1 Profitability in the Semiconductor Industry 1 Profitability in the Semiconductor Industry

The profitability of firms in the semiconduc- average selling price (ASP) of devices, capi- tor industry depends on a vast array of vari- tal spending, factory utilization, and prof- ables from manufacturing costs to name itability. Capital spending trends are recognition. Throughout the electronics reviewed, followed by a discussion of recent infrastructure the rules are changing as industry downsizing and the role the stock global competition intensifies, product life- market plays in the semiconductor industry. cycles shorten, and technology accelerates. As a result, the management of human Changes in product lifecycles, time-to- resources and compensation approaches market and fab cycle time are then exam- change, time-to market becomes more criti- ined. Next, typical methods of measuring cal, and business strategies are being re-eval- company profitability are reviewed, fol- uated. Despite the incredible profits of most lowed by a profitability comparison between semiconductor companies between 1993 and large and medium-sized semiconductor 1996, industry over-capacity in 1996 forced manufacturers as well as IC equipment sup- company restructuring and workforce pliers. Finally, the reasons why IC manufac- reductions, especially among semiconductor turing is so costly are presented, leading into equipment suppliers. an expanded analysis of cost per wafer in Chapter 2. In recent years, investors have become very attracted to high technology firms and the The Profitability Cycle stock market is influencing the way companies are doing business. Having become the Long term, the sustained profitability of the objects of such close scrutiny, companies are semiconductor manufacturers depends on changing their approaches to capital spend- each company's ability to maintain high ing and risk. enough profit margins on the devices it pro- duces to allow sufficient capital outlays for An analysis of company profitability and the future generations of devices. As will be factors influencing it is essential to an under- shown later, depreciation costs are the standing of the IC industry and the reasons largest consumer of operating costs and the why cost effectiveness is critical. This chap- cost of R&D is increasing. Together these ter first explains the industryÕs ÒboomÓ and costs can constitute from 25 to 35 percent of ÒbustÓ cycles, and the relationship between annual revenues.

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-1 Profitability in the Semiconductor Industry

From year to year, the health of the semicon- Swings in production growth rate are closely ductor industry as a whole is indicated by its tied to capacity utilization, ASPs of devices characteristic "boom" and "bust" periods, and capital spending (Figure 1-2). For the known as the silicon cycle (Figure 1-1). Since industry as a whole, when capacity utiliza- 1978, there have been four growth cycles in tion is high, ASPs rise and companies are which sales grew an average of 30 percent more profitable, which in turn, encourages per year. Following each growth cycle, the capital spending. However, with increased industry experiences a one to two year spending, capacity constraints loosen and period when sales growth averaged slightly ASPs tend to drop, decreasing company under 4 percent. ICE expects modest growth profitability. The decreased profitability in 1997 following the ÒboomÓ of 28-41 per- (pre-tax income) then reduces the amount of cent growth in 1993-1995 and 1996Õs contrac- capital available to invest in future needs. tion caused by plummeting memory prices. This "profitability cycle," and the historical Over the industry's last 20 years (1976-1996), relationships between profitability, utiliza- the growth rate has averaged a healthy 19 tion rates, ASPs, and capital spending are percent. shown in Figures 1-3 through 1-6 for North American merchant semiconductor manufacturers only.

50 47% 45 Average Growth 41% 40 Rate During Expansionary Cycles 36% Average 20-Year 35 34% Growth Rate 31% 30 28% 28% 28% 28% 25% 25 24%

21% 20% 20% 20 19%

17% 16% 15 12% Percent Change

10% 10%

5% 5 4%

Average Growth -5 Rate During Contractionary Cycles -10 Ð8%

Ð12% -15 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Year (FCST) *Includes captive semiconductor manufacturers. Source: ICE 19753B

Figure 1-1. Boom-Bust Cycles of Worldwide Semiconductor Sales*

1-2 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

Capacity Utilization

Capital Market Spending Conditions IC ASP

Profitability

1993-1995 1996

Capacity Utilization Increasing Decreasing Total IC Industry ASPs Strong Increases Decreasing Profitability Increasing Decreasing Capital Spending Strong Increases Small Increase

Source: ICE 19417B

Figure 1-2. IC Industry ÒProfitability CycleÓ

25 100

20 90

Capacity 15 Utilization Rate 80

10 70

5 60

0 50 Pre-Tax Income (Percent of Sales) Capacity Utilization Rate (Percent)

Ð5 40

Ð10 30 1978 1979 1980 1981 1982 1983 19841985 1986 1987 1988'1989"1990 1991 19921993 1994 19951996 1997 (FCST) Year *North American companies only Source: SIA 19782B

Figure 1-3. High Utilization Rates Indicate High Profitability* (1978-1997)

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-3 Profitability in the Semiconductor Industry

2.80 100 $2.68 2.60 90 $2.40 2.40 $2.30 80 2.20 $2.17 Capacity Utilization Rate 2.00 70

1.80 $1.75

ASP ($) 60 1.60 $1.51 $1.39 1.40 $1.32 $1.35 50 $0.96 $1.28 Capacity Utilization Rate (Percent) 1.20 $1.09 40 $1.01 $1.00 1.00 $0.95 $0.96

0.80 30 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 (FCST) Year *North American companies only Source: SIA 19426D

Figure 1-4. IC ASPs Versus Capacity Utilization Rate* (1982-1997)

$2.68 2.80 27

24 2.60 21 $2.40 2.40 $2.30 18 Pre-Tax Income 2.20 $2.17 15 12 2.00 9

1.80 $1.75 6

ASP ($) 3 1.60 $1.51 0 $1.39 1.40 Pre-Tax Income (Percent) $1.32 $1.35 Ð3 $1.28 1.20 Ð6 $1.09 Ð9 $1.01 $1.00 1.00 $0.95 $0.96 $0.96 Ð12

0.80 Ð15 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 (FCST) Year *North American companies only Source: SIA 19427D

Figure 1-5. IC ASPs Versus Pre-Tax Income* (1982-1997)

