Nanotech: The Circuits Blog

Along with the economy, chip forecasts are heading south.

Following an outlook about weak chip industry capital spending from market researcher Gartner on Wednesday, iSuppli cut its 2008 IC revenue forecast to 3.5 percent from 4 percent on Thursday.

The memory chip industry is the canary in the coal mine. At least two memory chip manufacturers are on life support right now. Hynix, the world's second largest maker of memory, is trying to scare up cash by seeking buyers for a 36 percent stake in the company. The other ailing memory maker is Qimonda AG. Rumors have been rife that the manufacturing assets of the loss-ridden company will be snapped up.

Hynix and Qimonda won't get any help from the market in the coming months. Gartner said that the oversupply in memory, combined with a slowing consumer market, "gives little hope for an upside until 2010." Semiconductor industry capital spending is forecast to decline 25.7 percent in 2008--this would be the steepest decline since 2002--and another 12.8 percent in 2009, according to the market researcher.

The iSuppli report isn't any brighter. The outlook for memory revenue has been revised downward by 5.8 percentage points for 2008. iSuppli is citing the "credit crisis" as adversely affecting demand.

And let's not forget the Micron surprise on Thursday. The largest maker of memory chips in the U.S. said it would reduce its workforce 15 percent during the next two years. "Selling prices for NAND flash memory (are) significantly below manufacturing costs," Micron said in a statement.

SanDisk--the largest supplier of retail flash memory products--has problems of its own. It has become a buyout target as its stock price has steadily declined over the last 12 months.

Click here for ongoing coverage from CNET News, 'Tough times for tech'

After cutting executive pay last week, Micron Technology is now paring staff as it scales back flash memory chip production.

On the heels of reporting a $344 million fourth-quarter loss last week--when Micron said it was cutting executive pay 20 percent--the Boise, Idaho-based memory chip maker said Thursday that it was restructuring its memory operations.

Micron will reduce its global workforce by approximately 15 percent during the next two years. Most of the workforce cuts will occur in Boise.

"The combination of declining customer demand and product oversupply in the marketplace has driven selling prices for NAND flash memory significantly below manufacturing costs," Micron said in a statement.

As a result, IM Flash Technologies (IMFT), a joint venture between Micron and Intel, will discontinue the supply of NAND flash memory from Micron's Boise facility. The NAND operation shutdown will reduce IMFT's NAND flash production by approximately 35,000 (200 millimeter) wafers per month, Micron said.

NAND flash is used in flash drives for digital cameras and digital music players as well as solid-state drives.

Micron and Intel have other facilities that make NAND flash, including one in Lehi, Utah.

"Micron is in a strong position relative to our competitors...but we are not immune to the difficult global market conditions that are affecting us all," said Micron CEO Steve Appleton in a statement.

Cash restructuring and other related expenses are anticipated to be approximately $60 million and "next year's cash operating margin benefit is expected to exceed $175 million," Micron said.

Last week's red ink was Micron's seventh straight quarterly loss--and it reported a net loss for the entire 2008 fiscal year of $1.6 billion.

The memory chip industry overall is caught in a particularly brutal downward price spiral that is threatening the viability of even the largest players, including companies like Hynix.

The largest hard-disk drive maker is going solid-state. Slowly.

Seagate will enter the market for solid-state drives in 2009, as it slowly embraces a technology that will, in some cases, replace its bread and butter: hard disks.

"Our history is based on rotating magnetic media. But as solid-state comes online, we're embracing this new media type," said Rich Vignes, senior manager of market development at the Scotts Valley, Calif.-based company.

Seagate's first target market will be large enterprise customers. Consumer SSDs from Seagate will come later. The challenge is to convince large enterprise customers that SSDs are safe. Although hard-disk drives have endurance problems of their own, corporate customers must be convinced that a technology as new as solid-state storage is reliable.

"There isn't really a clear way of describing endurance or life expectancy of a solid-state drive. So, we're working on that as an industry standard," through JEDEC, a large standard body, Vignes said.

The presence of large players such as Seagate will allay fears, he believes. "As companies like Seagate start to demonstrate field-proven reliability and endurance in enterprise applications, we'll overcome those (solid-state drive) endurance fears."

Analysts are bullish that, with time, SSDs will catch on. "SSDs offer much better MTBFs (mean time between failures) than HDDs, although the endurance is an issue that has to be addressed," said Gregory Wong, an industry analyst at Forward Insights.

