Contents. Semiconductor DQ Monday Report Issue 10

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1 Semiconductor DQ Monday Report Issue 10 Introduction to Semiconductor DQ Monday Report Semiconductor DQ Monday Report allows Gartner Dataquest analysts to share opinions and analysis of key events as they unfold. To learn more about Gartner's industry-leading products and services, we encourage you to contact us at: or contact your local account executive. You can also visit us at About Gartner Gartner Dataquest is the recognized leader in providing the high-technology and business communities with market intelligence for the semiconductor, computer systems and peripherals, communications, document management, software, e-business, and professional services sectors of the global IT industry. Contents DRAM Spot Market Pricing... 2 Intel Flash Pricing Strategy Backfires Maybe... 3 SEZ Focuses on Single-Wafer Technology... 4 SPIL Processes 10,000th 300-mm Bumped Wafer.. 5 Press.gartner.com... 5 In the News... 5 New Reports... 6 Upcoming Gartner Conferences... 6 Gartner provides unrivaled thought leadership for more than 10,500 organizations, helping clients achieve their business objectives through the intelligent and efficient use of technology. Additionally, Gartner helps technology companies identify and maximize technology market opportunities. Gartner's technology content and strong brand reach IT professionals globally through Gartner Research, its research and advisory unit; Gartner Services, its custom consulting unit; Gartner Events, including Gartner's renowned Symposia; and at Gartner, founded in 1979 and headquartered in Stamford, Connecticut, achieved fiscal 2001 revenue of $963 million. Gartner's 4,000 associates, including 1,200 research analysts and consultants, are in more than 90 locations worldwide Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

2 2 Semiconductor DQ Monday Report, Issue 10 DRAM Spot Market Pricing Table 1 shows the average spot market pricing for DRAM as tracked by Gartner Dataquest for the weeks ending 7 March and 14 March. Table 1 DRAM Spot Market Pricing (U.S. Dollars) 07-Mar Mar-03 Weekly Change (%) Low High Low High Low High 64Mb (8Mbx8 PC133) Mb (16Mbx8 PC133) Mb (16Mbx8 DDR266) Mb (32Mbx8 PC133) Mb (32Mbx8 DDR266) Mb (8Mbx16 RDRAM 400MHz) Source: Gartner Dataquest (March 2003) Gartner Dataquest Analysis Last week spot pricing was, at best, flat. Declines ranged from 1.4 percent to 5.4 percent. Figure 1 shows a 52-week history of average DRAM spot pricing for the six key devices tracked. Figure 1 DRAM Spot Pricing, 52-Week History U.S. Dollars Mb PC Mb PC Mb PC Mb DDR Mb 266DDR Mar 12-Apr 3-May 24-May 14-Jun 5-Jul 26-Jul 16-Aug 6-Sep 27-Sep 18-Oct 8-Nov 29-Nov 20-Dec 10-Jan 31-Jan 21-Feb 14-Mar 128Mb RDRAM Source: Gartner Dataquest (March 2003)

3 Semiconductor DQ Monday Report, Issue 10 3 Pricing on DDR266 SDRAM 128Mb devices was flat for low-end pricing while high-end pricing was down 2.5 percent during the week. Pricing was in the range of US$1.75 to US$1.95. Pricing on the 256Mb 32Mbx8 DDR266 was in the range of US$3.20 to US$3.55 low-end pricing was down 3.0 percent while high-end pricing was down 1.4 percent on the week. Pricing on the 128Mb 16Mbx8 PC133 device was flat for low- and high-end pricing during the week. Pricing ended the week in the range of US$2.65 to US$2.90. Pricing on the higher-density 256Mb 32Mbx8 PC133 device was down 5.4 percent for low-end pricing for the week, while high-end pricing was down 5.1 percent. Pricing ended the week in the range of US$3.50 to US$3.70. RDRAM pricing was flat last week. Pricing ended the week in the range of US$4.00 to US$4.30. Early last week we saw some profit-taking in the market from the gains of the previous week; however, by Thursday and Friday the market had stabilized. In Asia/Pacific, pricing even increased slightly in late Friday trading. Europe was quiet, with many dealers and brokers attending the CeBIT trade fair. General sentiment in the spot market is of increased uncertainty. Dealers and brokers are becoming concerned that inventories are again rising at the DRAM vendors and that end-of-quarter for many of them is fast approaching. By Andrew Norwood (andrew.norwood@gartner.com) Intel Flash Pricing Strategy Backfires Maybe Recently, Intel's quarter guidance conference call revealed that while microprocessor revenue appeared to be stronger than anticipated, flash revenue was going to be less than originally projected. The reason given was that Intel had recently boosted its flash pricing, and that some business had apparently moved to lower-priced competitors. The decrease in flash revenue was credited with a slight decrease in gross margins. In its briefing, Intel stated that it would stick to its pricing and that it was too early to tell whether its strategy would yield the expected benefits. In the following week, many articles were about Intel losing flash share, how its pricing strategy backfired and about how it may have overestimated its clout in the marketplace. Intel's share price fell on the news, which was generally taken as a sign of weakness. Gartner Dataquest Analysis Theissuehereisnotoneofrevenueormargins.It'sfinancialstrategyandtheappropriate way of running a business in different phases of a downturn. Although many of the rules for surviving in difficult times have been put in question by the severity of this downcycle, the basic principles of supply and demand still apply. With an excess of supply, pricing will tend to approach the level of marginal costs. When supply and demand are in balance, prices will gravitate toward amortized costs plus a reasonable profit. With a demand shortage, prices will increase. The corollary of this is that the appropriate strategy in a downturn is to focus on generating cash and in an upturn to maximize profits. Cash is essential for survival those who have it can continue the investments in technology that are essential for proper positioning in the next upcycle. Those that don't have cash can find themselves behind when the leading edge drives the next round of market increases. Pricing at anything above marginal costs will generate cash but putting this into reality is an extremely complex issue, and the desired price level for each part depends on the financial and margin conditions of a manufacturers' entire product portfolio. Let's look at a simplistic hypothetical example. Suppose the marginal cost of a part was US$1.00. Pricing the product at US$1.10 will yield US$0.10 of cash for each part sold. Pricing the

