US Semiconductor Industry
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US Semiconductor Industry. Vincent Gee - Andy Kong - Mark Wong. Agenda. Technology overview Industry Overview Industry information Industry trends and outlook Company Analysis Intel (INTC) Advanced Micro Devices (AMD) Applied materials (AMAT). Technology Overview.

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Us semiconductor industry

US Semiconductor Industry

Vincent Gee - Andy Kong - Mark Wong


Agenda

Agenda

  • Technology overview

  • Industry Overview

    • Industry information

    • Industry trends and outlook

  • Company Analysis

    • Intel (INTC)

    • Advanced Micro Devices (AMD)

    • Applied materials (AMAT)


Us semiconductor industry

Technology Overview


What is a semiconductor

What is a Semiconductor?

  • A semiconductor is a substance, usually a solid chemical element or compound, that can conduct electricity under some conditions but not others, making it a good medium for the control of electrical current.

  • The most common semiconductor materials are silicon and germanium.


How is a semiconductor made

How is a Semiconductor Made?


What are semiconductors used for

What are Semiconductors Used For?

  • Integrated Circuits

    • 89.7% of market

    • CPU and PC memory (DRAM, SRAM, Flash Memory)

  • Discrete Devices

    • Transistors, diodes, resistors

  • Optoelectrics

    • LED, Optical coupler, laser diode


What are semiconductors used for1

What are Semiconductors Used For?

  • Worldwide semiconductor product breakdown


Us semiconductor industry

Industry Overview


Industry characteristics

Industry Characteristics

  • Short life cycles

    • Continuous innovation

    • Moore’s law:

      The number of

      transistors in an

      integrated

      circuit doubles

      every 18 months


Growth of computation power

Growth of Computation Power


Industry characteristics1

Industry Characteristics

  • High Research and Development Costs

    • R&D is vital to maintaining competitive advantage

    • R&D enables firms to release competitive products


Industry characteristics2

Industry Characteristics

  • The sector is highly cyclical with peaks (2000) closely followed by troughs (2001).

  • While there are numerous strong competitors in this sector, over 64% of the sector remains relatively fragmented.

  • Intel leads the semiconductor sector, generating $28 billion in revenues, giving the company a 17% sector share.


Industry characteristics3

Industry Characteristics

  • Where are Semiconductors Used?


Annual sales

Annual Sales


2004 recap

2004 Recap

  • Market Value

    • The global semiconductors industry sector grew by 28% in 2004 to reach a value of $213 billion.

  • Market Value Forecast

    • In 2008 the global semiconductors industry sector is forecast to have a value of $314 billion, an increase of 87.1% since 2003.


2004 recap1

2004 Recap

  • Market Segmentation I

    • By far the leading source of revenue for the semiconductors industry sector is the IC segment, which generates 89.7% of the sector's value.

  • Market Segmentation II

    • The largest market globally for the semiconductors industry sector is the Asia-Pacific region, which generates 56.8% of the sector's value.

  • Market Share

    • The leading company in the semiconductors industry sector is Intel, which generates 16.7% of the sector's value.


Industry leaders

Industry Leaders


Industry stock performance

Industry Stock Performance

  • Chart: Weekly semiconductors vs SP500


Industry outlook

Industry Outlook

  • Opportunities

    • Expansion into Asia

    • Multi-core processors

    • Network products (wired and wireless)

    • Mobile products

      • Laptops

      • Personal Digital Assistants (PDAs)

      • Cellphones


Industry outlook1

Industry Outlook

  • Increasing Foreign Consumption (sales)


Estimated future growth

Estimated Future Growth

  • PC industry

    • Projected 14% growth

    • Technological advancement

  • Telecommunication

    • Projected 14 % growth

    • Increase use of wireless telecom products

  • Consumer products

    • Projected 30% growth

    • Increase use of digital technology


Estimated future growth1

Estimated Future Growth


Us semiconductor industry

Company Analysis


Us semiconductor industry

Intel Corporation

Presented by: Mark Wong


History

History

  • Incorporated in California in 1968

    • Initially supplied DRAM and EPROMS

    • Success of memory chip sales funded the microprocessor development

  • Processor Timeline


Company overview

Company Overview

  • Mission statement:

    “ Do a great job for our customers, employees and stockholders by being the preeminent building block supplier to the worldwide digital economy. ”


Recent developments

Recent Developments

  • March 2005: Intel Corporation Raises Low End of Q1 2005 Revenue Guidance Above Analysts' Estimates