"IT managers tend to be conservative, so the qualification time will be quite long--nine months to a year, and early adopters will be Web 2.0 companies such as Google, Facebook," Wong said.

Seagate, which will enter the SSD market in 2009, says there are challenges to make SSDs palatable to large corporate customers.

(Credit: Seagate)

Seagate says it can tap into the decades of expertise it has in error correction. "Some of the skills we've picked up along the way, to deal with imperfect media, has applicability to dealing with imperfect media on NAND." All solid-state drives use NAND flash memory as the storage medium.

Fears aside, the lure of SSDs is speed--and this is what is driving Seagate into the market. "For SSDs, the play is performance, performance, performance. Did I mention performance?" Vignes said.

"SSDs have 100 times better random IOPS than HDDs," Wong said, referring to the dramatic speed advantage SSDs have over HDDs in handling input-output operations per second. Samsung has said in the past that companies such as Citibank and American Express peg server performance on IOPS.

Of course, it won't be a cakewalk for Seagate. There is plenty of competition already. Intel has started shipping SSDs for both enterprise and consumer markets. And Samsung is a leading player in the consumer market--its drives are used by Dell and Apple--and it is now stepping up efforts to snag corporate customers. On Thursday, Samsung announced that its SSDs have been selected, after extensive testing, for use in the Hewlett-Packard ProLiant blade servers.

"While for some companies, it's a new market and a new product, for us, it's an existing market, new product," Vignes said.

Seagate will get the raw material for SSDs--NAND flash memory--from others. "We're not going to make NAND. We are in discussion with all the premier NAND suppliers," Vignes said.

(Original CNET report here.)

Update on October 9 at 9:00 a.m. with additional comments from Intel and AMD.

Advanced Micro Device's new manufacturing venture may come with some old baggage.

After AMD announced on Tuesday that it would spin off its manufacturing assets to a new company partially owned by the Abu Dhabi government, Intel was quick to warn AMD about patent and cross-licensing concerns.

AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest (55.6 percent) and have equal voting rights with AMD in The Foundry Company. The total investment is expected to come to approximately $8 billion.

Intel-AMD disputes are certainly not new. AMD sued Intel in 2005 alleging antitrust violations. But this time Intel has AMD in its sights.

At the moment, Intel is simply expressing concern about the deal, per the Patent Cross License Agreement between the two companies. (The two chipmakers have cross-licensing agreements that go back to 1976.)

The Agreement, which was signed in 2001 and expires in 2010, has restrictions related to the transfer of licenses and patents.

"We don't know enough yet. We have a lot of questions about how this deal is structured," said Intel spokesman Chuck Mulloy.

"According to the public statements they made in their press releases, they (ATIC) also have 50 percent voting rights. So we need to understand a lot more about it. We just have to do due diligence. Make sure that our IP (intellectual property) rights are protected."

AMD, for its part, believes the transaction is structured in a way that doesn't violate any agreements. "We are completely confident the structure of this transaction takes into account our cross-license agreements. Rest assured, we plan to continue respecting Intel's intellectual property rights, just as we expect them to respect ours," said AMD spokesman Drew Prairie.

Corrected at 8:11 p.m. PDT: See below for details.

Intel has tapped Senator Dianne Feinstein's chief of staff to head its Washington office.

Intel said Wednesday that Peter Cleveland, chief of staff to Senator Dianne Feinstein (D-Calif.) since 2006, will join the company as its new vice president for global public policy and head of the chipmaker's Washington, D.C., office. Cleveland will join Intel immediately after the November 4 presidential election.

"We're spending more energy telling our story," said Tom Waldrop, an Intel spokesperson. Waldrop said that Cleveland is "extremely well connected in Washington."

Prior to his role overseeing Feinstein's office, Cleveland was the senator's legislative director from 2004 to 2006. He has also served as staff to both the Senate Finance and Foreign Relations committees and as a corporate and government relations attorney for a "leading" international law firm, according to Intel. Cleveland holds a law degree from Georgetown University and an undergraduate degree from Columbia University. He is a member of the bar in New York and the District of Columbia.

"Peter Cleveland brings two decades of policy, legislative, regulatory, and legal experience to our Washington office," said Bruce Sewell, Intel senior vice president and general counsel, in a statement.

Intel has a long list of policies that it promotes including communications and broadband, intellectual property and patent reform, and education reform. Intel also has an ongoing challenge to educate Washington about its role in the U.S. economy. Intel has a number of multibillion-dollar chip manufacturing plants in the U.S. that help to keep the country competitive by maintaining a high-tech domestic manufacturing base, Waldrop said.