1-4 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

16,000 25

14,000 20

12,000 15 Pre-Tax Income 10,000 10

8,000 5 6,000

0 Pre-Tax Income (Percent) Capital Spending ($ Millions) 4,000

Ð5 2,000

0 Ð10 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 (EST) Year *North American companies only Source: SIA 19418D

Figure 1-6. Semiconductor Capital Spending and Pre-Tax Income Trends* (1982-1997)

Historically, pre-tax losses are experienced analysis of the parts. As more companies when utilization rates fall below 50 percent, adopt this strategy, more fab capacity will be as illustrated in Figure 1-3. However, making freed to allow production of other devices or utilization projections based on past boom the next generation of DRAMs. periods is risky as industry growth over the 1993-1995 period was unprecedented. For these reasons, ICE feels that despite the However, ICEÕs sources indicate that fab uti- healthy conditions in the computer, communi- lization is dropping rapidly. This is espe- cations and consumer electronics sectors, uti- cially true among memory fabs as the move lization in 1996 should fall below 80 percent to future generations of devices (i.e., 64M, and will decelerate below 70 percent in 1997. 256M and 1G DRAMs) is happening faster Because these chart reflect North American than ever and device shrinks are more dra- conditions only, ICE warns that companies matic than they have been in the past. highly dependent on DRAM production will DRAM manufacturers are implementing probably experience lower fab utilization rates these shrinks to improve the margins on and lower pre-tax incomes. This may be reme- DRAM devices, whose ASPs plummeted in died for some companies by the successful 1996 (Figure 1-7). For instance, the first-gen- transition from memory processing to eration 64M devices were approximately advanced logic and microcomponent manu- 200mm2 in size (about 300,000mil2), while the facturing. However, because so many compa- smallest 64M in 2Q Õ97 was 123mm2 (about nies are adopting this strategy simultaneously, 190,000mil2), according to ICEÕs laboratory the risk of over-supply in other device markets

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-5 Profitability in the Semiconductor Industry

is quite high. Figure 1-8 shows worldwide fab expects an average ASP of $2.30 in 1997. utilization based on information from over 46 Pre-tax incomes were cut nearly in half from semiconductor manufacturers in North 1995 to 1996, due almost exclusively to the America, Japan, Korea, Taiwan, and Europe, dramatic changes in the memory market. as tracked by a new worldwide capacity study, ICE expects pre-tax income to increase SICAS (Semiconductor International Capacity slightly from 13 percent to 15 percent from Statistics). 1996 to 1997. It further forecasts that capital spending by North American firms will sig- Corresponding with the lower utilization of nificantly drop from 1996Õs level of $15.5 fab capacity, ASPs dropped from an average billion to $12 billion in 1997. of $2.68 to $2.40 from 1995 to 1996, and ICE

12.00 11.50 45.00 43.25 11.00 40.00 10.00 9.00 35.00 8.00 30.00 7.00 Ð65% 25.00 Ð66% 6.00 ASP($) 5.00 ASP($) 20.00 4.00 14.65 4.00 Ð27% 15.00 2.91 Ð34% 3.00 9.70 10.00 2.00 1.00 5.00 JAN AUG DEC JAN AUG DEC 1996 1996 1996 1996 1996 1996

4M DRAM 16M DRAM

Source: ICE 21204C

Figure 1-7. DRAM ASPs Plummet

Capacity Utilization* (Percent) Wafer Type 1H94 1H95 2H95 1H96** 2H96

MOS <0.7µm 96.3 95.8 97.4 88.4 90.0

MOS ≥0.7µm 95.7 97.2 96.5 90.1 85.7

Bipolar/BiCMOS 86.7 90.9 91.2 85.6 75.1

Total 94.0 95.7 95.9 89.1 86.1 * Figures expressed are for 150mm equivalent wafers. ** Revised 4/97 Source: SIA 20354D

Figure 1-8. Wafer Fab Capacity Utilization

1-6 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

Worldwide Capital Spending Jim Bagley, President of OnTrak Systems, recently developed a new metric that may Because of the boom-bust cycles, IC manu- provide a leading indicator of industry reces- facturers must wisely invest during periods sions[1]. The metric, the multi-year percent- of healthy growth, while remaining flexible age change of semiconductor sales divided enough to curtail expenses during periods of by the sum of capital expenditures over the downturn. In reality, the industry largely same multi-year period, approaches zero operates in reactionary mode, despite approximately a year before an industry increased communication with distributors downturn (Figure 1-9). Bagley points out and customers, and reductions in inventory that historically device prices rise approxi- levels over the years. The ramp up of over 50 mately two years before the downturn. new fab lines in 1995 and 1996, which at first Figure 1-10 shows a metric that ICE has seemed incapable of meeting the insatiable tracked for years, industry-wide capital demand for semiconductors, finally resulted spending as a percentage of semiconductor in over-supply of the commodity devices, sales. This trend illustrates the swings in DRAMs, in 1996. Fab delays occurred in capital spending and shows how, on aver- cycles throughout 1996 and managers began age, spending of roughly 21 percent of sales making adjustments to spending plans is needed to sustain the industryÕs growth. almost on a quarterly basis. Capital ship- ments for equipment were put on hold for 6 months or more, for all but the most leading- edge equipment such as 248nm steppers, high density plasma etchers, and chemical- mechanical polishing tools.

