting ($0.17 vs. $0.33), but interestingly, he says overall "not bad enough to have negative preannounced." (He is lowering his AMAT outlook for EPS to $1.21 in 2011 [vs. $1.35] and $1.01 in 2012 [vs. $1.21].) Muse's outlook for AMAT is also bearish: $10.19B in 2011 sales and $1.25 EPS (vs. his "industry consensus" of $10.86B and $1.36), falling to $9.42B and $1.20 in 2012.

AMAT likely won't offer much sector visibility in its call, which Muse expects will be largely "uneventful." Besides clarity in softness in all its key markets, AMAT likely will face some investor blowback about its acquisition of Varian Semi. Equip. Assoc. (VSEA) -- which was all cash and, as it turned out, at the market's midcycle peak. AMAT also has to deal with solar slowness as customers "finally start to curb cell capacity expansion on cell inventory + demand uncertainties," Arcuri reports, specifically citing a "multihundred-million-dollar cancellation" from Chinese customers.

Everyone generally expects an imminent trough -- Muse sees a -20% decline in current-quarter orders (-20% silicon, -40% solar), and another -10% in the next quarter, while Arcuri sees a -15% orders decline (-50% in solar) before any pickup in early 2012 when Samsung should offer more capex. Following a 2H11 trough, "2012 is shaping up to be at/above normalized level," he writes, with WFE orders "rebound[ing] to $30B run-rate again," Arcuri says.

Wednesday, August 17, 2011

Japan manufacturers' newest hurdle: A strong yen

A soaring yen over the past year is adding an extra burden to Japanese manufacturers who are already pushing hard to rebound from the March 11 disaster.

The yen has gained about 11% in value over the past 12 months, from roughly ~¥86/US$1 to now ~¥77/$1. (Two years ago it was north of ¥100.) For many companies that's a double-edged sword: a higher yen means higher prices, sales, and profits, though it's somewhat hollow as it's not really tied to end-demand. But it's a big problem for companies whose costs depend upon domestic purchases and procurements, or who have higher exposure to exports vs. imports. Every ¥1 rise in the 2010 dollar/yen rate erased ¥2B from Sony's operating profit, for example; Honda loses ¥15B for every ¥1/USD appreciation.

"The yen trading below 80 yen to the dollar is an extraordinary level," noted Shuichi Aoto, managing director at Mitsubishi Motors, quoted by the Asahi Shimbun. (According to the paper, the ¥76.29/USD on Aug. 1 was fractionally shy of a post-WWII record.) "We will be in an extremely difficult situation even if we consider steps to cope."

The strong yen "has ushered in a period of Japanese manufacturer exodus," according to Toyota senior managing officer Takahiko Ijichi, quoted by the Nikkei. Sony's outsourced production now accounts for 50% of TV production, vs. 20% a year ago. Hitachi is considering widening its overseas materials/components procurement from current 36% to 50% or more. Mitsubishi Heavy Industries is ramping up its first nondomestic gas turbine plant (in the US), hoping that a local supply operation will reduce exposure to foreign exchange rates. Carmakers Toyota and Honda are building new plants and revising their corporate structure to improve proportions of local procurement in North America.

In our industry, even Toshiba is ready to rethink its flagship NAND flash operations, after the strong yen has cut operating margins in half (20% to 10%) in just six months. "If the yen stays this strong, we will have to examine each business to see if it can really continue operating in Japan," said exec officer Makoto Kubo, quoted by the Nikkei. Ramping output of more 2Xnm chips this year will help reduce costs, but "if the yen's appreciation reaches very high levels, the impact will be too big to offset through improvements in production technologies."

(Tokyo Electron, meanwhile, reports export sales for its equipment (semiconductor, FPD, PV) as yen; some settlements are in dollars, but forward exchange contracts are made at the time of booking, so "the effect of exchange rates on profits is negligible," the company said reporting its most recent fiscal numbers.)

Panasonic, too, is dented by foreign currency swings -- every ¥1 rise vs. the dollar and euro trims operating profits by ¥3.8B and ¥1.7B, respectively, notes managing director Makoto Uenoyama, in an interview with the Nikkei. "Given Japan's higher tax rates and power-supply restrictions, maintaining domestic production is becoming increasingly difficult." To help mitigate its currency exposure, the company is increasing its emphasis on "forward exchange contracts" beyond the current 50/50 proportion, and will push more procurement and production out of the country. Plans include moving procurement functions from its Osaka HQ to Singapore, procuring more parts and materials from China and other Asian countries, and raising overseas procurement ratio from 53% to 60% in fiscal 2012. A new Li-ion battery plant in Suzhou will take parts from local manufacturers, supplying batteries to Chinese PC makers, and Panasonic will increase some white-good production in India and Brazil for those local consumers.

