7 replies to this topic

[SemiBizz]

Due to the extreme costs of manufacturing now in the new state of the art, there are only three companies playing, the monsters - Intel, Samsung, Taiwan Semi. It takes $10-15B now to build one of these state of the art fab facilities. Those 3 companies now dominate the market for equipment, buying 60% of the World's Chipmaking equipment. There are lots of risks associated now with chip development with individual production mask sets for these new fabs running upwards of $100M. Nevertheless, those three companies can dominate the landscape for the higher end production. For the rest of the approximately 200 companies, there is going to be a war for "everything else" so we expect to see a big consolidation as the chip business goes from the 200 or so companies today, down to say... 20 in the next 10 years. I've been watching this now for a long time wondering when this might start, and LSI Logic more or less rings the starting bell. I'd be very careful short this group. We may be looking at a bunch of Merger Monday's ahead in this sector - I have some upside targets in mind for the SOX I think are reasonable. The wild card of course is the overall equity market - I'm just saying - right now there are better things to do than short a potential feeding frenzy.

[dasein]

thanks Semi - you have the professional insider's insight into this industry and appreciate your informed view...

[fib_1618]

I'd be very careful short this group. We may be looking at a bunch of Merger Monday's ahead in this sector - I have some upside targets in mind for the SOX I think are reasonable.

[SemiBizz]

There are a couple of these chip companies that are worth owning I believe. When I say risk associated with chip development. So you commit to $100M + to develop a production mask set to produce a new state of the art fully custom chip. In addition you assume a risk of TIME, because it may take between 2 to 3 YEARS to get to production. In addition to the mask development, you have big expenses incurred in the front end design process. At any time the market can evolve and render your development obsolete. Not too many years ago, there were those in the PC industry that scoffed at the idea of a "Pad" - everyone had an equal chance to develop one, no one except Jobs believed in it - to make a long story short - a lot of companies had pursued other products like "Netbooks" (haven't seen an ad for that in a long time, have you?) Consequently, just think of all the components that were wiped out on the I-Pad. This is true in other areas of the market like networking - chips are developed for standards that never evolve. So the risks of development are HUGE... and even more HUGE now that the fixed costs have skyrocketed to develop state-of-the-art leading edge technology products. Now, how do you mitigate those circumstances and reduce risk? The answer is PROGRAMMABLE CHIPS. With these new and improved Mega-Fabs and the associated process and devlce technologies you get intrinsic benefits - such as improved speed and lower power consumption. In the past chipmakers used design "tricks" to optimize existing processes to offer better performance. As we move into the new technologies, maybe you don't need the tricks anymore. By using a PROGRAMMABLE devlce like an FPGA or PLD - you gain a few advantages. #1 is TIME TO MARKET. There is no 2 - 3 yr development cycle, chips can be fielded in months. #2 is FAST Prototyping, enabling system manufacturers to rapidly determine the efficacy of a new product. The TRADEOFF is VARIABLE COST - The two major PROGRAMMABLE Chip makers are Altera (ALTR) and Xilinx (XLNX). They earn up to 70% Margins on some of the high end programmable chips. It is an expensive solution, but it LOWERS OVERALL RISK. That brings us back around to the 3 monsters in the business. Samsung - Samsung is a VERTICAL manufacturer - they provide their own chips for Samsung Products and sell excess capacity to the "Fab-less" chip companies. The problem there is a lot of those companies supply chips to Samsung as well, and many of those "Fab-less" companies are finding out that Samsung is using the foundry opportunity to develop their own learning curve and design-in their own chips in the sockets currently filled by the "Fab-less" customer. Taiwan Semiconductor - They are a pure-play foundry. They supply chips to no one for the most part, but sell their fabrication services to "Fab-less" companies. Intel - Intel is a company in search of a killer application. They make merchant chips, ready for implementation by system companies... they also make some of their own system products including servers. They would like to think they can dominate mobile - but the truth is they have no design wins in that space. They also have a policy of not fabbing anyone's parts who use the dominant architecture for mobile - ARM. They are between a rock and a hard place. Intel historically has carved 60%+ margin on their chips on the monopoly bequeathed to them by IBM for the PC. They will not be able to get those margins in competitive markets like mobile. And that brings us around to ... Programmables - up to 70% margins - their kind of business. Do your own research - there are only two players available to Intel other than some minor firms and a couple of startups, the ones I mentioned above. ALTR and XLNX. Beware of animal spirits... There are better groups to short right now.