70 Change in Revenue 60 Cumulative Capital Expenditures 50

40 $44B $46B 30 $125B 20 $44B $145B $58B 10 Percentage $12B 0 $18B

Ð10

Ð20

Ð30 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year Source: OnTrack 22698

Figure 1-9. Changes in Capital Spending: Indicator of Equipment Industry Health

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-7 Profitability in the Semiconductor Industry

33 31.6 32 31 30 29 28 27.4 27 26.5 26.9 27.2 26 25 24 23

Percentage 22.4 22 21.5 21.8 ’79-’96 Annual 21.1 21 20.3 Average 20 20.9 19.3 19 18.8 19.4 18 18.6 18.3 18.3 17 16 16.2 16.1 15 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 (FCST) Year Source: ICE 14537U

Figure 1-10. Worldwide Capital Spending as a Percent of Worldwide Semiconductor Production (1979-1997)

Figure 1-11 illustrates the recent escalation flash memory, DSPs, MOS standard cells in capital expenditures, which has increased and microperipherals, as well as other high- by 4X in the five year period between 1991 value-added devices remained active. and 1996. In Figure 1-12, one can see the Capital spending for foundries that supply a annual changes in capital spending among wide variety of value-added products was semiconductor manufacturers. Taiwanese substantial. firms (making up the majority of the rest-of- world (ROW) category) have made remark- Figure 1-13 shows the details of capital able inroads in the industry over the most spending by company on a worldwide basis recent years, while Korean companies in 1995 and 1996, ranked according to 1996 slowed spending dramatically from 1995 spending. Among the top spenders, levels, yet still increased it by 10 percent Motorola, Hitachi, National, and NEC from 1995 to 1996. North American and reduced spending the most from 1995, while European firms modestly increased spend- Sharp, TSMC, TI, Siemens, Rockwell, and ing in 1996, while Japan decreased it by 4 IBM increased spending the most. The com- percent. On a product basis, DRAM spend- panies in this table account for nearly 70 per- ing slowed the most dramatically, while cent of total spending in the industry. spending for microprocessors, by Intel pri- marily, remained staunch. Spending for

1-8 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

45,000 42,765 Ð7% 39,710 39,655 40,000 8% 35,000

74% 30,000

25,000 22,805

48% 20,000 Millions of Dollars 15,385 15,000 Ð10% 35% 12,645 11,375 10,000

5,000

0 1991 1992 1993 1994 1995 1996 1997 (FCST) Year Source: ICE 19246H

Figure 1-11. Worldwide Merchant Semiconductor Capital Spending Trends

NORTH AMERICA JAPAN EUROPE

11,580 16,000 12,000 11,085 4,000 14,015 14,345 3,590 3,540 13,065 10,100 3,350 14,000 58% Ð4% 3,500 2% 10,000 Ð1% 12,000 55% Ð9% Ð9% 3,000 7% 8,000 10,000 9,020 7,345 2,500 6,280 2,040 8,000 6,000 2,000 64% 6,400 4,925 1,385 6,000 41% 3,925 49% 1,500 1,160 4,295 4,000 1,000 47% 3,520 Ð38% 25% 4,000 49% 1,000 19% Millions of Dollars Millions of Dollars 22% Millions of Dollars 2,000 2,000 500 0 0 0 1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997 (FCST) (FCST) (FCST) Year Year Year

KOREA ROW

8,000 7,300 7,000 6,445 6,450 7,000 6,575 6,500 6,000 0% 54% 6,000 11% Ð11% 5,000 4,190 5,000 179% 4,000 4,000 105% 3,000 3,000 2,360 2,040 2,000 1,660 2,000 Millions of Dollars Millions of Dollars 1,195 1,060 42% 1,015 1,000 785 800 1,000 39% 100% 13% 2% 27% 0 0 1991 1992 1993 1994 1995 1996 1997 1991 1992 1993 1994 1995 1996 1997 (FCST) (FCST) Year Year

Source: ICE 17875M

Figure 1-12. Capital Spending by Region

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-9 Profitability in the Semiconductor Industry

1996 1995 1996/1995 1995 1996 Company Spending Spending Percent Headquarters Rank Rank ($M) ($M) Change

1 1 Intel 3,600 3,100 16 U.S. 4 2 LG Semicon (Goldstar) 2,500 2,100 19 Korea 4 2 Hyundai 2,500 2,100 19 Korea 3 3 Samsung 2,000 2,200 Ð9 Korea 10 4 TI 1,800 1,150 57 U.S. 5 5 NEC 1,700 2,010 Ð15 Japan 7 6 Toshiba 1,560 1,545 1 Japan 13 7 IBM 1,500 1,000 50 U.S. 8 8 Fujitsu 1,435 1,505 Ð5 Japan 2 9 Motorola 1,400 2,350 Ð40 U.S. 6 10 Hitachi 1,380 1,755 Ð21 Japan 15 11 Siemens 1,300 850 53 Europe 9 12 Micron 1,160 1,190 Ð3 U.S. 11 13 Mitsubishi 1,055 1,120 Ð6 Japan 14 14 Matsushita 1,000 885 13 Japan 12 14 SGS-Thomson 1,000 1,002 — Europe 19 14 TSMC 1,000 600 67 Taiwan 25 15 Sharp 735 385 91 Japan 20 16 TI-Acer 675 595 13 Taiwan 17 17 AMD 625 621 1 U.S. 21 18 UMC 600 570 5 Taiwan 22 19 Sanyo 595 560 6 Japan 26 20 Rockwell 550 360 53 U.S. 18 21 National 525 620 Ð15 U.S. 24 22 Mosel Vitelic 520 430 21 Taiwan 16 23 Philips 510 750 Ð32 Europe 23 24 Sony 460 460 — Japan

Source: ICE 21960A

Figure 1-13. Capital Expenditures

Viewed from another perspective, the com- By early 1997, it was evident that spending panies with the highest capital spending as a for DRAM fabs was almost completely on percentage of their annual sales in 1996 is hold and only equipment allowing faster shown in Figure 1-14. All these companies transitions to advanced devices (i.e., 64M reinvested more than 30 percent of sales in and 256M DRAMs) were being purchased. 1996 and three companies spent more than At the same time venture capitalists and 100 percent of sales! Regionally, Taiwanese investors were becoming slightly less and Korean companies increased spending enthusiastic regarding investment in fabs as a percentage of sales the most (Figure 1- and other semiconductor concerns. 15), led by TI-Acer (170 percent), Mosel- However, the proliferation of electronic Vitelic, LG Semicon, Hyundai, Winbond, products and strong growth rates in con- and UMC. Relatively speaking, European, sumer, computer and entertainment mar- Japanese, and U.S. firms, reinvested kets exceed those of most other industries, between 20 percent and 30 percent of rev- intriguing investors tremendously. enues on average.