  • February 2005: Intel Corporation Desktop Processors Get 64-Bit Support


Recent developments1

Recent Developments

  • January 2005: Intel Corporation Announces New Centrino Mobile Technology

  • January 2005: Intel Corporation Restructures Into Five Units


Recent developments2

Recent Developments

  • November 2004: Intel Corporation Board Elects Paul Otellini Intel Chief Executive Officer; Craig Barrett to Become Intel Chairman

  • November 2004: Intel Corporation Doubles Cash Dividend and Authorizes Repurchase of 500 Million Shares of Intel Common Stock


Recent developments3

Recent Developments

  • September 2004: Intel Corporation Invests in Five Companies Developing Technologies for the Digital Home

  • March 2004: Intel Corporation May Cut China Sales Due To Rule


Management

Management

Andrew Grove (Chairman)

  • Founder (1968)

    Craig Barret (CEO)

  • Joined Intel in 1974. Voted into BOD in 1992.

    Paul Otellini (President and COO)

  • Joined Intel in 1974, became president in 2002.

    Andy Bryant (Executive VP, CFO)

  • Joined Intel in 1981. Became CFO in 1994.


Business segments and products

Business Segments and Products

  • Primary lines of busines:

    • Intel Architecture Business

    • Intel Communications Group


Business segments and products1

Business Segments and Products

  • Intel Architecture Business

    • Microprocessors

      • Desktop Platform Pentium 4

      • Mobile PlatformPentium M

      • Enterprise PlatformXeon

    • Chipsets

      • Intel chipsets are compatible with variety of industry-accepted specifications

    • Motherboard products


Business segments and products2

Business Segments and Products

  • Intel Communications Group

    • Flash memory

    • Wired and wireless connectivity products

    • Processors for handheld computing devices

    • Cellular baseband chipsets


Major customers

Major Customers

  • Distributors

  • Original Equipment Manufacturers of computer systems

  • Retail


Competitors

Competitors

  • Intel Architecture Business

    • Advanced Micro Devices (Desktop, mobile platform)

    • IBM (Desktop, mobile platform)

    • ATI, Broadcom, SIS, Via (Chipsets)

    • Nvidia, ATI (Chipsets/Motherboards)

    • Transmeta (Mobile platform)

    • Sun Microsystems (Enterprise platform)


Competitors1

Competitors

  • Intel Communications Group

    • Samsung, TI (Application processors)

    • Spanshion (falsh memory)

    • Qualacom (Cellular baseband chips)


Strategy

Strategy

  • Strategy

    • Utilize core competencies to develop advanced products

    • Exercise control over value chain

    • Utilize “Intel inside” marketing campaign

    • Expand into faster growing complementary businesses

    • Invest in companies globally to further strategic objectives (Intel Capital program)

  • Objectives:

    • Extend silicon leadership and manufacturing capability

    • Deliver architectural innovation for all platforms

    • Pursue worldwide opportunities


Financial overview

Financial Overview


Financial overview1

Financial Overview


Financial statement analysis

Financial Statement Analysis


Segment performance

Segment Performance


Options

Options


Options1

Options


Fundamental information

Fundamental Information


Management effectiveness

Management Effectiveness


Stock buyback

Stock Buyback


Price history 52 weeks

Price History – 52 Weeks


Price history vs sox 52 weeks

Price History vs. SOX – 52 Weeks


Price history 10 years

Price History – 10 Years


Price history vs sox 10 years

Price History vs. SOX – 10 Years


Value drivers

Value Drivers

  • Market leading research and development

  • Financial strength

  • High brand recognition

  • Economies of scale


What would fisher say

What Would Fisher Say?

1. “Superiority in production, marketing, research and financial skills”

  • Market leader in production

  • Strong “intel inside” marketing campaign

  • Solid financial base

    2. “The people factor”

  • All top executives have been with the firm for over 20 years


What would fisher say1

What Would Fisher Say?

3. “Investment characteristics of some businesses”

  • High barriers to entry

  • Fragmented competition

    4. “The price of the investment”

  • Moderate price

  • Low P/E ratio relative to industry


Recommendation

Positive:

Competent and proven management

Strong financial performance

High profit margins

Future growth prospects

Negative:

Size of company limits overall growth

Recommendation

BUY!!


Us semiconductor industry

Advanced Micro Devices

Presented by: Vincent Gee


History1

History

  • Founded in 1969 and based in Sunnyvale, California, AMD provides microprocessors, Flash memory devices, and silicon-based solutions for customers in the communications and computer industries worldwide.

  • Facilities in US, Europe, and Asia


Company overview1

Company Overview

  • Purpose: " We empower people everywhere to lead more productive lives."

