Contents. Semiconductor DQ Monday Report Issue 51

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1 Semiconductor DQ Monday Report Issue 51 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 Positive Outlook for WFE Market in Memory Market Pricing, December Semi Equipment Book-to-Bill Up Slightly to Worldwide Fab Facilities... 8 Philips Acquires Wireless LAN Chip Supplier Systemonic... 9 Press.gartner.com... 9 In the News New Reports Upcoming Gartner Conferences 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. 1

2 2 Semiconductor DQ Monday Report, Issue 51 DRAM Spot Market Pricing Table 1 shows the average spot market pricing for DRAM as tracked by Gartner Dataquest for the weeks ending 13 December and 20 December. Table 1 DRAM Spot Market Pricing (U.S. Dollars) 13-Dec Dec-02 Weekly Change (%) Low Range High Range Low Range High Range Low Range High Range 64Mb (8Mbx8 PC133) Mb (16Mbx8 PC133) Mb (16Mbx8 DDR266) Mb (32Mbx8 PC133) Mb (32Mbx8 DDR266) Mb (8Mbx16 RDRAM 400MHz) Source: Gartner Dataquest (December 2002) Gartner Dataquest Analysis The DRAM spot market has slowed significantly ahead of the holidays. Trading has been muted, with little significant price movements during the past week. Figure 1 shows a 52-week history of average DRAM spot pricing for the six key devices tracked. Figure 1 Average DRAM Spot Pricing, 52-Week History U.S. Dollars Mb PC-133 Average 128Mb PC-133 Average 256Mb PC133 Average 128Mb DDR266 Average 256Mb 266DDR Average Dec 18-Jan 8-Feb 1-Mar 22-Mar 12-Apr 3-May 24-May 14-Jun 5-Jul 26-Jul 16-Aug 6-Sep 27-Sep 18-Oct 8-Nov 29-Nov 20-Dec 128Mb RDRAM Average Source: Gartner Dataquest (December 2002)

3 Semiconductor DQ Monday Report, Issue 51 3 Pricing on the 128Mb 16Mbx8 PC133 device was up 4.8 percent for low-end pricing for the week, while high-end pricing was up 4.2 percent. Pricing ended the week in the range of US$2.20 to US$2.50. Pricing on the higher-density 256Mb 32Mbx8 PC133 device was down 1.5 percent for low-end pricing for the week, while high-end pricing was up 1.4 percent. Pricing ended the week in the range of US$3.20 to US$3.60. Pricing on DDR SDRAM 128Mb devices was flat for low-end pricing while high-end pricing was up 1.4 percent during the week. Pricing was in the range of US$3.20 to US$3.50. Pricing on the 256Mb 32Mbx8 DDR266 was in the range of US$6.20 to US$6.80 low-end pricing was down 0.8 percent while high-end pricing was up 1.5 percent on the week. RDRAM pricing was down 2.3 percent for low-end pricing during the past week. Pricing ended the week in the range of US$4.25 to US$4.50. In the weeks ahead, as vendors continue to adjust production loading to meet mainstream demand, DDR266 pricing is likely to come under mild downward pressure while SDRAM pricing is likely to firm slightly. DRAM vendors will head into 2003, still looking for the uptick in demand that will signal better times ahead. Looking at 2002, Gartner Dataquest's preliminary 2002 DRAM market share numbers show the top five rankings remained unchanged, with Hynix Semiconductor holding third position. However, performance in the top 10 was mixed Samsung and Infineon Technologies gained market share, while others lost market share. In the bottom half of the rankings, vendors in Taiwan gained. Toshiba, which was sixth in 2001, did not rank in the top 10 for the first time since For more information, please see the Gartner Dataquest Perspective "Preliminary DRAM Market Shares, 2002" (SEMC-WW-DP-0227). By Richard Gordon (richard.gordon@gartner.com) Positive Outlook for WFE Market in 2003 As 2002 draws to an end, we must say that 2002 turned out to be worse than anticipated. Our latest tally for the year shows a decline of 37 percent in capital spending and an associated decline of 33 percent for wafer fab equipment (WFE, see Table 2). With this, 2002 marks the second year of steep declines declines that were at least as bad as those witnessed in The dire outcome for 2002 was the result of slower-than-anticipated end-user demand and an increasing level of macroeconomic uncertainty that hit semiconductor vendors rapidly in the second half of the year. Consequently, spending plans were adjusted downward, projects were delayed or shelved, and equipment orders were either pushed back or cancelled. Table 2 Worldwide Capital Spending and WFE Spending, (Millions of U.S. Dollars) CAGR (%) Capital Spending 44,527 27,897 32,049 43,454 63,190 52,905 38, Growth (%) N/A WFE 23,654 15,936 18,501 25,791 37,999 32,578 25, Growth (%) N/A N/A = Not available Source: Gartner Dataquest (December 2002)