4 4 Semiconductor DQ Monday Report, Issue 10 part at US$1.20 will yield twice the cash per unit. In this example, a 9 percent price increasedoublesthecashgeneratedforthesameunitsales.buteventhoughunitsales will probably drop at the higher price, you come out ahead in a cash flow sense if the volume does not drop by 50 percent. So a slight loss in market share can actually be a favorable cash-generation strategy. However, this can result in lower reported revenue and gross margins, because gross margins are based on full costs, including noncash depreciation and amortization costs. The other factor is that a lower sales volume frees manufacturing capacity for other products, ones that may have increasing demand. Intel mentioned that its microprocessor business was slightly higher than expected, and earlier, it had announced that it will be implementing its 90-nm process later this year at the Fab 11X which originally had been totally earmarked for 0.13-micron production. The bottom line is that in the semiconductor world, financial, market and manufacturing strategiesareextremelycomplex,andwecanexpectcompaniestobejockeyingforposition as the potential for a real upturn becomes greater. Those with cash and effective cash-generation strategies can afford short-term hits in market share to obtain more favorable long term positioning. Stay tuned it's going to get even more interesting. By Bob Johnson (bob.johnson@gartner.com) SEZ Focuses on Single-Wafer Technology The SEZ Group announced that it has taken steps to refocus its resources on single-wafer wet surface preparation technology. This move includes the closing of its wet bench production facility in Donaueschingen, Germany, referred to as SEZ Germany and formerly known as HMReinraumtechnik, which was acquired by SEZ in February The second step in this prioritization is the shift of resources to SEZ's core business, patented single-wafer equipment for microchip production. To further facilitate this refinement, SEZ reduced its global workforce 20 percent, from 750 to 600, worldwide. SEZ's staff reduction includes the closing of the Donaueschingen facility but will not affect the company's service, process and sales support. Gartner Dataquest Analysis It must be a tough year in the wet bench business. This is the second act of consolidation during the past month. Citing pricing pressure, SEZ has exited this business segment. For SEZ, this is probably a good thing. When times are tough, companies are told to focus on their core business. By divesting the wet bench company, this enables SEZ to focus its attention on its single-wafer business. With the market slowly beginning to turn positive and the need for polymer removal tools for the copper dual damascene process growing, SEZ will not be distracted from its core business. SEZ has been very successful in capturing the majority of the single-wafer business with their backside process expertise. However, as the copper market begins to see its growth spurt during the next few years, front side polymer removal will be a key growth market. SEZ has already made some strong inroads in this space but the competition is beginning to grow, with most of the major cleaning companies introducing tools to address the polymer removal market. In divesting itself of the wet bench company, SEZ has recognized what market provides the greater opportunity for growth. SEZ has removed any distractions that could keep it from continuing to be the market share leader in this space. By Dean Freeman (dean.freeman@gartner.com)

