Contents. Semiconductor DQ Monday Report Issue 40

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1 Semiconductor DQ Monday Report Issue 40 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. 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 Contents DRAM Spot Market Pricing... 2 Honeywell Licenses Motorola's MRAM Technology... 3 Vietnam Singapore Industrial Park... 4 Wind River Enters Linux Market... 5 CDC Spinoff Possible Salvation for Motorola... 6 Semiconductors Focus Area... 7 Spotlight on Semiconductors... 8 Recent Spotlight Articles... 8 Press.gartner.com... 8 In the News... 8 New Reports... 8 Upcoming Gartner Conferences... 9 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 40 DRAM Spot Market Pricing Table 1 shows the average spot market pricing for the eight DRAM devices tracked by Gartner Dataquest for the weeks ending 3 October and 10 October. Table 1 DRAM Spot Market Pricing (U.S. Dollars) 03-Oct Oct-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 (32Mbx8 DDR333) Mb (32Mbx8 DDR400) Mb (8Mbx16 RDRAM 400MHz) Source: Gartner Dataquest (October 2003) Pricing had been mildly down for the first half of the week, and by Thursday and Friday increased availability of 256Mb DDR-based products had pushed pricing down by up to 4.6 percent. Rumors in the market indicated that Hynix Semiconductor's product was being offered on the market at US$4.10, well below the US$4.40 pricing level of its major competitors. This is scaring some brokers and distributors to thinking that the spot market is about to enter a free fall. The spot market lives off of fear, uncertainty and doubt. These rumours could well tip the pricing balance toward a sudden downward trend. However, this pricing is an anomaly. With Hynix's product effectively being barred from the United States and European Union, because of countervailing duties, the company has limited options but to release it to the spot market in Asia/Pacific. And that product will not be able to achieve the same pricing levels as its major competitors because of the duties. The unusual thing is that since the imposition of duties, earlier in the year, we have not seen this affect the spot market. In other news, feedback from DRAM vendors indicates that contract negotiations for the first half of October have reselected in no change in pricing. Despite the steady decline in spot pricing during the past four weeks, buyers are not confident enough about midterm supply to put pressure on the DRAM companies to reduce pricing. By Andrew Norwood (andrew.norwood@gartner.com)

3 Semiconductor DQ Monday Report, Issue 40 3 Figure 1 Average DRAM Spot Pricing, 52-Week History U.S. Dollars Mb PC Mb DDR Mb DDR Mb DDR Mb RDRAM Oct 8-Nov 29-Nov 20-Dec 10-Jan 31-Jan 21-Feb 14-Mar 4-Apr 25-Apr 16-May 6-Jun 27-Jun 18-Jul 8-Aug 29-Aug 19-Sep 10-Oct Source: Gartner Dataquest (October 2003) Honeywell Licenses Motorola's MRAM Technology Honeywell and Motorola recently announced the signing of a technology transfer and licensing agreement for Motorola to provide Honeywell access to its magneto-resistive RAM (MRAM) nonvolatile memory chip technology. The agreement is expected to accelerate Honeywell's ability to develop radiationhardened MRAM nonvolatile memory for military and aerospace products such as satellites, in which data processing and storage performance is critical. Honeywell plans to incorporate Motorola's MRAM memory elements with its radiationhardened silicon-on-insulator (SOI) technology to produce the first memory chip capable of providing data stability in the harsh operating environments of space, including for satellite and military applications. Honeywell and Motorola collaborated with Defense Advanced Research Project Agency in the initial research and development of MRAM. Source: Honeywell and Motorola Press Release Honeywell and Motorola have been involved in MRAM development for many years. The companies have a relationship with NVE Corporation, a spinoff of Honeywell, which holds some of the fundamental intellectual property associated with MRAM as well as many MRAM patents. The significance of this announcement is that it is further evidence that the commercialization of MRAM technology is gaining momentum.