1-10 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

1996 Capital 1996 1996 1996 Spending Headquarters Capital Company IC Sales Rank Percent of Location Spending ($M) IC Sales ($M) 1 TI-Acer 170 Taiwan 6,700 1,800 2 Mosel-Vitelic 140 Taiwan 375 520 3 LG Semicon 104 Korea 2,400 2,500 4 Hyundai 79 Korea 3,150 2,500 5 Winbond 78 Taiwan 450 350 6 TSMC 71 Taiwan 1,400 1,000 6 UMC 71 Taiwan 840 600 7 Micron 67 U.S. 1,740 1,160 8 Siemens 54 Europe 2,400 1,300 9 Macronix 49 Taiwan 4,100 200 10 Matsushita 45 Japan 2,235 1,000 11 IDT 45 U.S. 545 245 12 Fujitsu 44 Japan 3,225 1,435 13 Alcatel Mietec 43 Europe 210 90 14 Sharp 42 Japan 1,760 735 14 Cypress 42 U.S. 535 225 15 Seiko Epson 40 Japan 825 330 16 Rockwell 37 U.S. 1,500 550 17 VLSI Technology 35 U.S. 720 250 18 Samsung 34 Korea 5,800 2,000 19 Atmel 33 U.S. 1,070 350 20 Sanyo 32 Japan 1,885 595 21 Nippon Steel 32 Japan 375 120 21 AMD 32 U.S. 1,955 625 Source: ICE 19559A

Figure 1-14. Top Capital Spenders Ranked by Percentage of Sales

100

80 1995 1996 70

Percentage 40

0 Taiwanese Korean European Japanese North American Companies Companies Companies Companies Companies

Source: ICE 21778A

Figure 1-15. Capital Spending as a Percent of IC Sales

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-11 Profitability in the Semiconductor Industry

The Stock Market and the Changing business strategy is tested or when company Nature of the Business managers underestimate the importance of time-to-market, for instance. Often, how- The dawn of a new era in semiconductor his- ever, such rapid and dramatic responses fail tory began when a small sticker touting to give companies the support needed to ÒIntel InsideÓ appeared on personal comput- ride-out market changes. ers and their advertisements in the early

1990s. Suddenly semiconductor firms were Stock selling to the average consumer instead of Company Market Value* ($B) the engineers working for manufacturers of computers and other OEMs. Indeed, once Microsoft 115.5 the investment community became fixated Intel 109.3 Total 224.8 on technology stocks, many people realized that the days when engineering prowess General Motors 42.4 ruled were overÑand issues such as name Ford Motor 37.5 recognition and image were evidently gain- Boeing 36.6 ing importance in the field of semiconduc- Eastman Kodak 29.4 tors. Certainly industry followers five years Sears Roebuck 20.4 ago would not have imagined a TV commer- J.P. Morgan 19.2 cial showing fab employees in metallic Caterpillar 15.4 bunny suits dancing around and promoting Kellogg 14.2 advanced chip technology, as in a recent Intel Total $215.1 advertisement. * As of 3/21/97 Source: Wall Street Journal 22629

Figure 1-16 shows the enormous stock value placed on Intel and Microsoft, the most prof- Figure 1-16. Intel and Microsoft Value Exceeds itable companies in the high technology Eight Traditional Stocks Combined sector. Interestingly, their combined market valuations exceed those of the eight well- known companies put together. The com- Industry Downsizing bined revenues of these eight traditional companies, roughly $425 million, is 14X the 1995 and 1996 saw initial public offerings by combined revenues of Intel and Microsoft, many numerous semiconductor equipment but merely 2X the profits[2]. vendors seeking to expand their businesses in order to keep pace with the souring But this elite treatment of companies in the demand for chips. In addition, there were a semiconductor sector is shared by few com- number of mergers and acquisitions among panies other than Intel and Microsoft, equipment and materials suppliers. When although IBM has enjoyed outstanding valu- the over-supply of DRAM devices was real- ation as well. In most other cases, stockhold- ized, fabs were put on hold, capital equip- ers react dramatically to each development ment orders were stalled for 6 months or within the companies. Such close surveil- more, and companies were forced to lay-off a lance has certain positive effects as compa- number of employees (Figure 1-17). This fol- nies can gain necessary feedback when a lowed approximately two years of growth

1-12 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

when companies were unable to fill the microelectronics division, has been expand- many positions they had, and had to pay ing its employee base since the company higher salaries as well. Substantial work- restructuring force reductions among some of largest equipment suppliers Ñ Applied Materials, As telling as these tables may be, compar- Lam Research, Tencor Instruments, and K&S isons between semiconductor equipment Ñ illustrates the gravity of the downturn. In vendors and the chip manufacturers must be addition, as small firms such as AG performed with caution due to the enor- Associates and Genus reduce their work- mous difference in company and industry forces dramatically, the future success of sizes Ñ semiconductors are a $140 billion these companies and their ability to meet industry while equipment is roughly one- global supply needs comes into question. quarter its size (Figure 1-19). Figures 1-20 and 1-21 place these two industries in rela- A sampling of industry restructuring among tive context with industries of similar sizes. semiconductor manufacturers (Figure 1-18) The semiconductor materials suppliers are illustrates a similar trend in that smaller slightly less sensitive to market fluctuations firms downsized dramatically in some cases, because demand changes less radically in yet the larger IC manufacturers have not this sector. Important exceptions are the experienced the layoffs of the larger equip- wafer manufacturing and photomask manu- ment companies. Of course, the very well facturing industries. Wafer suppliers are known exceptions are the layoffs of thou- constrained by polysilicon supply and the sands of employees at IBM and AT&T but long leadtimes for new manufacturing facil- these were company-wide layoffs through- ities (2-year ramp-ups), while mask suppli- out all their divisions. It is also important to ers are limited by slow mask writing times, note that Lucent Technologies, AT&TÕs especially when making reticles for the most advanced devices.

