Monday, June 27, 2005

Semiconductor Sector Rating Change: Neutral to Boring

Semiconductor Sector Rating Change: Moving from Neutral to Boring The chart below tells the tale:
Maybe the summer months will bring an end to this consolidation. Have to admit, this range in the SOX, about 60 points since December '04, has been pretty uninspiring. The rallies come on during the middle months of each quarter. After a bit of hype and hoopla those that are pounding the table are pushed back under the water by the realities of quarterly reporting season. Of course, the picture below this (see post made June, 16), shows forward earnings for the sector and that leaves a little to be desired. One can get really fancy with the way they interpret this action. In my view it's just a matter of understanding that there is noise. A lot of noise - all the time. Felt like saying something. I will now put my ear back to the ground......

Friday, June 24, 2005

Who Wins the Services Race?

Who Wins the Services Race? Following on to the "Industry Maturity" post made last week, I thought it would be appropriate to mention a news release made on June 22 at the Sematech website: Basically, Sematech is setting up a tool, spares and services database for member companies called the Competitive Sourcing Database. "This database will help the members of SEMATECH and ISMI improve the key areas of our spares cost reduction initiatives, including competitive supplier sourcing and greater availability of repair and refurbishment services," said Al Garcia, a former SSC chairman. Hmmm... If you are an OEM should you be concerned about this? I would be concerned. Particularly if you have yet to grab your "share of wallet". Everyone that can supply parts, repair, refurbishment and tool maintenance is going to get pitted against each other - compared and benchmarked in one database. More from the press release: "This unique supplier database will help our members improve their efficiencies in the equipment spares supply chain, while reducing their equipment cost of ownership," said John Schmitz, SEMATECH Vice President and Chief Operating Officer for Manufacturing Technologies. In particular, Schmitz said the database will benefit members by providing such advantages as: * More cost-effective procurement and management of spare parts * Pre-screened, capable, competitive sources for spare parts * Lower costs for equipment maintenance * Increased return on investment (ROI) for member companies The second and third bullets, in my opinion, have implications for OEMs. Everyone knows that spare parts and maintenance services have been a high margin business for many in the industry. As I see it, the goal of the Sematech site is to make the competition visibile - doing so helps their member companies. Clearly that is going to have implications for pricing. Can you picture a fab manager looking at the database and then going back to the OEM saying, "XYZ company here in Austin, Texas (or, somewhere in Taiwan/China), is willing to provide the same parts and service for far less than you are proposing. If you want my business, make me a deal!" This whole thing harkens back to the Otis Model I mentioned in last week's post. It seems obvious that OEMs must get their arms around the market - what is in the field - and then pursue a strategy that leverages the existing channel without creating total chaos. Sematech, with this program, is forcing the issue. Nothing like a little exposure.... Carl

Thursday, June 16, 2005

Semiconductor Manufacturing: Is the Industry Maturing?

