High Technology: Semiconductor View. Mike Kay Kay Associates March 03 Kay Associates Presentation to the San Francisco Eco...
May 03 Kay Associates <ul><li>There are 10 11  stars in the galaxy. That used to be a huge number. But it's only a hundred...
Agenda <ul><li>What happened to high tech? </li></ul><ul><li>Is there an end in sight to the malaise?  </li></ul><ul><li>“...
What Happened to High Tech? <ul><li>Simply put, not much! </li></ul><ul><li>Hi-tech is an enabler not a driver. </li></ul>...
Is There an End in Sight to the Malaise? <ul><li>The hi-tech industry is undergoing significant change. </li></ul><ul><ul>...
“ Real Men Have Fabs” <ul><li>Gerry Sanders (founder/chairman AMD) said this (early 90’s) in response to the fabless model...
Capital Markets for Semiconductors <ul><li>Semiconductor manufacturing is capital intensive. </li></ul><ul><li>Multiple fa...
IDM Versus Foundry <ul><li>An Integrated Device Manufacturer (IMD) essentially makes his own chips and is also a consumer ...
Where Should Fabs Be Built? <ul><li>Now highly automated (robotic) – people not allowed! </li></ul><ul><li>Dependence on s...
Fabless Economic Model <ul><li>Late 80’s and all of the 90’s saw a huge growth in fabless semicon companies offering a ple...
Is There a High Tech Resurgence? <ul><li>Consumers are more informed about what technology can deliver. </li></ul><ul><li>...
What Will Drive a Technology Resurgence? <ul><li>IMHO. </li></ul><ul><ul><li>Data (comms/consumer overlap). </li></ul></ul...
<ul><li>If all economists were laid end to end, they would not reach a conclusion. </li></ul><ul><ul><li>George Bernard Sh...
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Sf Economic Round Table Presentation

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Sf Economic Round Table Presentation