Workforce Reduction Percentage of Company (Number of Employees) Total Workforce AG Associates 69 25 Applied Materials 1,700 12 GaSonics 35 7 Genus 39 11 Kulicke & Soffa 300 16 Lam Research 650 11 SubMicron Systems 120 15 Tencor Instruments 220 15 Teradyne 300 6 Unit Instruments 109 22 Watkins-Johnson 75 7 Note: Includes voluntary departures and layoffs of permanent, temporary and contract employees. Source: ICE 22688

Figure 1-17. Industry Downsizing Ð Equipment Suppliers

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-13 Profitability in the Semiconductor Industry

Workforce Reduction Percentage of Company (Number of Employees) Total Workforce Altera 100 11 AMD 250 2 Burr-Brown 60 4 Cirrus Logic 445 13 Cypress Semiconductor 80 9 IMP 89 23 Motorola 545 2 National Semiconductor 600 3 Philips 140 1 Tower Semiconductor 68 10 Weitek 20 30 Note: Includes voluntary departures and layoffs of permanent, temporary and contract employees. Source: ICE 22687

Figure 1-18. Industry Downsizing Ð Semiconductor Manufacturers

1997/1996 1996/1995 Percent Change Percent Change ELECTRONIC SYSTEM SALES (FCST) $851B ($922B) 8% 6%

SEMICONDUCTOR SALES1 8% Ð8% $138B ($149B)

SEMICONDUCTOR EQUIPMENT 2 SALES $36B ($33B) Ð8% 15%

SEMICONDUCTOR MATERIAL3 SALES $20.3B 14% 12% ($23.2B)

1 Including Captives ( ) = 1997 Forecast 2 Including Wafer Fab, Assembly, and Test Equipment 3 Including Chemicals and Gases, Packaging Materials, Wafers, and Photomasks

Source: ICE 13402AC

Figure 1-19. 1996 and 1997 Worldwide Electronics Marketplace

1-14 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

U.S. Women's Apparel Store Sales (1995) 34.6

U.S. Lottery Ticket Sales (1994) 34.5

U.S. Railroad Operating Revenues (1995) 32

U.S. Convenience Store Sales (1995) 27.3

Worldwide Semiconductor Equipment Sales (1995) 24.9

U.S. Liquor Store Sales (1995) 22.5

U.S. Movie, Theater, Sports Ticket Sales (1994) 19.5

U.S. Shoe Store Sales (1995) 18.8

U.S. Casino Gambling (1995) 18.2

U.S. Defense Dept. Aircraft Purchases (1995) 17

U.S. Toy Sales (1995) 16

0 5 10 15 20 25 30 35 Sales ($B) Source: Wafer News 22691

Figure 1-20. Relative View of Semiconductor Equipment Revenues

U.S. Residential New Construction (1995) $236.2B

General Motors Corp. Net Sales and Revenue (1996) $164.1B

Foreign Investment in China, 8th Five-Year Plan (1991-95) $150B

U.S. Gasoline Service Station Sales (1995) $148.2B

Ford Motor Company Revenue (1996) $147B

Worldwide Semiconductor Sales (1996) $139B

Exxon Corporation Revenue (1996) $134.4B

U.S. Furniture and Appliance Retail Sales (1995) $129.9B

U.S. Lumber, Building Materials, Hardware $109.3B Sales (1995)

WalMart Stores Inc. Corporate Revenue $104.9B (1996)

0 50 100 150 200 250 Sales ($B) Source: Wafer News 22692

Figure 1-21. Relative View of Semiconductor Revenues

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-15 Profitability in the Semiconductor Industry

New Approaches to Compensation Changing Product Lifecycles and Time-to- Market Compensation and severance packages are changing, especially among U.S. companies. Company performance and profitability are Years ago, industry downturns were dealt increasingly tied to time-to-market, market with by dramatic spending cuts, salary timing, manufacturing cost reduction, and freezes, and temporary plant closings, if nec- better utilization of assets. In addition, the essary. Training programs were often cut ability to recognize and manage product life- back. In the 1990s, companies manage cycles is becoming more important as the time downturns in a very different way. Today, available for recovering significant invest- training budgets and salaries are not gener- ments shortens. Figure 1-22 shows time-to- ally cut (although upper managers and market differences between world-class CEOs occasionally reduce their pay by some manufacturers and other companies in the small percentage), yet discretionary spend- same sector. Figure 1-23 illustrates how time- ing for outside consultants and other projects to-market differences may vary according to are still put on hold. As evidenced by the device market. Unless such differences can be previous section, layoffs are becoming much remedied, the less competitive and often more common in the U.S., and stock values smaller companies will lose share of market, a of companies typically rise, often dramati- phenomenon already occurring among sup- cally, following company downsizing. pliers of semiconductor equipment and materials. This shift to a smaller supplier base is In 1996, IBMÕs distributed a 1.2 billion bonus due in large part to widening differences in among its employees. This payout occurred global customer service, but also the desire by following several years of downsizing and companies to reduce vendor base as a method the layoff of over 5,000 employees. In early of streamlining operations. 1997, AT&T offered buy-out packages to some 4,000 managers, including $10,000, Typical product lifecycles in the semiconduc- which could be used for retraining, relocation tor industry followed a bell-curve cycle, yet or financing their own businesses[3]. The today these are changing shape to more dra- company began this strategy approximately a matically upward sloping curves that rapidly year earlier as a larger plan of efforts to elim- plummet (Figure 1-24) better reflect reality in inate about 17,000 jobs. After Intel celebrated todayÕs marketplace. Depending on the its 1996 net income of $5.2 billion it paid $820 device type and market niche, the identifica- million in profit-sharing and retirement con- tion of the positioning of products along tributions to its nearly 50,000 employees these lifecycle curves is becoming more diffi- worldwide. The company also made all of its cult. However, within the microprocessor employees eligible for its stock-option plan in market it is clear that new products are being the future, setting an important precedent for introduced more often than in past genera- the treatment of employees that enable tions, and the unit volumes and revenue record-breaking profits[4]. streams peak earlier and subsequently plummet faster (Figure 1-25). The accompanying changes in performance of IntelÕs microprocessors is shown in Figure 1-26.