4 4 Semiconductor DQ Monday Report, Issue 40 For semiconductor technology to approach mainstream status and become commercially viable, it typically takes the resources and expertise of established industry leaders, such as Honeywell and Motorola, as well as the imagination, vision and innovation of smaller, startup technology companies. A case in point is FRAM technology, which, for many years, has been touted as the "next big thing" in semiconductor memory. It is only recently, with the involvement of companies such as Fujitsu and Texas Instruments, that FRAM is beginning to be seen as a compelling solution in some applications. This technology agreement between Honeywell and Motorola is notable because it demonstrates MRAM's unique suitability for military/aerospace applications, which, typically, require radiation-hardened semiconductor components. MRAM devices do not use a stored charge mechanism to store bits in their memory cells and, therefore, are not susceptible to radiation-induced "bit flipping," the probability of which increases with altitude. Combining Motorola's MRAM with Honeywell's SOI radiation-hardened process will produce a chip that offers greater reliability of data despite varying radiation and power fluctuation challenges in space environments. By Richard Gordon (richard.gordon@gartner.com) Vietnam Singapore Industrial Park Vietnam Singapore Industrial Park (VSIP) is an integrated industrial park that was introduced by the governments of Vietnam and Singapore in With the full support of both governments, VSIP was successfully launched in January VSIP is strategically located 10 miles north of Ho Chi Minh City, Vietnam's largest commercial center in the Binh Duong province. It is near Tan Son Nhat International Airport and major seaports. As a self-contained industrial park, VSIP offers international companies a world-class manufacturing environment. The park has on-site electrical power plant, water treatment plant, sewage treatment plant, world-class telecommunications lines, efficient roads and a drainage system. On-site customs for fast clearance of customs documentation is available. VSIP offers ready-built factories that cater to investors that need a fast startup. Prepared land is available for lease for custom-built factories. The park covers 1,236 acres and has 117 tenants from 17 countries. By conducting manufacturing operations in Bihn Duong, investors enjoy a competitive operating cost structure resulting in attractive tax incentives. At the same time, the park is close to Ho Chi Minh City's developed infrastructure, logistics network and other amenities and supporting services. The renewed interest in Vietnam is expected to last as long as the country maintains its competitive edge in terms of political stability, social stability and low labor costs. Vietnam has impressive human resources potential. Its labor force is known to be industrious. More than half of its population is below 30 years old, the most in Asia/ Pacific. Most still lack technical knowledge and skill, but they are quick to adapt to this environment if education and training are provided. Unique to VSIP and Vietnam, the governments of Singapore and Vietnam have jointly created the Vietnam Singapore Technical Training Center. The center is intended to enhance the technical skills of workersinbinhduong. Electronics comprise 10 percent of Vietnam's GDP. Its estimated annual production is US$1 billion, of which 80 percent is exported. Main electronics products are TVs, electronic circuits and electronics components. Major investors include Matsushita, Sony, Philips Semiconductor, Samsung Technologies and Fujitsu. Canon invested in making inkjet printers in 2001.

5 Semiconductor DQ Monday Report, Issue 40 5 Vietnam has demonstrated major economic achievements in recent years. It has sustained healthy GDP growth, even during Asian Financial Crisis in Its GDP outlook for this year is strong at 7.2 percent. Vietnam is integrating with the world economy. It has been a member of Asia-Pacific Economic Cooperation since It initiated the Vietnam-United States Bilateral Trade Agreement in It is expected to be a member of the World Trade Organization by 2006 and part of the full implementation of ASEAN Free Trade Area in By Erwin L. Wong (erwin.wong@gartner.com) Wind River Enters Linux Market Wind River Systems recently announced that it is extending its industry-leading hardware bring-up tools to include support for Linux. Customers can turn to Wind River for leading-edge run control and debugging tools that work with Wind River Platforms, VxWorks and embedded Linux. visionprobe II is immediately available for the IBM PowerPC 405 family. Source: Company Press Release Wind River's decision to enter the Linux market through its tools channel is a positive move for the company. When Linux started gathering momentum a few years ago, embedded vendors moved to embrace the movement in different ways. Startups were engaged in the kernel distribution business, vendors added a Linux kernel to their product lines, and others tried to be compatible with the open-source model by opening their source code to developers or announcing royalty-free Oses. Wind River chose to go with the open-source model by acquiring the rights to BSDi and positioning it as an alternative to Linux. This strategy did not take off as expected. Because Linux is royalty free, the money is really made in service contracts and application development support services. However, while developers are reluctant to pay royalties, they are willing to pay for software development tools. As the leading incumbent in the market that has suffered more severely than its competition in the recent economic downturn, Wind River has everything to gain and little to lose by adopting this strategy. By Daya Nadamuni (daya.nadamuni@gartner.com) CDC 2003 The third-annual Communication Design Conference (CDC) was held in San Jose, California, from 30 September through 2 October. The conference featured the following: A keynote address by Eric Mentzer Four panel sessions 70 conference sessions over seven tracks Six tutorials 34 exhibitors CDC 2004 has changed its date and time to be associated with the Embedded Systems Conference and ElectronicaUSA held 29 March through 1 April 2004 at Moscone Center in San Francisco, California. Source: CMP Media

