Tag Archives: tablets

post-earthquake supply disruptions from Japan

March 20, 2011 By in Chemicals, Current Market Thoughts, Industry Analysis, Japanese development, Recent Market Action Tags: , , , , , , , , , 1 Comment

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It has only been a little more than a week since the devastating earthquake/tsunamis in Japan.  However, a lot more information about possible supply disruptions is available now.  As an investor, the main conclusions I see, based on what we know to date, are:

1.  Many of the disaster-affected plants that are sole sources for key components supply the auto industry.  A number of auto manufacturers have already announced that they may soon have to shut down either individual production lines or entire factories for lack of parts.  Although I’ve owned auto stocks from time to time, this is not an industry I’m particularly interested in or familiar with.  But one of the main reasons I’m not a fan is that the industry is characterized by chronic (and huge) overcapacity.  So far it doesn’t appear that there’s any one component in potential shortage that’s used in virtually every car in the world.  So the effect of plant closings will be market share shifts, not a shortage of cars or trucks.

2.  It’s possible that electric power will have to be rationed, at least in the Sendai area, for many months.  The Japanese government tendency is always to prefer industry over the consumer.  Public outrage over currency speculators who bid up the yen in the aftermath of the earthquake–they’re being described as criminals who exploit human tragedy, the moral equivalent of gangs that loot stores during a fire in the city–suggests there won’t be any popular opposition to this.  The practical questions for factories where the problem is power (not that the earthquake destroyed the machinery) will be how quickly power lines can be repaired and what the limitations of the Japanese power grid are in delivering electricity from other areas of the country. (I’m assuming that, as the latest reports are suggesting, the Fukushima reactor crisis is finally coming under control.)

3.  With one notable exception, the Japanese technology-related firms that have announced earthquake-related shutdowns make commodity products, like DRAM or NAND flash, where alternate sources of supply are available.  Prices may go up a bit but devices will still get made.

The one exception: bismaleimide-triazine  resin (BT), a compound used to glue semiconductor chips to printed circuit boards.  BT is used in all smartphones and tablets.  90% comes from Japan.  The largest producer, Mitsubishi Gas Chemical, which accounts for about half of what the tech industry uses, has shut down production due to earthquake damage.

The other major Japanese source of BT is Hitachi Chemical.  It’s plants are still operating.  But, according to the Financial Times, the BT made by different chemical companies isn’t simply interchangeable.  Output differs enough that at the very least a period of testing is required before you can use BT from another supplier. The Wall Street Journal says this process could take a month for most kinds of circuit boards.  For cellphones, though, because of their small size and the specific amount of heat a given chip may throw off, the entire design may need to be changed in order to accommodate a different flavor of BT.

But the main issue is there’s no way for the rest of the industry to double production overnight–which is what would be needed to keep cellphone production rolling along at the current clip.

Mitsubishi Gas Chemical will likely make an announcement about the extent of damage to its Fukushima BT plant in the next few days.  All we really know now is that production has been halted.

In the meantime, MGC customers are doubtless talking to Taiwanese and Korean suppliers of chemicals that they wouldn’t have given the time of day to a month ago.   And they may be seeing what they can do to get increased allocations from Hitachi Chemical (good luck with that).

The BT story bears close watching.  If MGC production isn’t restored soon, disruptions to the supply chains of phone makers whose products use the MGC output could be severe.  Pain will be felt not only by the phone manufacturers but by all their component suppliers, as well.

INTC will make chips for Achronix in its newest 22nm fabs

November 4, 2010 By in Industry Analysis, Technology Tags: , , , , , , 2 Comments

INTC and Achronix

Achronix, a small privately-held fabless semiconductor design firm in Silicon Valley, announced on Monday an agreement that it and INTC have been working on for almost a year.  INTC will manufacture Achronix’s 22-nanometer Speedster 22i, which it calls “the world’s most advanced field programmable gate array (FPGA),” using one of the company’s most advanced fabricating plants, slated to open late next year.

INTC didn’t make an announcement, but did post the news on a company blog.

On the surface this looks like a lopsided deal in Achronix’s favor.  The key feature of FPGAs is that their programming can be improved or upgraded even after the chip is in a device.  So they’re great for putting new technology into telecom or networking equipment.  Achronix claims the Speedster 22i will offer 4x performance vs. competing chips and will use 50% less power, but will cost 40% less.  A lot of this will be due to the INTC process technology.

What does INTC get in return?  The company isn’t really saying and there’s no agreement either among analysts or technology bloggers.

my thoughts

I think there’s a good news/bad news aspect to the answer, which is why INTC is mum.

A semiconductor fab in today’s world costs at least $3 billion to build.  It’s capable of producing about $7 billion in yearly output.  Who can afford to build one?  Who needs that much output?   No one–other than INTC, which has a near monopoly in processors for PCs, Samsung, the dominant force in memory chips, and maybe TXN.

To the degree I’ve thought about these facts–and I haven’t done much–I’d assumed that being big enough to continue to have your own fabs, and to relentlessly push for more advanced fab technology, would prove a critical market advantage.  But it hasn’t.  That’s the bad news.

For most semiconductor design firms, fab ownership is out of the question financially.  They turn to third-parties, the so-called “foundries” like TSMC or UMC, to do their manufacturing for them.  For the fabless firms, then, manufacturing is not a competitive advantage.  What separates winners from losers among them is the flexility of products, the ability to do more creative things within the confines of a standard fabrication technology.  As a result, the fabless industry has made a virtue of necessity and learned how to do a lot more with a lot less.  Arguably, the foundries have done the same.