4 4 Semiconductor DQ Monday Report, Issue 51 As we look toward 2003, a high degree of uncertainty remains for what the new year will bring. It should be no surprise that the outlook for the electronics and semiconductor markets in 2003 is no clearer, albeit more modest, than it was three months ago. But all is not lost. Uncertainty should lift in Gartner Dataquest expects gradual economic improvements throughout 2003 and, along with it, a revival of business confidence and spending, even if at varying rates. Nonetheless, our outlook has deteriorated with most economic forecasts for next year, having been downgraded slightly, and the shape of the recovery has been changed to reflect a more gradual upturn than had previously been proposed. As a result, Gartner Dataquest forecasts growth in electronic equipment production revenue of 6 percent to lead to a modest revival in semiconductor device revenue of 12 percent. Capital spending, having experienced an unprecedented decline of 30 percent or more per year for two years in a row, should return to growth and so will the WFE market. In fact, 2002 capital spending levels are 7.5 percent below those experienced in 1998 the bottom of the last down cycle while semiconductor revenue was 9 percent higher in 2002 than in Consequently, 2003 could bear an upside surprise to the doom and gloom on Wall Street and in the industry. Based on improvements in supply-side fundamentals, any end-user demand will rapidly map into equipment demand. Gartner Dataquest is calling for expansion in capital spending of 15 percent and WFE of 16 percent. Our WFE scenarios reflect the high degree of uncertainty in the end-user demand picture as well as our cautious optimism. Our downside and upside scenarios of WFE call for 3 percent and 28 percent growth, respectively, in We see the following areas for spending to watch for in 2003: Foundry, having been highly temperamental in its spending movements in 2002, should be one growth driver next year, but not at the rate it was in 1999 (on a growth basis). Gartner Dataquest expects foundry capital spending to grow from US$6.1 billion in 2002 to US$7.4 billion in 2003, a more than 20 percent increase. DRAM vendors are revving their spending engines as well. Gartner Dataquest anticipates DRAM capital spending to grow from US$4.3 billion in 2002 to US$5.8 billion in 2003, a nearly 34 percent increase. However, the fate of Hynix is a wildcard and could be a short-term downward force for spending, should the company exit the market. However, such an event would not erase market growth for DRAM capital spending. After having undergone major restructuring and putting investment largely on hold in 2002, Japan semiconductor vendors are ready for business in 2003 and have some catching up to do. Japanese companies will raise spending by 15 percent over 2002 to US$5.5 billion. Chinaisverymuchinthepress.Itisnotamajordriverbutcontributesabout US$1.4 billion to spending next year a nice silver lining. A look at the quarterly WFE picture shows that sales peaked in the third quarter and are forecast to contract in the fourth quarter as well as the first quarter of Our forecast shows a slow first half and a year-end acceleration in equipment sales. By mid-2003, WFE sales should just barely break the third quarter 2002 level. The spending acceleration in the first half of 2003 is largely fueled by the restart of halted fab projects and a first filling of fab shells that are ready for equipment. Gartner Dataquest believes fab filling will accelerate WFE sales into Overall, demand and tightening fab capacity will sponsor a fab-building wave in By Klaus Rinnen (klaus.rinnen@gartner.com), Dean Freeman (dean.freeman@gartner.com), James Hines (james.hines@gartner.com), Bob Johnson (bob.johnson@gartner.com), Takashi Ogawa (takashi.ogawa@gartner.com), Barbara Van (barbara.van@gartner.com) and Mark Stromberg (mark.stromberg@gartner.com)