Semiconductor Manufacturing: Is the Industry Maturing? A few years ago, during one of SEMI's Industry Strategy Symposiums, I participated on a forecasting panel. The subject of "semiconductor industry maturity" was discussed. The topic hit hot buttons with a number of the panelists. A couple of the panelists stated that there was no way the chip business was entering a mature state because we had barely scratched the surface of innovation. It's hard to argue with that view, innovation is not dead. That said, even mature industries innovate. The Automobile industry creates and manufactures innovative features all the time. Is Automobile manufacturing mature? Most would say yes. In my view the answer to the question of whether or not the chip industry is mature should not center on innovation. It should center on the profitability of the industry as a whole - which, based on the chart below, is not as good as it has been in the past:
Source: The chart says: Profits made manufacturing "Dwidgetal Devices" are dwindling (sorry, couldn't resist). While others will argue against it, I believe the industry is and has been, maturing. If you scroll down to the other posts on this page you'll see that I've written about the growing push by chip equipment suppliers to grow the "services" portion of their business. I've also talked about equipment life cycle management and the older capital equipment used in fabs around the world. What does all this say about the chip industry? Does the increasing OEM focus on services suggest that the industry is maturing? I think it does. There's a nice whitepaper over at the Diamond Cluster website on this subject. The paper talks about maturing industries and how companies must shift strategies to gain a share of "Wallet" or, as we like to call it around here, the "Monthly Check." Here's a great chart from the paper - one that should be hanging on the walls of semiconductor equipment companies:
Source: Diamond Cluster A case study in the paper highlights the way the Otis Corporation developed their services business. It's relevant because Otis had a large customer base but had lost control of relationship. Independent service providers, a number of which were ex-Otis employees, had grabbed a large portion of the services market (where the entire margin resides). Recognizing that they were losing control of the service business Otis embarked on a program to capture the customer need without disrupting the existing channel. From there they used the knowledge they gathered to understand what exactly was in the field - which opened up new sales opportunities. Does this scenario sound familiar? There's definitely a bell ringing. Frankly, I don't see many in the equipment business approaching the services market like this and they are facing the same scenario. In fact, I don't know if there is a good estimate of the amount of equipment that is installed in the field. (If you know who has one let me know - I am all ears!) Maybe there are a few that see the light but if they are they are not making their presence very visible (press releases do not count!). I find it ironic that semiconductor equipment service companies, particularly those providing spare parts, refurbishments and inventories of older equipment, can be found advertising via Google. I recently added some AdSense links to the Resource links and the Tutorial at this site. It's notable that very few OEMs appear via these links. In a maturing industry you can only beat your supply base to death so many times. At some point you have to acknowledge that conditions have changed. As for services in the semiconductor equipment business, it is clear to me that there is a market out there. Seeing potential in the services market (wallet/monthly check) is one thing, grabbing a portion of it without creating total chaos is another. Right now I think the strategies that many are pursuing leave a lot to be desired. Don't expect too much..... I'll write more about this in the days ahead. Carl

Wednesday, June 08, 2005

Pass The Popcorn

Pass The Popcorn Watch the movie... It's flying around the web - linked throughout the blogosphere. The message, if you like to think via big pictures, probably has implications for your business. The latest version of the EPIC Movie, the movie that portrays Googlezon taking over the world sometime during the next decade, is out. You can get the movie with a straight download from this link:, If you do not have it you'll need to download and install Macromedia Flash Player to view. If you are really cool and on the cutting edge, you can get it fast through your BitTorrent client at this link:
Pretty cool.......
Think far out... I mentioned the era of the Dwidgetal Device world in the post on May, 27. Today a fellow analyst sent me a link to this article by the Register about a group that has put Skype on a Thumb Drive: As you can probably tell I am quite enamored with what is happening with Skype right now. The business, with an estimated 40 million registered users, is gathering a lot of voices, ears, and most recently available through a plug-in developed by a third party, eyeballs. Paint a picture.... Here's a link that guides you to Free WiFi locations: Free is best. If you choose to pay for access, there are plenty of options. WiFi is everywhere. Intel recently released their survey detailing the top 100 Unwired Cities in America. Link it together. Free WiFi - including the access points that are being funded by municipalities who, in their infinite wisdom, believe their communities should be connected. Add in the WiFi access now being allowed on Airplanes. Skype embedded in a Thumb Drive that before you know it will be dense enough to hold all the things I have on my computer. Skype embedded in a Motorola designed wireless phone. Use the free WiFi to make free VOIP calls via Skype. Toss in a few more dwidgetal devices: A projection keyboard, Bluetooth headset, and you have to wonder if you really need to lug around a laptop. It's all good. Yes, everyone wants to make a phone call. No doubt about it. The problem I see with this is in the business model. How do you make money from a set of services that only requires the user to fork out some pocket change for a few bits of hardware? Have to say, a lot of this reminds me of the trends that gripped tech in the late 90's. "Get a free PC when you purchase an Internet connection!" I suspect we'll learn over the next few years that these transitions will have a huge impact on the profitability generated by INFRASTRUCTURE companies. And when I say INFRASTRUCTURE companies I am not limiting my thinking to the companies in the semiconductor, semiconductor equipment or flat panel display industries. One of the sectors that could, once again, be put on its knees is the telecommunications industry. Dwidgetal Devices..... Enabling communities, companies and countries to connect from anywhere. All for free.... $0.02 for the jar - (Hey! Don't complain! That's more than the cost of making a Skype call to someone on the other side in the world!) Carl