  • Mission: To achieve success, AMD combines innovative concepts with leadership in process technology and design and manufacturing excellence to offer products and services that reduce the cost, improve the performance and shorten the time to market for our target customers worldwide.


Company overview2

Company Overview

  • March 2005: AMD Supports Fair Trade Commission Of Japan’s (JFTC) Decision To Stop Illegal Business Practices By Intel

  • March 2005: AMD Opens New Test, Mark And Pack Manufacturing Facility In Suzhou, China


Company overview3

Company Overview

  • June 2004: AMD Strengthens Mobile Computing R&D with New Engineering Lab in Tokyo

  • August 2004: AMD Demonstrates World’s First X86 Dual-Core Processor


Company overview4

Company Overview

  • October 2004: Spansion Expands System Engineering Capabilities at Design Centers Around the Globe

  • December 2004: AMD, IBM Announce Semiconductor Manufacturing Technology Breakthrough


Executives

Executives


Executives1

Executives


Business segment and products

Business Segment and Products

  • Computation products

  • Memory products

  • Personal connectivity solution products


Computation products

Computation products

  • Processors

    • DesktopSempron, Athlon, Athlon 64

    • ServerOpterron & Athlon

    • MobileTurion, Sempron Athlon

    • WorkstationOpteron & Athlon


Memory products

Memory products

  • From Spansion

    • Flash Memory

      • MirrorBit

      • Floating gate


Personal connectivity solution products

Personal connectivity solution products

  • E86™ Embedded Processors

    • AMD Geode™ Solutions

    • AMD Alchemy™ Solutions

  • Wired Ethernet


Customers

Customers

  • Distributors

  • Original Equipment Manufacturers of computer systems

  • Resellers

  • Retail


Competitors2

Competitors

  • Computation Products

    • Intel

  • Memory Products

    • Intel, Samsung, Toshiba, Sharp, STMicroelectronics, Silicon Storage Technology and Macronix International

  • Personal connectivity solution products

    • Freescale (formerly Motorola Semiconductor), Hitachi, Intel, NEC Corporation, Toshiba and Via Technologies


Strategic partners

Strategic Partners

  • Fujitsu

    • Spansion (manufacturing flash memory)

  • Microsoft

    • Developing and operating system that works with AMD64 technology

  • IBM

    • Joint development agreement to develop new process technologies


Strategy1

Strategy

  • Expand position in the enterprise segment through AMD64 based processors

  • Expand position in the Flash memory market

    • Increase adoption of MirrorBit technology

  • Developing new microprocessor and Flash memory products

  • Expanding to high growth global markets

    • China, Latin America, India and Europe


Financial overview2

Financial Overview


Financial overview3

Financial Overview


Financial over view

Financial Over view


Computation products1

Computation products


Memory products1

Memory products


Financial overview4

Financial Overview

Segment breakdown


Financial statement analysis1

Financial Statement Analysis


Research and development

Research and Development


Stock options

Stock Options


Stock options1

Stock Options


Fundamental information1

Fundamental Information


Management effectiveness1

Management Effectiveness


Price history 52 weeks1

Price History – 52 weeks


Price history vs sox 52 weeks1

Price History vs. SOX – 52 weeks


Price history 10 year

Price History – 10 year


Price history vs sox 10 year

Price History vs. Sox – 10 year


What would fisher say2

What would Fisher say

1. “Superiority in production, marketing, research and financial skills”

  • Heavy investment in research and development

  • Lots of negative figures

    2. “The people factor”

  • Only 2 of the top executive have been with the company more than 10 years


What would fisher say3

What would Fisher say

3. “Investment characteristics of some businesses”

  • High barriers to entry

  • Fragmented competition

    4. “The price of the investment”

  • Moderate price

  • High P/E ratio relative to industry


Recommendation1

Positive:

Relatively small and has room for growth

Good products (AMD 64)

Positive earning for 2004

Negative:

Competes with Intel

Inconsistent earnings

No Dividends

Lots of debt

Recommendation

HOLD!!


Us semiconductor industry

Applied Materials

Presented by: Andy Kong


Company overview5

Company Overview

  • History

    • 1967, Applied Material was founded by Michael A. McNeilly and others

    • 1972, first public stock offering

    • 1992, became the world’s leading semiconductor equipment manufacture

    • From 1971, AMAT has opened office worldwide: Europe, China (Beijing, Shanghai), Korea, Taiwan, Singapore


Company overview6

Company Overview

  • Acquisition

    • 1997, Opal, Inc. and Orbot Instruments

      • Process diagnostic and control technology

    • 1998, Consilium, Inc.