5 Semiconductor DQ Monday Report, Issue 10 5 SPIL Processes 10,000th 300-mm Bumped Wafer Taiwan-based Siliconware Precision Industries, Ltd. (SPIL) announced earlier this week that it just completed the processing of its 10,000th 300-mm bumped wafer for advanced packaging. SPIL thus became the world's first semiconductor assembly and test services company to reach this milestone. The wafers were processed for Xilinx using Ultratech Stepper's Saturn Spectrum line of advanced packaging lithography equipment. Gartner Dataquest Analysis This is a significant milestone for the semiconductor industry for the following reasons: It clearly demonstrates that wafer bumping for flip-chip and other advanced packaging is no longer on the "fringe" but has become mainstream in its industry adoption. This shows specifically that 300-mm wafers have definitely moved beyond R&D for advanced packaging processes and to the production realm. In addition, as the processes for wafer fab and semiconductor packaging continue to overlap, this milestone indicates that close collaboration among the foundry, IC design company and the equipment company is required to optimize the process. By Jim Walker (jim.walker@gartner.com) Press.gartner.com Press.gartner.com is designed to guide you through the correct procedure of obtaining a Gartner Dataquest analyst's quote. If your company would like to issue a press release quoting one of our analysts, you must submit your request to quote.requests@gartner.com. Standard requests will be approved within 48 hours. In the News SEZ Secures Multiple Tool Order From Leading Foundry in Taiwan After the recent announcement, made by SEZ to refocus its strategy on single-wafer technology, which has been well-received by the market and its customers, the company announced receipt of an order for multiple single-wafer spin processors from a major semiconductor foundry in Taiwan. Post-etch residue removal success and reduced costof-ownership led to the follow-on orders and competitive win, according to chief marketing officer and company spokesperson, Kurt Lackenbucher. The customer, which recently awarded SEZ its "Best Supplier Award for 2002," has opted to replace installed tools with the SEZ SP4200, a high-throughput, four-chamber tool for front-side applications, post ash residue removal on vias and metal lines for flash memory and logic products. The tools are scheduled for delivery in the first half of "The tool's throughput is highly competitive and outperforms other production tools in terms of process quality and tool reliability," commented an executive officer of SEZ's Asia-Pacific Business Unit. "This order increases SEZ's market dominance in both foundries and memory fabs in Taiwan." Axcelis Selected as Supplier for SMIC Axcelis Technologies has received another order from Semiconductor Manufacturing International Corp. (SMIC) for its full suite of tools. The sale marks the latest in a series of orders for Axcelis equipment from SMIC, China's leading full-service semiconductor foundry. SMIC's order includes multiple systems from Axcelis' broad product line, reflecting the foundry's continued confidence in Axcelis' integrated process knowledge and local customer support capabilities in China. The equipment suite will support sub micron geometry manufacturing processes at SMIC and includes a complete suite of processing tools. "Axcelis is known in China as a market leader, a company that consistently delivers technically superior process equipment with exceptional productivity, cost of ownership and support," said Marco Mora, vice president of operations for SMIC. "This

6 6 Semiconductor DQ Monday Report, Issue 10 is why we've again chosen Axcelis as one of the key suppliers this time to support our expansion, where Axcelis' suite of equipment will give SMIC a comprehensive process solution." Infineon Takes 20 Percent Stake in NewLogic Infineon Technologies has taken a 20 percent stake in NewLogic Technologies, a startup based in Austria that has achieved success as a supplier of intellectual property cores and design services in the areas of Bluetooth and wireless LAN standards. A source at the company confirmed that Infineon had acquired a stake in the company and is putting a representative on the board of directors but declined to say how much Infineon had paid for its stake and whether Infineon had paid for its stake in cash or shares. "When New- Logic goes for its IPO, we will have to say everything," the source said. Agilent Obtains Technology From Absolute Encoder Make Agilent Technologies said it has obtained some absolute encoder technology from Germany's Optolab Microsystems, a supplier of optoelectronic devices. Erfurt-based Optolab claims to have the world's smallest high-speed absolute encoder, capable of 12- to 16-bit resolutions. This technology complements Agilent's own absolute encoders, which comes in 8- and 10-bit resolutions, according to the Palo Alto-based company. New Reports Worldwide Memory Forecast, 1Q03 (Executive Summary) Worldwide memory sales reached $30 billion in Growth in dynamic RAM, static RAM and flash, as well as other memory types, will push revenue to $37 billion in 2003 and $54 billion in (Gartner Dataquest Executive Summary, SEMC-WW-EX-0208, 13 March 2003, US$495) Upcoming Gartner Conferences Gartner and Gartner Dataquest host the IT industry's most respected conferences and strategic forums in locations around the world. For more information, please contact Gartner Worldwide Events from within the United States at or visit the Gartner Web site at gartner.com. Gartner Dataquest Semiconductor Teleconference Capital Spending and Equipment Forecast Update, 2Q03 27 March 8:30 a.m. Pacific ThesessionopenswithcommentsbyanalystsfromtheSemiconductorManufacturing Group. An interactive discussion with Gartner Dataquest clients follows. Discussion will be held by Klaus Rinnen, Dean Freeman, James Hines, Bob Johnson and Jim Walker of the Semiconductor Manufacturing Group. To confirm your attendance, contact Stephanie Kong via (stephanie.kong@gartner.com). Clients that respond by 3 p.m. Pacific on 26 March willreceiveasetofslides(via )beforetheteleconference.

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8 8 Semiconductor DQ Monday Report, Issue 10 For More Information... In the United States: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Gartner Interactive: The content herein is often based on late-breaking events whose sources are believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The conclusions, projections and recommendations represent Gartner's initial analysis. As a result, our positions are subject to refinements or major changes as Gartner analysts gather more information and perform further analysis. Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden Gartner, Inc. and/or its Affiliates. All Rights Reserved