1-16 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

100

80 Other Companies

60 Percent 40 Best-In-Class

0 TTM in 1995 TTM Goal in 1996 TTM Goal in 1998

Source: Semiconductor International 22635

Figure 1-22. Typical Product Time-To-Market

Gap Between Best-in-Class Companies' Product Type TTM Versus Average Companies' TTM

Microprocessor, 67% Microcontroller, DSP MOS ASIC 73% MOS Memory 76% Analog 55%

Source: Channel Magazine 22704

Figure 1-23. Time-To-Market Performance Gap

It is probable that DRAM devices may ven- market, the more likely such a strategy may ture away from the traditional lifecycle become. Figure 1-28 illustrates the changing curves of today (Figure 1-27) to one in which lifecycles of gate arrays and standard cell the bit volumes peak faster, new generations products offered by Texas Instruments. TI are introduced faster, and bit volumes fol- plans to combine standard cores from sev- lowing the peak plummet faster. The more eral different vendors along with their digital competition and price pressure in this signal processing technology, among others, to offer 0.18mm products in 1998.

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-17 Profitability in the Semiconductor Industry

Revenue Where are you today?

0 10 20 30 40 50 60 Months Source: Electronic Business Today 22700

Figure 1-24. Product Lifecycles

286 386 486 Pentium Pentium Pro P7 Units Shipped (millions)

'85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 Year Source: Intel 22589

Figure 1-25. Product Lifecycle for Intel Processors

Profitability Trends Gross margin is the company's gross profits, or its annual revenues less the manufactur- An IC manufacturer's profitability is typi- ing costs of goods sold. Gross margin, which cally measured in: typically ranges between 20 and 60 percent of sales, allows the company to recoup ¥ Pre-tax income or net income as a percent- research and development (R&D) costs, as age of sales, well as marketing, general, and administra- ¥ Sales revenue per wafer start, tive costs (S, G&A), while hopefully allowing ¥ Sales revenue per employee, or a suitable pre-tax profit. Gross margin for ¥ Gross margin. devices is highest when demand is greater than the supply, and/or little competition for the devices exists in the marketplace.

1-18 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

1,000

700 Pentium II, (500 MIPS) 500 233MHz 266MHz 400 300MHz 300 Pentium Pro 200MHz (600 MIPS)

200

100 Intel 486DX 50MHz (41 MIPS) 70 P6* 100MHz Intel 386DX 30MHz (11.4 MIPS) (300 MIPS) 50 Pentium 66MHz 40 Intel 386DX 25MHz (8.5 MIPS) (112 MIPS) 30 Intel 386DX 20MHz (7 MIPS) Intel 486DX 20 80286 12MHz (2.66 MIPS) 33MHz (27 MIPS)

Intel 386DX 16MHz (6 MIPS) 10 8086 10MHz (0.75 MIPS) 7

Performance (MHz) 5 4 8085 5MHz (0.37 MIPS) 3 8080 2MHz (0.64 MIPS) 2

1.0

0.7

0.5 0.4 0.3 8008 200KHz (0.06 MIPS) 0.2

4004 108KHz (0.06 MIPS)

0.1 1970 1975 1980 1985 1990 1995 2000

*ICE estimate Year Source: ICE 19062C

Figure 1-26. Intel MPU Performance Trends

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-19 Profitability in the Semiconductor Industry

1,000,000.00

100,000.00 64K 10,000.00 256K 1,000.00 1M 4M 100.00 16M

Gigabits Sold 64M 10.00 256M 1.00 1G

0.10 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Years

Source: ICE 22004

Figure 1-27. DRAM Lifecycles

0.8

4 x 10 Ports 0.7 Per Chip 0.65µm 0.6 12 x 10/3 x 100 Ports Per Chip µ

m) 0.55 m µ 0.5 24 Ports Per Chip 24 Ports With 0.44µm 0.4 Packet Memory 48 Ports w/ 0.35µm Gate Length ( Packet Memory 0.3 0.25µm 0.2 Gate Array Products TImeline 0.18µm Standard Cell Products Technology 0.1 1990 1992 1994 1996 1998 2000 Year

Source: TI 22631

Figure 1-28. 0.18µm Timeline Technology

Figure 1-29 gives examples of net income indicates surging profitability in the 1991- percentages for Intel, Analog Devices, AMD, 1995 period, and net income for the four and National, all large IC manufacturers, companies averaged 14 percent in 1995 over the last several years. As shown, all (Figure 1-30). The gross margins for these four companies were profitable in only four large IC houses, shown in Figure 1-31, of the fourteen years. Plotting the net ranged between 42 and 52 percent in 1995, income average among these companies and averaged 48 percent.

1-20 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

30 Intel Analog Devices 25 AMD National 20

0 Percentage of Sales

Ð5

Ð10

Ð15

Ð20 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year Fiscal ending 5/26/96 Source: ICE 19363D

Figure 1-29. Trends in Net Income Percentage (Large Companies)

0 Percentage of Sales

Ð5

Ð10 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year *1983-1995 average of these four companies is 6.1 percent.