      • Manufacturing Execution System Software

    • 2000, Etec Syetems, Inc.

      • Mask pattern generation

    • 2004, TORREX

      • Transistor Fabrication Technologies


Company overview7

Company Overview

  • Mission Statement

    • “to be the leading supplier of semiconductor fabrication solutions worldwide – through innovation and enhancement of customer productivity with systems and service solutions”


Company overview8

Company Overview

  • Current

    • Largest supplier of manufacturing systems and related service to the globe semicon industry

    • 2004

      • First 65-nm X Architecture Interconnect Test Chip Produced at Maydan Technology Center

      • ASIA, the source of more than 70% of revenue


Management1

Mike Splinter

President and CEO

Joined AMAT at 2003

30 yr veteran of the semiconductor industry

Intel

Rockwell

James Morgan

Chairman of the Board

Joined AMAT at 1976

CEO from 1977-2003

Chairman since 1987

Management


Management2

Dan Maydan (1980)

President Emeritus

Franz Janker (1982)

Executive V.P., Sales and Marketing

David N.K. Wong (1980)

Executive V.P., Applied Materials Asia

Nancy Handel (1985)

Senior V.P., CFO

Manfred Kerschbaum (2004)

Senior V.P., GM Applied Global Service

Farhad Moghadam (1999)

Senior V.P., GM Thin Film Product Business Group and Foundation Engineering

Mark Pinto (2004)

CTO, Senior V.P. New Business and New Product Group

Ashon K. Sinha (1990)

Senior V.P, GM Etch Product Business Group

Management


Business segments

Business Segments

  • Film Deposition

    • A process where a thin, uniform layer of material is created (deposited) on the wafer surface

      • Chemical Vapor Deposition (CVD)

      • Physical Vapor Deposition (PVD)

      • Electro Chemical Plating (ECP)

      • Atomic Layer Deposition (ALD)

      • Chemical Mechanical Polishing (CMP)


Business segments1

Business Segments

  • Photolithography

    • A process where a mask, the pattern of chip’s circuitry, is placed in a precise location across the wafer

      • Etch

      • Ion Implantation

      • Rapid Thermal Processing (RTP)

      • Interconnects


Business segments2

Business Segments

  • Metrology & Inspection

    • Defect Inspection

    • Defect Review Scanning Electron Microscopy (DR-SEM)

    • Critical Dimension Measurement Scanning Electron Microscopy (CDM-SEM)


Company overview9

Major Customers

Intel

Samsung Electronics

AMD

Freescale (Motorola)

Top Competitors

KLA-Tencor (8.9B)

Supplier of process control and yield management solutions

Lam Research (3.8B)

Designs, manufactures, markets, and services semicon process equip.

Tokyo Electronic

LCD Inspection equip

Company Overview


Strategy2

Strategy

  • Strategy

    • “Early leaders win.”

    • “…Close to the Customer, Mutual Trust and Respect, World-Class Performance…”

    • “Attract, retain, and develop the best people…”

  • Objectives

    • “Our customers' business results come first! “


Financial

Financial


Financial statement analysis2

Financial Statement Analysis


Fundamental information2

Fundamental Information


Options2

Options


Options3

Options


Options4

Options


Management effectiveness2

Management Effectiveness


Fundamental information3

Fundamental Information


Price history 52 weeks2

Price History – 52 weeks


Price history vs sox 52 weeks2

Price History vs. SOX– 52 weeks


Price history 10 years1

Price History – 10 years


Price history vs sox 10 years1

Price History vs SOX – 10 years


Value drivers1

Value Drivers

  • Product Momentum

    • Increasing Market Share in Existing Product

    • Delivering Products for the Nanometer Era

    • Entering New Markets

  • Solution for a Changing Industry

    • Larger size wafers with nanotechnology

  • Inventing the Future w/ Breakthrough Technology

    • $992 millions in R&D


What would fisher say4

What Would Fisher Say?

1. “Superiority in production, marketing, research and financial skills”

  • Market leader

  • Solid financial base

    2. “The people factor”

  • 6/10 executives joined AMAT prior 1990


What would fisher say5

What Would Fisher Say?

3. “Investment characteristic of some businesses”

  • Unique, hard to duplicate

  • Embedded growth factor

    4. “The price of the investment”

  • At the low end of past 52 weeks


Recommendation2

Positive:

Positive

Under priced

Above industry PM and ROE

Industry leader and technology leader

Old faces in a long-lasting company

Negative:

Another Adobe case

Limited growth due to its size

Recommendation

BUY!!


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