Cleveland is the latest of a number of additions to Intel's government affairs staff in recent weeks. Brian Huseman, who was chief of staff to former FTC Chairman Deborah Majoras, joined Intel's Washington office last month from the FTC to work on issues of trade and competition policy globally. Audrey Plonk joined Intel's global public policy staff last month at company headquarters in Santa Clara, Calif., where she will work on security assurance and critical infrastructure protection policy. Plonk previously worked in the National Cyber Security Division of the Department of Homeland Security, where her focuses included international security policy issues.

Intel has had a Washington office since 1986 but is now "beefing up operations," according to Waldrop.

Correction: This story initially gave the wrong day of the announcement. It was made Wednesday.

Advanced Micro Devices appears to have found an alternative to going fabless.

The dramatic announcement by AMD Tuesday, which focuses on a new entity known for now as The Foundry Company, shows that there is another way to restructure that doesn't entail completely jettisoning manufacturing operations--referred to in the semiconductor industry as fabs or fabrication facilities.

"Real men have fabs." This quote attributed to former AMD CEO and Chairman Jerry Sanders has some import here. Though fabless concerns, such as Nvidia, have been held up as lean, mean chip-supplying machines that don't have the burden of funding costly manufacturing facilities, the downside is often ignored by Wall Street.

Going completely fabless separates the company from key process technologies that are needed to stay ahead. That's especially true in AMD's case, where the sole processor rival is chip behemoth Intel, which derives much of its strength by moving quickly from one chip manufacturing process to another. Going to a new manufacturing process typically results in faster, more power-efficient processors.

This artist's rendering shows what AMD expects its New York facility to look like when it opens for business about three to four years from now.

(Credit: AMD)

Look no further than the state AMD finds itself in today. It is a generation behind Intel, which has been shipping chips based on the 45-nanometer process for almost year. AMD is currently struggling to get out its first generation of 45nm processors.

The newly created Foundry Company was described by AMD Chief Executive Dirk Meyer on Tuesday as a "brand-new and leading-edge semiconductor manufacturing company." It will be run by Doug Grose, who will relinquish his current role as AMD's senior vice president of manufacturing operations to become CEO of The Foundry Company.

Two things will happen as a result of the backing by the Abu Dhabi-based investors. First, AMD, through the joint company Advanced Technology Investment Co. (ATIC), will expand its current manufacturing facilities in Dresden, Germany, and transform this into a foundry company that also builds chips for other companies.

As part of this expansion, Dresden will bring in IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies. "We deepen and widen our relationship with IBM," AMD said Tuesday. "So we'll be able to take bulk and SOI together to the 22-nanometer generation and beyond." (The next generation of chips will be made on a 32-nanometer process, followed by 22-nanometer in the 2012 time frame.)

AMD's Fab 36 in Dresden will focus on IBM's silicon-on-insulator (SOI) and so-called "bulk silicon" technologies.

(Credit: AMD)

Second, AMD will move forward to build manufacturing facilities at the Luther Forest Technology Campus, near the town of Malta, N.Y. "At the earliest opportunity we will break ground on upstate New York and begin work on what we believe will be the most sophisticated manufacturing facility in the United States," AMD said.

The intention is to "bring that fab online in the late 2011, 2012 time frame," AMD said. "And further cementing that upstate New York corridor as one of the leading (areas) in the world for nanotechnology." The planned facility will provide 1,400 jobs for the region, according to AMD.

AMD may also expand beyond Dresden and New York. "Once we complete the Dresden expansion and build out upstate New York--and if commercially justified--we will consider the creation of research and manufacturing facilities in Abu Dhabi," said Grose.

Hector Ruiz--the current AMD chairman--will relinquish his role as AMD's executive chairman to become chairman of The Foundry Company.

Update Tuesday 4:12 a.m. PDT: AMD has made the official announcement of the manufacturing spin-off.

On Tuesday, Advanced Micro Devices will announce a long-expected restructuring, according to sources familiar with the deal.

As expected, the No. 2 supplier of PC processors will split into two companies: one for designing chips, the other for manufacturing them. The capital-intensive business of manufacturing chips is weighing on AMD as it reels under a $5 billion debt load.

The investment is expected to allow AMD to remain directly involved in chip manufacturing--crucial for competing with Intel, which has used its manufacturing prowess to great advantage.