6 6 Semiconductor DQ Monday Report, Issue 40 Every year CDC attracts a high volume of speakers with industry experience to speak on different topics. Many of the presentations included practical advice. Furthermore, the conference tries to keep the amount of marketing fluff to a minimum. It is commendable that conference organizers admitted qualified engineers and managers to attend every session. Furthermore, conference organizers made the proceedings from this and previous conferences available on their Web sites, cdc03proceedings and These efforts enable engineers to network and learn at a time when training dollars are lean. This is particularly important because some engineers have been laid off. Attendance was significantly higher than last year because of the free passes. For networking and keeping up on the latest developments, this is a good conference to attend. By Ada Cheng (ada.cheng@gartner.com) Spinoff Possible Salvation for Motorola On 6 October, Motorola announced its intent to separate its semiconductor operations, Semiconductor Products Sector (SPS), into a publicly traded company with its own focused strategy. With independence, SPS will have the opportunity to pursue acquisitions of additional strategic product lines and technology using semiconductor equity valuations instead of the blended-equity valuation of Motorola. Motorola is considering an initial public offering of a portion of SPS, with a distribution of remaining shares to Motorola shareholders, subject to board approval and other customary conditions. Source: Motorola Press Release. Wall Street's financial investors love semiconductor spinoffs, especially those from large vertically integrated companies such as Motorola. Beleaguered by huge outlays of R&D investments in 300-mm semiconductor operations for next-generation technology, many large, vertically integrated companies have exited or spun off semiconductor divisions duringthepastfiveyears. Barely a week after Motorola CEO Chris Galvin surprised Wall Street with news that he would turn over the reins of the company, this spinoff announcement fuels further speculation about the futures of SPS. For more information, please see "Semiconductor DQ Monday Report, Issue 38," SCDM-WW-NT Is Motorola's semiconductor organization being granted its salvation? SPS will be judged purely as a semiconductor business. SPS will be free to vigorously pursue semiconductor markets that may differ from the directions of Motorola systems business. If SPS sees rich opportunities in Motorola wireless handset equipment with chips and software, then it can continue to serve those. Should SPS decide that other markets or just wireless OEMs are more attractive, it can shift resources without having to explain it later in a disturbed corporate boardroom. Freeing SPS from Motorola will allow SPS to acquire or shed businesses or product families as it sees fit, though it isn't clear that this has been a hindrance to SPS's strategies in the recent past. SPS previously spun off ON Semiconductor, and engaged with Lucent Technologies, and later Infineon Technologies, for StarCore digital signal processor development. It developed 1-volt GCMOS, ferroelectric memory, SiGe HBT, RF LDMOS for GSM markets and smart sensors. SPS engaged in joint manufacturing ventures (Infineon, STMicroelectronics and so on) and wound down numerous wholly owned fabs with some movement to open-market foundries, resulting in a proclaimed "asset-light" manufacturing strategy. Without an end-equipment-aware corporate governance, would SPS have engaged in more of these changes?

7 Semiconductor DQ Monday Report, Issue 40 7 SPS has been through significant downsizing and restructuring yet still has some pretty good engineering talent and a solid management team, though one could argue little fresh blood is among the ranks. SPS knows how to market itself. SPS has some excellent technology and intellectual property in processor chips, no vendor has the depth and breadth of experience SPS has in microprocessors, microcontrollers and digital signal processors. However, SPS has been reticent to license its intellectual property, preferring to use it to force customers to SPS as a lone vendor, an approach with increasingly limited appeal. Perhaps as an independent entity, SPS will find opportunities to partner with other semiconductor vendors, software and services organizations, and systems houses to find greater synergy. A long haul remains for SPS. Separation from Motorola is a change but not a huge advantage. SPS must reestablish itself and declare its purpose and direction. Continuing in its mode will result in little change from its destination. The world economies and semiconductor markets are on an upswing, but SPS must get on the forward part of the wave or it will slip further. This is not the time for long periods of introspection, reorganization and product development. Salvation implies that no wrong is too bad to prevent a predetermined, positive outcome. An independent SPS can still make simple wrong decisions or execute poorly and fail to eventually attain an improved market position. SPS needs a strategy of offering the best products and support at continually aggressive price points to serve selected markets better than any competitor. Ultimately, the market determines whether success is achieved. When competitors and OEMs point to SPS as the undisputed leader in a market, the one to measure against, SPS will have made its comeback. A more in-depth analysis of Motorola and SPS will be found in an upcoming document. By Tom Starnes (tom.starnes@gartner.com) and Mary Olsson (mary.olsson@gartner.com) Semiconductors Focus Area Semiconductors are the key engine for technology advancement in many industries. Without the benefits of low-cost, high-speed communications, memory and compute devices, the Internet and digital consumer revolution would have remained ideas in a sciencefictionnovel.theitindustryasweknowitwouldsimplynotexist. Communications, entertainment, automotive, medical and many other industry segments would not be as advanced as they are today. The Semiconductor Focus Area provides comprehensive coverage of the semiconductor markets at a global and regional basis, providing analysis and data on the participants, products and issues that are important to growth. It provides comprehensive actionable advice for any party interested in the industry, whether they be participants, such as semiconductor vendors and equipment manufacturers, or observers, such as government agencies and the investment community. Providing a mix of growth data, this area provides a forward look at trends and scenarios. Industry-specific product segment forecasts are produced quarterly. Briefings and conferences bring industry participants with analysts to share insight and opinions. TheSemiconductorsFocusAreacanbefoundatgartner.com/Semiconductor-MKT.