  1. 1. High Technology: Semiconductor View. Mike Kay Kay Associates March 03 Kay Associates Presentation to the San Francisco Economic Round Table.
  2. 2. May 03 Kay Associates <ul><li>There are 10 11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers. </li></ul><ul><ul><li>Richard Feynman . </li></ul></ul>
  3. 3. Agenda <ul><li>What happened to high tech? </li></ul><ul><li>Is there an end in sight to the malaise? </li></ul><ul><li>“ Real men have fabs”. </li></ul><ul><li>Capital markets for semiconductors. </li></ul><ul><li>IDM versus foundry. </li></ul><ul><li>Where should fabs be built? </li></ul><ul><li>Fabless economic model. </li></ul><ul><li>Is there a high tech resurgence? </li></ul><ul><li>What will drive the technology resurgence? </li></ul>May 03 Kay Associates
  4. 4. What Happened to High Tech? <ul><li>Simply put, not much! </li></ul><ul><li>Hi-tech is an enabler not a driver. </li></ul><ul><li>Markets are driven by demand not supply. </li></ul><ul><li>We have to create demand (consumer, PC, communications, Tamaguchi, digital media). </li></ul><ul><li>Historically we have made bullets: we went where the battles were being fought. </li></ul><ul><li>We did not question which battle or which war. </li></ul><ul><li>Something had to change. </li></ul><ul><ul><li>We are beginning to understand Sun Tzu! </li></ul></ul>May 03 Kay Associates
  5. 5. Is There an End in Sight to the Malaise? <ul><li>The hi-tech industry is undergoing significant change. </li></ul><ul><ul><li>Design/market/sell vs. manufacturer/inventory/deliver. </li></ul></ul><ul><ul><li>Value is moving from hardware to software. </li></ul></ul><ul><ul><li>Flexibility and versatility are prerequisites. </li></ul></ul><ul><li>Consolidation, collaboration and alliance are key. </li></ul><ul><ul><li>Not more companies but better companies. </li></ul></ul><ul><ul><li>Core competence and leveraging. </li></ul></ul><ul><ul><li>Value building (EVA vs. profits). </li></ul></ul><ul><li>The stock markets are responding favorably. </li></ul><ul><ul><li>Companies are focused on governance and value-building. </li></ul></ul><ul><ul><li>Will the current bull-run be short-lived? </li></ul></ul><ul><ul><li>Institutional long term investment has to swamp speculation. </li></ul></ul>May 03 Kay Associates
  6. 6. “ Real Men Have Fabs” <ul><li>Gerry Sanders (founder/chairman AMD) said this (early 90’s) in response to the fabless model. </li></ul><ul><li>You can only respond to demand if you have and control manufacturing. </li></ul><ul><li>Fully depreciated equipment returned good product margins. </li></ul><ul><li>But….. </li></ul><ul><li>The cost of a fab in 80s was around $200-300m, the cost today is $4000m – over 10X increase! </li></ul><ul><li>The amortization/depreciation of these fabs would severely test ROC/ROI type indices. </li></ul>May 03 Kay Associates
  7. 7. Capital Markets for Semiconductors <ul><li>Semiconductor manufacturing is capital intensive. </li></ul><ul><li>Multiple fabrication facilities (fabs) are needed to stay competitive. </li></ul><ul><li>Capital traditionally from public markets or retained earnings. </li></ul><ul><li>Venture capital cannot meet semicon manufacturing needs, but can address non-manufacturing needs. </li></ul><ul><li>Countries and major corporations now build fabs. </li></ul><ul><li>Top fabs have current 2003E earnings multiples of 28X (median). </li></ul><ul><li>Cost of capital is in the the range 15-20%. </li></ul><ul><li>Can a product company afford to be a manufacturer? </li></ul>May 03 Kay Associates
  8. 8. IDM Versus Foundry <ul><li>An Integrated Device Manufacturer (IMD) essentially makes his own chips and is also a consumer (Motorola, TI, Intel, Toshiba, Samsung etc). </li></ul><ul><li>A foundry is exactly that – a service industry that supplies manufacturing to ANY customer. </li></ul><ul><li>Foundries were first thought only to be attractive to semiconductor companies who had no fabs (fabless semicon) and hence very limited in growth potential. </li></ul><ul><li>IDMs now outsource approx 20% of manufacturing to foundries. </li></ul><ul><li>Foundries are now outpacing IDMs in technology implementation. </li></ul><ul><li>Foundries are projected to be 35% of silicon supply by 2007. </li></ul>May 03 Kay Associates
  9. 9. Where Should Fabs Be Built? <ul><li>Now highly automated (robotic) – people not allowed! </li></ul><ul><li>Dependence on skilled labor is decreased. </li></ul><ul><li>Dependence on talented engineering increasing. </li></ul><ul><li>Sophistication in chemical/power plants (along with required infrastructure) has been a focus in Asia. </li></ul><ul><li>Building and operating fabs has potential long term geographical economic upside. </li></ul><ul><li>Attracted by pioneer-status, good talent-pool, grants and loans. </li></ul><ul><li>Asia is currently the highest consumer of semiconductors and is positioning to take a dominant market share in manufacturing. </li></ul>May 03 Kay Associates
  10. 10. Fabless Economic Model <ul><li>Late 80’s and all of the 90’s saw a huge growth in fabless semicon companies offering a plethora of integrated circuit solutions. </li></ul><ul><li>From start-up to profitability with revenues in $20-50m range could be achieved with less than $40m in capital investment. </li></ul><ul><li>Typically focused on narrow market segments, the fabless companies are fleet of foot and hyper-sensitive to changing conditions. </li></ul><ul><li>Perceived as high value-added innovators, fabless companies had the choice of IPO or M&A exit strategies. </li></ul><ul><li>Knowing what technology is available and how to employ it is becoming more critical than inventing or owning the technology for fabless companies. </li></ul><ul><li>Leveraging will become critical. </li></ul>May 03 Kay Associates
  11. 11. Is There a High Tech Resurgence? <ul><li>Consumers are more informed about what technology can deliver. </li></ul><ul><li>They continue to demand products which require higher levels of technology. </li></ul><ul><ul><li>A car is no longer a means of transport from A to B. It is also an information/entertainment center that must offer security and safety. </li></ul></ul><ul><li>Content providers now look to residual value. </li></ul><ul><ul><li>Content is delivered live, then on recorded medium, then streaming, then from a database collection – each step requiring differing levels of technology and each adding to a prolonged revenue stream. </li></ul></ul>May 03 Kay Associates
  12. 12. What Will Drive a Technology Resurgence? <ul><li>IMHO. </li></ul><ul><ul><li>Data (comms/consumer overlap). </li></ul></ul><ul><ul><ul><li>Highly connected – Internet, WLAN, UWB, PAN. </li></ul></ul></ul><ul><ul><ul><li>Sharing data in seconds not days/weeks. </li></ul></ul></ul><ul><ul><li>Lifestyle (consumer/auto). </li></ul></ul><ul><ul><ul><li>Entertainment. </li></ul></ul></ul><ul><ul><ul><li>Peer pressure. </li></ul></ul></ul><ul><ul><li>Health & Longevity (medical/industrial). </li></ul></ul><ul><ul><ul><li>Monitoring. </li></ul></ul></ul><ul><ul><ul><li>Measuring. </li></ul></ul></ul><ul><ul><ul><li>Dispensing. </li></ul></ul></ul><ul><ul><li>Military. </li></ul></ul><ul><ul><ul><li>“ Necessity is the mother of invention.” </li></ul></ul></ul><ul><li>No single (obvious) lead, but a combination of elements with compelling content. </li></ul>May 03 Kay Associates
  13. 13. <ul><li>If all economists were laid end to end, they would not reach a conclusion. </li></ul><ul><ul><li>George Bernard Shaw. </li></ul></ul>May 03 Kay Associates

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