Another problem: Korean companies have fought against their nation's similarly weak won by cutting prices of products, something that further handcuffs their Japanese rivals. "To compete against our South Korean rivals on an equal footing, we have no choice but to shift production overseas," Uenoyama said. And that might mean a dramatic shift in strategy. "I don't think we can survive if we continue to focus on selling consumer products. We should shift our attention to environment/energy-related operations and offer a package of energy-saving products to businesses and consumers," he said.

Beyond individual corporate efforts to minimize exposure by outsourcing or rebalancing import/export levels, there's not a lot that can be done to check the yen's ascent. A sluggish US economy and recent credit rating drop, and the Fed's subsequent pledge to freeze interest rates at basically zero for the next two years, won't help. (Nor that the yen is one of the currencies investors generally view as a "safer" investment in times of economic turmoil.) Eventually the Bank of Japan might step in and expand asset purchases or lower interest rates itself, though such moves won't be popular internationally, especially since the US has more freedom with its interest-rate levers, notes the Nikkei. But don't be surprised if the yen keeps getting stronger, maybe even to ¥74/$1, warns Osamu Takashima, chief foreign exchange strategist at Citibank Japan Ltd., quoted by the Nikkei.

Tuesday, August 9, 2011

SMIC's new CEO: Best fit, but work ahead

SMIC has officially named a new CEO to replace David Wang who resigned last month after what amounted to a no-confidence vote. Tzu-Yin Chiu, who also becomes an executive director of the company, comes with nearly three decades of experience in the semiconductor industry, most recently:
  • Hua Hong NEC Electronics (president/CEO)
  • Shanghai Huali Microelectronics (president/CEO)
  • Silterra Malaysia (president/COO)
  • Hua Hong International Management (SVP/COO).
He was at SMIC from 2001-2005 as SVP of Shanghai operations, and before that was TSMC's senior director of fab operations. At the start of his career he was department head of AT&T Bell Labs' high-speed electronics research department.

SMIC chairman Zhang Wenyi touted Chiu's "extensive technical and management experience in the semiconductor field, as well as his in-depth knowledge of SMIC and the Chinese semiconductor industry." Chiu himself says his mission "is to further improve SMIC's operations, customer support, technology offerings, and market competitiveness, while continuing to develop long-team strategic relationships with key customers." He also pledges that SMIC will play a more important role in the global semiconductor foundry sector.

Chiu "is a very good choice and probably the best solution for SMIC," says Samuel Tuan Wang, analyst at Gartner -- and former SMIC exec himself, having led SMIC America operation for eight years. He has "great leadership skill," and "is well liked by employees and customers." His prior experience at SMIC and close work with the Shanghai government while at HHNEC also help his cause.

When David Wang stepped down, there was some concern that there might be a power struggle between Taiwanese and Chinese management, with the move perhaps indicating a strategic swing in favor of more domestic leadership. Chiu actually comes from Taiwan, Gartner's Wang noted, which suggests both Datang and CIC think he's the best candidate on either side of the Strait. He also noted that Wang's predecessor at SMIC, Richard Chang, recruited a lot of Taiwanese managers, but also promoted many Chinese as well. Ultimately any recent turmoil in SMIC's business can be more directly attributed to a loss of wafer business from TI once Nokia dropped the Symbian platform -- pushing SMIC's fab utilization rate below 80% -- and less to internal strife, he suggested.

SMIC needs to move away from its reliance on customers who develop internal IP (customer-owned tooling, or COT) and focus on its more leading-edge technology (which hasn't had enough R&D funding) and winning more customers there, he suggested.

But Chiu's appointment may not simply calm the waters around SMIC. He may be the best candidate, but he'll need to form his own team, Gartner's Wang noted. "I think that some key managers will leave. Lack of experienced managers will be the issue now." With a still-unsettled and possibly political atmosphere, "many experienced managers (from Taiwan or from the US) will hesitate to join SMIC," he suggests. "Chiu will have a very challenging job ahead."

Monday, August 1, 2011

Renesas: Rebuilt and revitalized

An update on Renesas' rebuilding efforts following the March 11 disaster offer an example in courage, teamwork, dedication, and learning from adversity -- sometimes with unexpected benefits.

The March 11 earthquake/tsunami disaster caused great destruction and disruption across every imaginable plane (most significantly on the human side). Thanks to frequent and valuable reporting from Takeshi Hattori, readers of SST had immediate and first-hand information and insights about damage assessments, availability of resources, and recovery efforts. From a macro perspective, Japan's response to the March 11 disaster has been nothing short of inspiring; the spirit of Kizuna, of bonding together, has many examples.