AMD would not comment Monday.

The company has secured about $5.7 billion of "confirmed, pledged investment," with some of the money earmarked for a future manufacturing facility in Malta, New York, according to sources.

AMD will own part of the new manufacturing entity, for the time being to be called The Foundry Company, while Advanced Technology Investment Co. (ATIC) will own the rest. One of the investors, Abu Dhabi-based Mubadala Development Co., invested approximately $622 million in AMD last November.

Mubadala already holds an 8.1 percent stake in AMD. Upon closing the deal, Mubadala will own 19.3 percent of AMD, according to sources.

ATIC--also based in Abu Dhabi--will have equal voting rights with AMD in The Foundry Company and own 55.6 percent of the new entity. ATIC will invest an initial $2.1 billion, of which $1.4 billion will be invested directly in the new company and $700 million will be paid directly to AMD, according to sources close to the deal.

In addition, ATIC will commit a minimum of $3.6 billion and up to $6 billion in additional funds over the next five years for the upgrade and expansion of fabrication facilities in Dresden, Germany, and construction of a new facility in upstate New York, near the town of Malta.

Mubadala, for its part, will purchase 58 million newly issued AMD shares valued at $314 million and warrants for 30 million additional shares, giving it a total stake in AMD of approximately 19.3 percent on a fully diluted basis, sources said.

Mubadala will also have the right to designate a representative for election as a member of the board of directors of AMD.

All of this is expected to greatly improve AMD's liquidity.

AMD CEO Dirk Meyer and other company executives are expected to make the announcement Tuesday.

The investment is characterized by one source as coming from investors with "a long-term vision, who want to help (AMD) scale the foundry operations to compete globally." A foundry is a manufacturing facility.

AMD has been laboring for months over details of the restructuring, which it has termed "Asset Smart." AMD Chief Financial Officer Bob Rivet said during AMD's second-quarter earnings conference call that Asset Smart would be "a major reformation of the company."

Also, at that time, AMD announced that Meyer would take over as CEO and Hector Ruiz would relinquish that post but remain as chairman to oversee AMD's transition to Asset Smart.

AMD already has a relationship with IBM in which AMD uses IBM's advanced test manufacturing facilities.

Nvidia has become a Silicon Valley hot spot for rumors. One is tied to an analyst downgrade Monday, the other to the rumored Apple MacBook refresh.

An analyst rekindled speculation Monday that the world's largest graphics chip supplier would sell off its chipset business, while rumors persist that the company would play a larger role in an expected refresh of the Apple MacBook.

Nvidia graphic on its notebook home page

(Credit: Nvidia)

Nvidia shares fell Monday after a Pacific Crest analyst issued a negative report on the company's prospects. In the report, the analyst said "our checks confirm" that Nvidia will exit the chipset business next year.

Nvidia chipsets--sometimes referred to as MCPs--serve as supporting silicon for the company's graphics processors. In the past, Nvidia has denied that it will exit the chipset business.

The analyst also speculated that Nvidia will pre-announce negative results for the third quarter (ended October). Nvidia has been dogged by negative press and analyst reports after it disclosed issues with its processors and chipsets back in July.

If that wasn't enough, Pacific Crest said Nvidia may see share loss in the notebook market next year as a result of a future refresh of "Montevina" graphics silicon from Intel.

But not all is lost. On the upside, rumors persist that Nvidia will play a large role in an expected MacBook refresh this month. The latest rumor holds that Nvidia is showing off prototypes internally of upcoming MacBooks with new Nvidia silicon.

Some are even pointing to a graphic on the Nvidia notebook home page of a slim notebook design as a possible MacBook design--though a more plausible explanation is that it's simply generic artwork.

Apple uses Nvidia graphics chips in its high-end MacBook Pros, but the MacBook and MacBook Air use Intel integrated graphics silicon. One of the latter two could be recipients of new Nvidia graphics chips.

Nvidia would not comment on the rumors.

Memory chipmakers are fighting for their life.

The memory chip market--and industry--is caught in a particularly brutal downward price spiral that is threatening the viability of even the largest players.

"Memory manufacturers who have already been losing money for several quarters are now looking at another six months to a year of absolutely ominous conditions," said Avi Cohen, managing partner at Avian Securities.

Companies are now in survival mode, according to Cohen. "It is a matter of survival and everyone needs to figure out how to stay in business over the next year or how to scavenge something if one (company) decides it cannot survive," said Cohen.