5 Semiconductor DQ Monday Report, Issue 51 5 Memory Market Pricing, December 2002 Intel s Raising of Flash Prices Not Representative of 1Q Trend The big news recently has been talk of Intel's planned flash price rise, which comes into effect January 1. Raising prices can only mean one thing undersupply but while this maybetruefornor-basedflashmemory,itiscertainlynotthecaseforothermemory technology, whose markets remain oversupplied. Table 3 shows regional and worldwide average memory device contract pricing for December. Gartner Dataquest Analysis DRAM First half of December contract pricing has reversed the trend of the past four months recently, SDRAM pricing has ticked up, while DDR SDRAM pricing has dropped. As DDR SDRAM wafer starts have continued to increase and yields improved, supply of DDR SDRAM devices has increased enough for DRAM vendors to release more volume into the spot market, pushing spot market prices down. This increase in availability of DDR SDRAM and the associated falling spot prices is having an effect on contract pricing. December contract pricing for the 128Mb DDR SDRAM device is in the range of US$3.30 to US$3.70, down about US$0.20 from November, while 256Mb DDR SDRAM device contract pricing has fallen below US$7. The 128Mb SDRAM PC133 has headed over US$2 while pricing on the higher-density 256Mb SDRAM PC133 device has increased to US$3.50 to US$4.00. However, even with the slight price increases for SDRAM, on a per-megabit basis it is still littlemorethanhalfthecostofddrsdram. In the first quarter of 2003, contract pricing for DDR SDRAM devices will drift lower while SDRAM pricing will stabilize as vendors continue to reduce wafer starts on this aging technology. Flash NOR-Based Flash Intel s plan to raise flash pricing in the first quarter must be viewed in the narrow context of a single vendor that dominates the market in a specific application. Intel is clearly responding to strong bit demand from the cellular phone market as the rollout of featurerich handsets gathers pace. The incorporation of digital cameras and color screens with higher data rate 2.5G handsets that need to be able to run Java applets has pushed the average flash content per handset up considerably, pressuring Intel to devote more of its production capacity to 0.13-micron, high-density StrataFlash. While high-density StrataFlash pricing is likely to be stable in the first quarter of 2003, pricing on lowerdensity StrataFlash and Intel's conventional flash devices will rise across the board. How Intel's price rise will affect NOR-based flash pricing in the first quarter of 2003 is difficult to call, with flash devices more application-specific than ever. That said, a knockon effect is likely because the lack of capital spending during that past two years means that OEMs may not necessarily be able to outsource suitable devices from competing flash vendors.

6 6 Semiconductor DQ Monday Report, Issue 51 Table 3 Average Contract Pricing for Selected Memory Devices (U.S. Dollars) South Korea Japan Taiwan China/Hong Kong Europe Americas Worldwide Device Low High Low High Low High Low High Low High Low High Low High NOR Flash 32Mb 2Mbx16-TSOP Mb 4Mbx16-TSOP Mb 2Mbx16-TSOP N/A N/A N/A N/A N/A N/A N/A N/A NAND Flash 64Mb 4Mbx16-TSOP N/A N/A Mb 8Mbx16-TSOP N/A N/A Mb 16Mbx16-TSOP N/A N/A Mb 32Mbx16-TSOP N/A N/A N/A N/A N/A N/A SRAM Asynchronous 1Mb 128Kx8-70ns 5V Mb 256Kx8-70ns 3V (CSP) Mb 512Kx8-15ns 3V Mb 512Kx8-70ns 1.8V (CSP) Mb 512Kx8-70ns 5V Mb 512Kx16-70ns 1.8V/3V (CSP) Mb 1024x16-70ns 1.8V/3V (CSP) N/A N/A SRAM Synchronous 4Mb N/A N/A Mb N/A N/A Mb N/A N/A Flash/SRAM Combo 2Mb x 16 Flash + 256Kb x 16 SRAM MCP N/A N/A Mb x 16 Flash + 256Kb x 16 SRAM MCP N/A N/A N/A N/A N/A N/A Mb x 16 Flash + 512Kb x 16 SRAM MCP N/A N/A N/A N/A