Source: ICE 19364D

Figure 1-30. Net Income Average* of AMD, Analog Devices, Intel, and National

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-21 Profitability in the Semiconductor Industry

60 Analog Devices

40 AMD Intel

30 National* Percentage of Sales 20

0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Fiscal Year *Fiscal ending 5/26/96 Source: ICE 11050L

Figure 1-31. Trends in Gross Margin Performance (Large Companies)

Relative to the large IC manufacturers, companies were profitable in six of the twelve medium-sized companies, including Cypress, years (1988, 1991, 1993, 1994, 1995, and 1996). Linear Technology, Micron, VLSI Technology, and LSI Logic, experience larger swings in Profitability of Equipment and Materials profitability (Figures 1-32 through 1-34). As Suppliers shown, Micron has experienced the widest swings in net income -- from Ð69 percent in A sampling of the profitability of large and 1986 to 34 percent in 1988 -- mirroring the medium-sized (<$200M) equipment manu- very volatile DRAM market. Interestingly, facturers is shown in Figures 1-35 through Micron's net income averaged 25 percent 1-39. In general, gross margins of large during good years (1988, 1989, 1993, 1994, and equipment companies are comparable to 1995) and Ð18 percent during poor years. LSI those of the semiconductor manufacturers Logic's results illustrate how difficult prof- during booming years, yet 1997 is likely to itability in the ASIC market has been until see rapid decreases in net incomes and gross recently. From 1985 to 1996, the company's margins, especially among the larger firms. net income averaged only 3 percent. Linear One unfortunate result of the cyclical nature Technology, a fabless supplier of specialty of this industry is the struggle of smaller analog products quietly realized a 35 percent firms to compete. As the industry has seen net income for fiscal year 1996, and a 71 per- over the last several years, typically the cent gross margin, following outstanding per- largest equipment firms gain share of formance over the last four years. All four market following years of downturn.

1-22 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

Linear 35 Technology*

15 Micron** Cypress 10 LSI Logic

Percentage of Sales 0

Ð5

Ð10

Ð15 (Ð30) (Ð69) (Ð25) Ð20 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Fiscal Year *Fiscal ending 6/30/96 **Fiscal ending 8/29/96 Source: ICE 19415D

Figure 1-32. Trends in Net Income Percentage (Medium-Sized Companies)

Percentage of Sales 0

Ð5

Ð10 1984** 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Year *1984-1995 average of these four companies is 8.9 percent. **Does not include Cypress and Linear Technology.

Source: ICE 19416D

Figure 1-33. Net Income Average* of Cypress, LSI Logic, Linear Technology, and Micron

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-23 Profitability in the Semiconductor Industry

70 Linear Technology*

Cypress 60

40 VLSI Technology

30 LSI Logic Percentage Of Sales

20 Micron**

(-30) (0) 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Fiscal Year * Fiscal ending 6/30 ** Fiscal ending 8/29 Source: ICE 13314J

Figure 1-34. Trends in Gross Margin Performance (Medium-Sized Companies)

What is Responsible for Rising Fab Costs? At least part of this controversy is the result of oversimplification of fab costs. In recent years, much controversy has Companies typically refer to the rising cost ensued over the main cause of rising fab of constructing and equipping a new, lead- costs. While IC manufacturers typically ing-edge fab facility, running over a billion point to the rising cost of capital equipment, dollars in 1996 (Figure 1-39). Since equip- the suppliers claim that higher priced equipment accounts for an increasingly larger per- ment is the inevitable result of increasing centage of new fab costs, up around 80 demands put on companies for higher per- percent in 1996 (Figure 1-40), many people formance systems and process development. choose to equate rising equipment costs Who is right? with rising fab costs.

1-24 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

10 Net Income (Percent) Applied Materials* FSI International** 5 Lam Research Corp*** SVG**** Novellus Systems Inc Tencor Instruments 0 1993 1994 1995 1996 Fiscal Year * Fiscal ending 10/27/96 *** Fiscal ending 6/30/96 ** Fiscal ending 8/1/96 **** Fiscal ending 9/30/96

Source: ICE 22734

Figure 1-35. Net Income as a Percentage of Revenues (Large Companies)

Gross Margin (Percent) Applied Materials* FSI International** 37 Lam Research Corp*** SVG**** Novellus Systems Inc Tencor Instruments 30 1993 1994 1995 1996 Fiscal Year * Fiscal ending 10/27/96 *** Fiscal ending 6/30/96 ** Fiscal ending 8/1/96 **** Fiscal ending 9/30/96

Source: ICE 22735

Figure 1-36. Gross Margin as a Percentage of Revenues (Large Companies)

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-25 Profitability in the Semiconductor Industry

8 Net Income (Percent)

4 GaSonics Int'l* Plasma-Therm Inc** Genus Inc Ultratech Stepper Inc 0 1993 1994 1995 1996 Fiscal Year * Fiscal ending 9/30/96 ** Fiscal ending 11/30/96

Source: ICE 22736

Figure 1-37. Net Income as a Percentage of Revenues (Medium-Sized Companies)

48 GaSonics Int'l* Plasma-Therm Inc** Genus Inc 42 Ultratech Stepper Inc Gross Margin (Percent)

30 1993 1994 1995 1996 Fiscal Year * Fiscal ending 9/30/96 ** Fiscal ending 11/30/96

Source: ICE 22737

Figure 1-38. Gross Margin as a Percentage of Revenues (Medium-Sized Companies)

1-26 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

10,000

1,000

100 Dollars in Millions

1 '66 '74 '82 '90 '98 2003 Year Source: Forbes 22078A

Figure 1-39. Cost of Semiconductor Factories

Other* Assembly 5% 6%

Building and Improvements Test 20% 17%

Equipment 80%

Wafer Processing 52%

* Computers, automation, etc. Source: ICE 20459

Figure 1-40. Breakdown of Semiconductor Capital Expenditures

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-27 Profitability in the Semiconductor Industry