8 8 Semiconductor DQ Monday Report, Issue 40 Spotlight on Semiconductors Spotlight on Semiconductors provides an overview for a suite of Research Briefs specially commissioned to address a specific topic area. The overview and accompanying Research Briefs can be found on the Semiconductors Focus Area. Recent Spotlight Articles Forecast Scenarios, 3Q03: Cautious Optimism gartner.com/pages/story.php.id.9417.s.8.jsp 12 September 2003 Semiconductor Industry Seeks the Next Big Thing gartner.com/pages/story.php.id.9407.s.8.jsp 5 September 2003 China Gears Up to Tackle World Semiconductor Market gartner.com/pages/story.php.id.8925.s.8.jsp 15 July 2003 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 TSMC September Sales Hit Record High Taiwan Semiconductor Manufacturing Co. (TSMC) announced that net sales for September totaled NT$18.9 billion, reaching a record high. On a month-over-month basis, September net sales increased 3.2 percent. Compared with the same period a year ago, September net sales increased 48.3 percent. Revenue for January through September totaled NT$144 billion, an increase of 20.3 percent over the same period in Lora Ho, TSMC spokesperson and vice president, noted that the company's September sales revenue increased from higher wafer shipments when compared with August. Magma and UMC Release Validated RTL-to-GDSII Reference Flow Magma Design Automation, a provider of chip design solutions, and UMC, a worldleading semiconductor foundry, announced the availability of the first fully validated, proven-in-silicon RTL-to-GDSII reference flow slated for chip designers using UMC's 0.18-micron, 0.13-micron and 90-nm process technologies. For the first time, UMC's customers will have access to a comprehensive reference methodology that accelerates the high-level design through tape-out process. The flow can be downloaded from either company's Web site. New Reports 2003 Worldwide EDA Forecast (Executive Summary) The worldwide electronic design automation software market will stagger in 2003, but it will start to pick up in 2004, showing a compound annual growth rate of 14.9 percent through (Gartner Dataquest Executive Summary, SEMC-WW-EX-0290, 8 October 2003, US$195) Foundry Wafer Pricing Trends, 3Q03 Update The rise in utilization rates in the third quarter created more-stable wafer prices and a balanced-to-tight supply/demand scenario. (Gartner Dataquest Focus Report, SCEM-WW-FR-0170, 8 October 2003, US$595)

9 Semiconductor DQ Monday Report, Issue 40 9 General-Purpose Analog and Mixed-Signal Integrated Circuit Market The general-purpose analog and mixed-signal IC market should grow 10 percent in Despite the trend toward more integration, the market should reach $17.6 billion in 2007, or five-year growth of 14.6 percent. (Gartner Dataquest Market Trends, SCSI-WW-MT-0114, 7 October 2003, US$2,495) Worldwide USB Flash Drive Market Forecast Trends: Universal serial bus flash drive revenue is forecast to grow about 126 percent in Sustained growth is expected through 2007, as consumer education encourages its proliferation across multiple applications. (Gartner Dataquest Market Trends, SCSI-WW-MT-0113, 7 October 2003, US$9,995) Asia/Pacific Data Processing Electronics Production and Semiconductor Market Forecast, 4Q03 Asia/Pacific data processing electronic equipment production will grow 8.8 percent during Asia/Pacific data processing semiconductor consumption revenue will grow 14.3 percent during the same period. (Gartner Dataquest Market Statistics, SCSI-AP-MS-0142, 7 October 2003, US$6,995) 4Q03 Update: Positive Outlook for Semiconductor Capital Equipment The outlook for the semiconductor industry is brightening, but a conservative investment mood is holding capital equipment spending in check. (Gartner Dataquest Alert, SEMC-WW-DA-0106, 7 October 2003, US$95) Upcoming Gartner Conferences Gartner Dataquest hosts 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 Industry Conference Gartner Dataquest has rescheduled its semiconductor conference to the first quarter of 2004 to meet its clients' needs.

10 10 Semiconductor DQ Monday Report, Issue 40 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