7 Semiconductor DQ Monday Report, Issue 51 7 Table 3 (Continued) Average Contract Pricing for Selected Memory Devices (U.S. Dollars) South Korea Japan Taiwan China/Hong Kong Europe Americas Worldwide Device Low High Low High Low High Low High Low High Low High Low High DRAM 128Mb (16Mbx8-133MHz) Mb (16Mbx8-266MHz DDR) Mb (8x16Mb RDRAM 800MHz) Mb (8x32Mb RDRAM 800MHz) Mb (32Mbx8-133MHz) Mb (32Mbx8-266MHz DDR) N/A = Not available Source: Gartner Dataquest (December 2002)

8 8 Semiconductor DQ Monday Report, Issue 51 NAND-Based Flash A market share battle between the two principal vendors, Samsung and Toshiba, is likely to keep downward pressure on NAND flash pricing in the first quarter of Buyers willbethebeneficiariesofreducedpricepermegabyteasvolumeproductionshiftstothe 512 Mb and 1Gb device densities. SRAM SRAM pricing remains under steady downward pressure across the board, a trend that will continue into the first quarter of By Richard Gordon (richard.gordon@gartner.com), Andrew Norwood (andrew.norwood@gartner.com), Hee-chan Lee (hee-chan.lee@gartner.com), Dorothy Lai (dorothy.lai@gartner.com), Jamie Wang (jamie.wang@gartner.com) and Hiroyuki Shimizu (hiroyuki.shimizu@gartner.com) Semi Equipment Book-to-Bill Up Slightly to 0.79 The November SEMI book-to-bill ratio crept up to 0.79, compared with October's revised 0.78, according to SEMI last week. This generally exceeded industry expectations, which almost universally were projecting a level around Three-month average bookings inched upward from US$775.1 million to US$778.6 million, while billings dropped from US$999.9 million to US$991.3 million. Front-end equipment held constant at 0.79, while the ratio for back-end improved from a revised 0.71 to Gartner Dataquest Analysis It is encouraging that the book-to-bill ratio didn't continue its six-month slide since it reached 1.27 last May. It's equally encouraging that the average billing numbers actually increased by a small amount and that billings appear to have slowed their rate of decline. However, we must caution about jumping to conclusions from using this one data point to predict major market shifts. The mechanics of the book-to-bill calculation are such that the numbers just released are based on averages from September through November, and November's data include August through October. Therefore, each period includes September, which is the last month of the quarter for many companies, and October, which is the last month of Applied Materials' fiscal year. But November replaced August in the calculation, and August is typically one of the worst months of the year for bookings. The bottom line is that we'll have to wait until next month to see whether we can really breathe a deep sigh of relief. But it could be a lot worse, and we can consider that a nice holiday present for everyone. By Bob Johnson (bob.johnson@gartner.com) Worldwide Fab Facilities The fourth quarter 2002 worldwide fab database update was released recently and is available online at gartner.com. Gartner Dataquest Analysis During 2002, while the economy remained sluggish, fab closures and consolidations occurred more frequently than expected. Gartner Dataquest has identified more than a dozen fab closures or consolidations for 2003, bringing the number of fab closures from 2000 through 2003 to 103. In addition, companies' plans to upgrade process capabilities or expand capacity have been pushed back by at least one quarter because of weak demand and a lack of visibility.