A semiconductor industry example of both corporate and human inspiration is Renesas Electronics. Only five of Renesas' domestic sites across Japan (10 wafer fab plants and 11 assembly/test facilities) were impacted; the worst was at its Naka factory in Ibaraki Prefrecture, home to 200mm and 300mm facilities (wafer fabrication and test/packaging). Initial messages from Naka suggested there was concern whether the site would be salvageable at all (structure, infrastructure, equipment). But after intense efforts, recovery is about 30% ahead of schedule for restoring operations at Naka to pre-earthquake levels, with both 200mm and 300mm lines now up and running, with projected return to 100% capacity in September. See below/after damage photos below.

Ali Sebt, COO of Renesas Electronics America, related the Japanese company's rebuilding efforts to SST, citing the quick recovery to effective planning, teamwork, help from partners and customers, and overall a monumental effort of dedication, sacrifice (e.g. carpooling, or even buying bicycles for a 4+hr commute) and communication. Eighty thousand people contributed to the company's recovery on a global basis, including 2500 external employees -- all of whom, from the beginning, "shared a sense of urgency, and also optimism," he emphasized.

From a conversation with Sebt, several themes emerged:

Great challenges offer great opportunities. The March 11 disaster offered lessons in ways to change the way things are done, and generated a "renewed and reenergized" focus across multiple planes: customer interaction, manufacturing redundancy, reemphasis on quality and reliability, Sebt explained. "We're a different company now." Renesas was already in the process of flipping its customer landscape from a 60%/40% domestic vs. overseas dependence (about 50/50 in micros) to a 40%/60% globalized ratio, Sebt noted.

It also gave customers a new concern too. Now they're talking about continuity of supply commitments, dual-sourcing, and responding to new RFQs with new stipulations about risk mitigation plans. This, Sebt said, is "healthy for the industry and overall economy."

JIT revisited. Some have argued that, while recovery efforts have been commendable, the real savior was "luck" in the form of an unrelated inventory overhang built up for several quarters, which softened the blow to the supply chain. "We were fortunate" in this regard, Sebt agreed. "Had we come into this quake from an allocation period, it would have been disastrous." That inventory overhang only kept until the May-ish timeframe, he noted, so credit must also go to resiliency and determination of the company's staff and partners.

The March 11 disaster has put a critical spotlight on the just-in-time (JIT) delivery method. In JIT, inventories are kept to a minimum, and the redundancy of building a given device in more than one location can mean additional cost, the antithesis of a lean environment. "Absolutely there is a broader rethinking" of JIT, Sebt acknowledged. Major customers who categorize components into strategic buckets (e.g. sole-source, proprietary architecture) vs. commodities are taking a closer look at how to manage their inventory. And for smaller and midsize customers who have completely outsourced their manufacturing and components, this has been "an awakening for them" that they have very little visibility to security and continuity of supply.

"JIT delivery was the pride of the whole ecosystem," Sebt said. Now, having inventory is "not such an evil thing;" now they see it as a good thing. "All feel it's too risky to be in an inventory-less situation all the time," he said.

Globalization of manufacturing. Part of a bigger companywide strategic examination (a "100-day plan") was to take account of how Renesas tapped a worldwide network of fabs and its supply chain. Now, there's a new emphasis on why that balance of internal/external fab network is crucial. Including the company's external fab network (which has been a 5%-10% boost in capacity), Renesas will "continue to do beyond 100% capacity," Sebt noted. GlobalFoundries' site in Singapore was originally a Hitachi fab, and Renesas has maintained some production there; TSMC, meanwhile, has been a partner since and through the 65nm node. "Once we're back online 100%, we don't intend to stop using external fab networks," Sebt explained; "we will continue those relationships as a business continuity measure." And that increase in outsourcing means Renesas can continue to grow without additional capital investment, he pointed out.

Before and after

These before/after photos were taken on April 11, nineteen calendar days after the March 11 disaster -- that's less than three weeks. And this doesn't show the "third dimension" of rebuilding beyond the visible equipment and room itself: e.g., gases, connection to servers, water/electricity, etc. Initial damage assessments had to be done via flashlights; damage "was very heavy," Sebt said.

Notice even the building's air ducts -- not terribly strong structurally -- many of them stayed intact.

The involvement of partners in rebuilding was particularly visible in rebuilding the cleanroom operations. The president of one equipment supplier personally visited Naka, bringing lunch for his employees, Sebt noted. In other cases, suppliers' other customers deferred equipment (e.g. gas indicators) to help. Renesas also borrowed spare parts from US and other operations that had them in stock.

There's also been an unexpected benefit to rebuilding the Naka cleanrooms and facilities. Putting in new or reconditioned/cleaned equipment has, in some cases, raised yields, Sebt noted.