In other words, the rules of the game for semiconductor device makers–and especially for chips in mobile devices–have changed in a way that puts INTC at a disadvantage.  More bad news.

Where’s the good news?  –it’s that INTC understands what’s going on and has decided to try to change the game once again.   Companies like Achronix get manufacturing prowess that will give their chips features the competition may not be able to match.  INTC learns the mindset of the designer of products for the mobile universe.  Together, the two firms may be able to create system-on-a-chip products that make future generations of the Atom processor more attractive to makers of cellphones and tablets.

My guess is that this move isn’t at all about INTC itself becoming a foundry.  It’s more about changing the chip design culture within INTC to the point where it can meld the best of the fabless world in with its own traditional skills.

If I’m right, this is a real sign of management strength.  It might work.  I don’t see anything in the company’s stock price that suggests this possibility is being discounted at all. Let’s see what happens.

 

 

 

 

AAPL vs. GOOG: battle of the titans (II)

May 23, 2010 By in Current Market Thoughts, Industry Analysis, Investment firms, Stock ideas, Technology, Wireless Tags: , , , , , , , , 2 Comments

Judging by their stock charts, Wall Street has pretty much conceded the battle to AAPL.  In fact, there isn’t much doubt at all.  Since the ipo of GOOG in 2004, AAPL is up about 12x.  GOOG is up 4x–and that includes a big jump after an unusual, and less than successful, ipo in which GOOG tried to market itself directly to investors, cutting out Wall Street investment banks.

Yes, the S&P is just about flat over that span, so both are big winners.  And, yes, AAPL is starting from a low base in 2004, a point when some questioned its survival.  But the big separation between the two names has come between the beginning of 2007 and now, a time period when AAPL tripled and GOOG has been flat.

AAPL has also pulled significantly ahead in simple balance sheet metrics like working capital or accumulated cash holdings.  The balance sheet number read as follows:

————————–12/06—————–12/09———–change

GOOG

cash                  $8.0 bill.                           $15.8 bill.                  $7.8 bill.

wc                      $8.3 bill.                           $17.9 bill.                  $9.6 bill.

AAPL

cash                  $11.9 bill.                          $24.8 bill.                $12.9 bill.

wc                     $9.4 bill.                            $20.2 bill.                 $10.8 bill.

At first glance, it looks like AAPL is pulling away from GOOG, but not opening up an insurmountable gap.  But AAPL has recently begun to divide its marketable securities into those with a life of a year or less and those with more.  The latter, $15 billion at 12/09, although cash-like, are listed as non-current assets.  Adjusting the figures, AAPL’s cash is up by $27.9 billion over the past three years, or 3.5x the cash generation of GOOG.  The main driver of this surge is the phenomenal success of the iPhone.

In addition, AAPL has set up a business, iAd, to sell iPhone ads through the apps downloaded from its store, a move calculated to fence GOOG out of the mobile ad business.  Ironically, however, the FTC has citied iAd plus AOL’s purchase of mobile ad specialist Quattro Wireless as reasons of giving the anti-trust green light to GOOG’s proposed purchase of AdMob, a Quattro rival.

The are are other signs as well, that the contest may not be so one-sided from now on.  According to the Financial Times, sales of smartphones using GOOG’s Android operating system were higher than those of the iPhone in the US market for the first three months of 2010, taking 26.6% of the market vs. 22.1% for AAPL.  Android phones were about 10% of the worldwide market over the March quarter vs. 1.6% during the year-ago period.  The gains come 40% from MSFT, the rest from everyone else.

Since the start of the year, GOOG has released version 2.1 of Android (Eclair), which increases the speed of phone apps significantly.  This week it announced version 2.2 (Froyo), which gives the operating system another big overhaul.  The following upgrade, Gingerbread, has a name and a potential release date of late this year, but no version number and few details.

Chrome os netbooks, at  one time scheduled for release during the second half of this year, appear to have dropped off the radar screen.  After the surprisingly strong sales of the iPad, they seem to have been replaced by a bevy of android-based tablets that are claimed to be hitting the market in time for the year-end holidays.

Suppose, then, that the next year or two show a reversal of trend, in which GOOG products gain market share over their AAPL counterparts?

Will this mean a significant increase in the growth rate of GOOG’s profits vs. what it is presently showing?  Only time will tell, but my guess is that it won’t.  Success of Android phones and Android tablets will allow GOOG to take its business into the mobile arena, but I think this will only erosion of revenue and profit expansion that Wall Street seems to now sense in the company.  That’s probably worth a few points of price earnings multiple expansion, however.

On the other hand, GOOG success would also have the potential to stop the momentum of the AAPL earnings freight train that is currently barreling down the tracks at an extraordinarily rapid clip.  As is the case with any growth stock, a slowing in growth from the pace the market expects has two negative effects on the stock.  It lowers the stock price by the extent to which earnings fall short of Wall Street expectations.  And it causes the price earnings multiple to contract.  This happens both as investors project forward a new, lower rate of profit advance, and as the open-ended “dream” that the stock will always surprise on the upside becomes tarnished.

For me, this means that, as stocks, AAPL has much more to lose than GOOG has to gain from Android success.

Tis is a situation to monitor closely.