Currently, two major memory chip manufacturers are seeking investment lifelines. Hynix, the world's second largest maker of memory, is trying to scare up cash by seeking buyers for a 36 percent stake in the company. So far, the only likely bidder to emerge is Samsung--which has also made a play for struggling SanDisk, the largest supplier of retail flash memory cards.

The other ailing memory maker is Qimonda AG--an Infineon Technologies subsidiary. Rumors have been rife that the manufacturing assets of the loss-ridden company will be snapped up.

All of this turmoil was underscored this week when Micron Technology, the largest U.S. maker of memory, announced that it had lost $1.6 billion in fiscal 2008.

"The DRAM business--it just doesn't feel like that, for many companies, it's sustainable," said Ron Foster, chief financial officer at Micron, speaking during the company's earnings conference call on Wednesday.

The average selling price for NAND and DRAM has dropped sharply since May.

(Credit: Micron Technology)

Pricing has fallen off a cliff in the last few months, making a bad situation worse. Micron said Wednesday that the average selling prices of DRAM chips--the main memory used in PCs--was down between 15 percent and 20 percent from last quarter. NAND flash prices were down between 30 percent and 35 percent. (NAND flash is used as storage in portable music players, digital cameras, and the nascent solid-state drive market.)

The NAND price crash has forced Micron and Intel to delay the "build out" of manufacturing capacity in Singapore, which is part of their joint flash memory venture, IM Flash Technologies, Micron said Wednesday.

"Overall, the NAND market continues to be in an oversupply condition," said Micron's Foster.

This is affecting investment. "The capital expenditure for the NAND market in 2008 is going to be down sequentially (year-to-year), which is the first time that's happened since the inception of the market," said Steven Appleton, chairman and CEO of Micron on Wednesday.

The PC market has also turned bleak. "The PC business was plugging along pretty well and then all of sudden in the last months the demand profile has just really dropped off," according to Foster.

All these negatives add up to a cruel market that is forcing some companies to either merge or perish. "This is leading to a new wave of forced consolidations and partnerships. This industry will look very different a year from now with very few players controlling much larger market shares and with a much better ability to control production and pricing," said Cohen.

This consolidation is not only affecting manufacturers but players in the retail channel too. SanDisk--which does not manufacture flash chips but sources them from a Japan-based joint venture with Toshiba--has seen its stock price plunge more than $60 per share over the last two years. This has made it vulnerable. SanDisk's chairman and CEO, Eli Harari, said last month that the $26-a-share bid from Samsung was "opportunistically timed at the trough of an industry-wide downturn."

Not everything is doom and gloom. The market for solid-state drives--which use NAND flash--is poised to grow. Appleton cited the burgeoning netbook market as an opportunity for SSDs. The enterprise is a target market too: SSDs based on single-level cell (SLC) technology can offer many times the performance of hard disk drives for customers such as credit card companies and airlines.

Ultraportable laptops, such as the ThinkPad X301 and Dell Latitude E4200, are also beginning to use SSDs as a storage replacement for hard disk drives.

The price decline for solid-state drives over the last quarter makes these drives "more attractive from an end user's perspective," Micron said Wednesday, adding that "NAND far exceeds DRAM growth demand rates."

Fujitsu is in talks to sell its hard disk drive business to Western Digital, according to a Japan-based report.

Western Digital is the second-largest hard disk drive maker in the world behind Seagate Technology. Fujitsu's HDD unit is ranked sixth.

Fujitsu would sell all of its plants--including those in Japan, Thailand, and the Philippines--for between 70 billion yen and 100 billion yen (approximately $660 million to $944 million), according to Japan's Nikkei news service.

This would be one of the largest business unit sell-offs for a Japanese electronics company, Nikkei said, adding that Fujitsu's hard disk drive business has been posting losses.

The deal would be finalized by the end of the year, according to Nikkei.

A Western Digital representative would not comment on the report.

Beyond the brutal price competition that is typical in the hard disk drive industry, there is a clear-and-present threat now from solid-state drives. Until this year relegated to digital camera and music player storage, solid-state drives are now making inroads--albeit small--in laptops, particularly ultraportables like the MacBook Air, Dell's new E4200 line, and Netbooks such as the Asus Eee PC.

Solid-state drive suppliers such Intel, Micron Technology, Samsung, and STEC are also beginning to target SSDs as replacements for hard disk drives in the enterprise.