9 Semiconductor DQ Monday Report, Issue 51 9 Some of the highlights from this research include the following: The largest number of semiconductor manufacturing facilities located in one country is in the United States with 223. Toshiba has the greatest number of facilities owned by a single fabrication facility with 21. Of the foundries, TSMC continues to have the greatest number of facilities with 12. The Americas and Japan each account for 32 percent of worldwide fabrication facilities, followed by EMEA at 19 percent; and Asia/Pacific at 17 percent. Thirteen 300-mm facilities are in production, eight of which began production in Eight additional 300-mm facilities are scheduled to begin production in By David Christensen (david.christensen@gartner.com) Philips Acquires Wireless LAN Chip Supplier Systemonic This week, Royal Philips Electronics announced the acquisition of Systemonic, a developer of multiband, multistandard wireless LAN solutions. Systemonic demonstrated an a/b version of its solution at Networld/Interop, Tokyo, last July. The company has announced that it will announce an a/b/g solution in the first quarter of Systemonic was founded in 1999 and has operations in San Jose, California, Maynard, Massachusetts, and Dresden, Germany. The acquisition is expected to close in the first quarter of The terms of the acquisition were not disclosed. Gartner Dataquest Analysis With more than 30 suppliers of wireless LAN products, consolidation is bound to happen. This acquisition enhances Philips' wireless LAN offerings while giving Systemonic the financial and marketing support of a major semiconductor manufacturer. The acquisition of Systemonic strengthens Philips portfolio of wireless connectivity solutions by adding a/g capability to its mainly RF solutions. One of the key elements of the Systemonic architecture is its reconfigurable processor core, which enables the implementation of changes with software updates. For example, Philips' announcement that it will announce its a/b/g solution in the first quarter of 2003 does not necessarily conflict with the fact that the g standard will not be finalized until mid The Systemonic architecture enables last-minute adjustments to meet the standard relatively straightforward. One of Philips' key strategies is to be a leading supplier of semiconductor solutions for connected consumer and communications applications. The vision of the connected home is one element of this strategy. This acquisition is a step toward implementing that vision. By Stanley Bruederle (stan.bruederle@gartner.com) Press.gartner.com Press.gartner.com is designed to guide you through the correct procedure of obtaining a Gartner Dataquest analyst's quote. If your company would like to issue a press release quoting one of our analysts, you must submit your request to quote.requests@gartner.com. Standard requests will be approved within 48 hours.

10 10 Semiconductor DQ Monday Report, Issue 51 In the News Magma Joins Virage as Distributor of TSMC Cell Libraries Magma Design Automation has joined Virage Logic as a distributor of libraries of standard cells and I/O cells from Taiwan Semiconductor Manufacturing Co. (TSMC). Magma can offer TSMC's 130-nm and Nexsys' 90-nm libraries to the companies' mutual customers, integrated with Magma's design automation software. The libraries are available at no charge but require a fee-based support contract from Magma. New Reports Semiconductor Packaging and Assembly 2002 Review and Outlook During 2002, the industry continued slow growth in unit volumes after bottoming out in September (Gartner Dataquest Alert, SEMC-WW-DA-0066, 18 December 2002, US$95) Positive Outlook for Wafer Fab Equipment Market in 2003 As 2002 draws to an end, we must say that 2002 turned out to be worse than even we had anticipated. (Gartner Dataquest Alert, SEMC-WW-DA-0068, 18 December 2002, US$95) Silicon Wafer Market Outlook: Modest Growth Expected in 2003 In 2002, the semiconductor market showed a relatively strong recovery in the first half because of inventory adjustment but softened again in the second half. (Gartner Dataquest Alert, SEMC-WW-DA-0067, 18 December 2002, US$95) 2H02 Worldwide Electronic Equipment Production and Semiconductor Production Forecast, (Executive Summary) Increasing electronic equipment production will drive semiconductor demand in a gradual and continued manner for the next five years. (Gartner Dataquest Executive Summary, SEMC-WW-EX-0182, 16 December 2002, US$495) Preliminary DRAM Market Share, saw some major changes in DRAM revenue market shares. Taiwanese companies were the main winners, while Samsung Electronics consolidated its number one position and Hynix Semiconductor struggled for survival, but retained third position. (Gartner Dataquest Perspective, SEMC-WW-DP-0227, 16 December 2002, US$495) Worldwide Memory Forecast, 4Q02 (Executive Summary) Worldwide memory sales are expected to increase 13 percent in 2002, exceeding US$30billion.However,thisrevenueincreasehidesamixedpictureacrossthemarkets for different memory technologies. (Gartner Dataquest Executive Summary, SEMC-WW-EX-0184, 16 December 2002, US$195) Worldwide Fab Database: 4Q02 Update This report offers insights into the end market of semiconductor equipment covering planned and existing merchant, captive and foundry wafer fabrication lines. (Gartner Dataquest Market Statistics, SCEM-WW-MS-0141, 13 December 2002, US$9,995) Made in China: 4Q02 Semiconductor Industry Outlook Is China the next promised land of electronics opportunity? Does your company's strategy include China? Made in China is a new monthly perspective from the Semiconductor Group. (Gartner Dataquest Perspective, SEMC-WW-DP-0226, 13 December 2002, US$495)

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12 12 Semiconductor DQ Monday Report, Issue 51 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 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden Gartner, Inc. All rights reserved