[SemiBizz]

SOX was the strongest index in the market today... There's a measured move target of around 530 on this.

http://stockcharts.com/c-sc/sc?s=$SOX&p=D&yr=0&mn=1&dy=26&i=t67571196336&r=1387319771017$.png



As for those two stocks:

ALTR:
http://stockcharts.com/c-sc/sc?s=ALTR&p=D&yr=0&mn=1&dy=0&i=t86384416955&r=1387320006158$.png


XLNX:


http://stockcharts.com/c-sc/sc?s=XLNX&p=D&yr=0&mn=1&dy=0&i=t10447438453&r=1387320077914$.png


This is not a recommendation, do your own research. For entertainment purposes only.

Boilerplate, blah, blah, blah.

[NAV]

Not too many years ago, there were those in the PC industry that scoffed at the idea of a "Pad" - everyone had an equal chance to develop one, no one except Jobs believed in it - to make a long story short - a lot of companies had pursued other products like "Netbooks" (haven't seen an ad for that in a long time, have you?)

NetBooks were useful, lightweight and supported all the apps that i needed. Tablets as they stand today, are useless piece of crap, as far as i am concerned. I need to be able to run my charting programs, which are either java-based or silverlight or desktop-based like Amibroker etc. None of these run on the iPad or the android tablets.

[SemiBizz]

Not too many years ago, there were those in the PC industry that scoffed at the idea of a "Pad" - everyone had an equal chance to develop one, no one except Jobs believed in it - to make a long story short - a lot of companies had pursued other products like "Netbooks" (haven't seen an ad for that in a long time, have you?)

NetBooks were useful, lightweight and supported all the apps that i needed. Tablets as they stand today, are useless piece of crap, as far as i am concerned. I need to be able to run my charting programs, which are either java-based or silverlight or desktop-based like Amibroker etc. None of these run on the iPad or the android tablets.

I would agree, I don't own any of the electronic leashes myself including smart phones. Although I pioneered in the development of these products with the startup companies that developed the chips that power these devices in the 90s, I have always resisted adapting new technologies. I still use a Walkman. It's been a lot of fun though, I worked with chip companies that developed the first wireless modems, video compression, CDMA and GSM, Graphics, and many other chips that are in today's mobiles. The netbook would have been more to my liking as well. Too bad "Steve the En-Ballmer" was stupid enough to impale himself and Microsoft on adapting the I-Pad OS for Windows 8. He single handedly destroyed the Windows Franchise and set the company back years. They threw away a perfectly good enterprise they developed for business applications and could have milked that cow for years and years. He deserved to lose his job, he is Darwin Award material. Meanwhile, all the business people I know hate Windows 8, and there is a rush to downgrade back to Win 7. If the new guy they bring into MSFT has a brain, he will bring back "Windows Classic" and recapture their lost franchise.

[NAV]

Not too many years ago, there were those in the PC industry that scoffed at the idea of a "Pad" - everyone had an equal chance to develop one, no one except Jobs believed in it - to make a long story short - a lot of companies had pursued other products like "Netbooks" (haven't seen an ad for that in a long time, have you?)

NetBooks were useful, lightweight and supported all the apps that i needed. Tablets as they stand today, are useless piece of crap, as far as i am concerned. I need to be able to run my charting programs, which are either java-based or silverlight or desktop-based like Amibroker etc. None of these run on the iPad or the android tablets.

I would agree, I don't own any of the electronic leashes myself including smart phones. Although I pioneered in the development of these products with the startup companies that developed the chips that power these devices in the 90s, I have always resisted adapting new technologies. I still use a Walkman. It's been a lot of fun though, I worked with chip companies that developed the first wireless modems, video compression, CDMA and GSM, Graphics, and many other chips that are in today's mobiles. The netbook would have been more to my liking as well. Too bad "Steve the En-Ballmer" was stupid enough to impale himself and Microsoft on adapting the I-Pad OS for Windows 8. He single handedly destroyed the Windows Franchise and set the company back years. They threw away a perfectly good enterprise they developed for business applications and could have milked that cow for years and years. He deserved to lose his job, he is Darwin Award material. Meanwhile, all the business people I know hate Windows 8, and there is a rush to downgrade back to Win 7. If the new guy they bring into MSFT has a brain, he will bring back "Windows Classic" and recapture their lost franchise.

Windows 8 is a disaster. Classic herding behaviour from Microsoft to confirm to it's peers. The GUI designers who designed such a crappy interface needs to be fired along with Ballmer. Not just the OS, but all the metro apps. Look at the metro version of Skype on Windows 8 as an example. Extreme incompetence !