As it turns out, although equipment costs do (MIPS). The trend of decreasing cost per bit increase by approximately 50 percent each of memory, approximately 1.3X per device device generation, rising equipment invest- generation, or decreasing cost per MIPS, ments is not the sole reason for rising manu- approximately 1.4X per generation occurs in facturing costs. Shrinking device lifecycles, tandem with a rapidly progressing increase increasing chip sizes, shrinking design rules, in device complexity (Figure 1-43). Today, and the increasing cost of higher purity that means that Intel can spend five times as materials Ñ all significantly contribute to much to develop and manufacture Pentium rising manufacturing costs. Figure 1-41 sum- microprocessors as it spent producing the marizes the key factors contributing to the 486 chips (Figures 1-44 and 1-45)Ñand still total investment in IC manufacturing. The make a profit. most important is high technology, or the ongoing investment in device designs, new However, the margin between decreasing equipment, and cleanroom facilities needed cost per function and manufacturing costs is to fabricate the increasingly complex semi- shrinking dramatically. In addition, as the conductor devices. useful lifetime of this equipment decreases (because chip lifecycles are shrinking), the Fortunately, the increasing cost of manufac- length of time available to recover invest- turing is off-set by the ability to continually ments shortens. For these reasons, it appears integrate more functions per square centime- that while historical trends in device scaling ter of silicon, known as MooreÕs Law. For will prove to be technically feasible, the prof- memory devices, this is manifested in the itability of semiconductor manufacturers decreasing cost per bit of memory (Figure 1- depends more on the proper management of 42), and with microprocessors, a decreasing manufacturing costs. cost per million instructions per second

High High Equipment Technology Cost X Increasing More Expansion of Number of Equipment Cleanroom Process Steps Area

Tremendous Increasing More Increase in Chip Size Wafers Increasing More Investment Total Manpower for Saving Investment Requirements Manpower

Increasing Investment for Environment

Automation

Source: Samsung Electronics 19774

Figure 1-41. Why Total Investments is Going Up

1-28 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

100

1979

1980 Traditional 68% Slope

1981 10 1982 1983 Excess 1984 Capacity Price Erosion Post Recessionary Price Strengthening Trade Agreement 1985 1988 1989 1 1986 Strong Demand, 1987 1990 Weak Supply 1991 1995 Price Per Bit (Millicents) 1992 Excess 19931994 Capacity Price Erosion 1996 0.1

1997 (FCST)

0.01 1 10 100 1,000 10,000 100,000

Cumulative Volume (Bits x 1012) Source: ICE 7437AB

Figure 1-42. Price Curve for DRAM

In summary, manufacturing costs are escalat- IC manufacturers have typically compen- ing due to a number of factors. Specifically, sated for these changes by moving to larger each device generation (every 3 years): wafers (100 to 125, 150, and 200mm) and increasing product yields to preserve costs. ¥ Capital equipment costs increase by 1.5X, Unfortunately, incremental increases in yield ¥ Clean raw materials costs increase by 35 are rapidly being exhausted (as die yields percent, approach 90 percent or better on some ¥ Die sizes increase by 30-50 percent, mature products). Therefore, future produc- ¥ Device complexity increases due to 30 per- tivity gains, as shown in Figure 1-46, will cent reduction in design rules, greatly rely on improving the productivity of ¥ Number of process steps increases by 25 wafer processing equipment. percent, and ¥ Test (including in-line monitoring) costs increase by 20 percent.

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-29 Profitability in the Semiconductor Industry

1G 1G

Pentium Pro LSI Logic 256M MPU and Cache Gate Array Memory Chip 100M 64M

16M P7

10M Pentium Pentium Pro MPU Only 4M IBM 80486 Gate 1M 1M Array LSI Logic 256K 80386 Gate Array 68020 80286 100K 64K

Number of Transistors per Chip 68000

16K 8086

10K 4K 8085 8080 1K = Microprocessor/Logic 4004 = Memory (DRAM) 1K 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 Year Memory increase = 1.5/year MPU increase = 1.35/year

Figure 1-43. MooreÕs Law

Introductory Price Introductory Price Year Microprocessor (Cents/Transistor) (Dollars/MIPS*)

1978 8086 1.2 480 1982 286 0.27 135 1985 386 0.11 50 1989 486 0.08 47 1993 Pentium 0.03 9 1995 Pentium Pro 0.02** 4 Average decline per year 21% 24% *Million instructions per second **Excluding 15M-transistor cache chip Source: ICE 19976A

Figure 1-44. Reduction in Cost Per Function for IntelÕs Microprocessors

1-30 INTEGRATED CIRCUIT ENGINEERING CORPORATION Profitability in the Semiconductor Industry

Capital Investment Mask Feature Needed to Product Layers Size (µm) Produce Part at Peak Volume

386 10 1.0 $200M 486 12 0.8 $1.0B Pentium 18 0.6 $5.0B Pentium Pro 22 0.35 $25B?

Source: Intel 18605B

Figure 1-45. Surging Capital Needs

Present

Feature Size Ð12% - 14%

Wafer Size Ð4% Ð12% - 14%

Yield <2% Improvement Ð2% <1% Other Productivity Ð Equipment, Etc. Ln $/Function Ð7% - 10% Equipment HistoricalCurve Productivity 25% - 30%/yr >9% - 15% Improvement

1995 Time

Source: Sematech/Semiconductor International 21073

Figure 1-46. Cost Productivity Curve

Methods for assessing equipment productiv- 2. J. Dorfman, ÒMicrosoft, Intel Take Overas ity are discussed in Chapter 4 of this book, the New Kings of Stocks,Ó Wall Street ÒFab BenchmarkingÓ and practical examples Journal Interactive Edition, March 21, 1997. of equipment improvement programs are 3. R. Ho, ÒAT&TÕs Cash Offer May Turn Ex- shown in Chapter 8, Equipment-level Cost Workers Into Entrepreneurs,Ó Wall Street and Productivity.Ó Journal Interactive Edition, March 12, 1997. 4. D.Takahashi, ÒHey, Big Spender: Intel References Shares Its Wealth With All Employees,Ó Wall Street Journal Interactive Edition, 1. K. Derbyshire, ÒBagley Analyzes Industry February 12, 1997. Dynamics, Predicts 1997 Will be a Down Year for Equipment,Ó WaferNews, April 21, 1997.

INTEGRATED CIRCUIT ENGINEERING CORPORATION 1-31 Profitability in the Semiconductor Industry

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