Foundry Gains Could be Sign of Better Times
MTI Lines Up New Credit Line Amid Restructuring; Telelogic Inks Software Pacts
TECHNOLOGY by Andrew Simons
You wouldn’t think it by reading the news these days, but tech really is making a steady,albeit slow,comeback. You just gotta look at the chips.
Foundries, which make chips for chip makers that don’t have their own manufacturing plants, have seen increasing production,a potential sign that the semiconductor recovery has begun.
“We are currently at 70% to 80% capacity,” F.C. Tseng, deputy chief executive of Taiwan Semiconductor Manufacturing Co., recently told CNET’s News.com. “By the fourth quarter this year, we will exceed 85%.”
United Microelectronics Corp., another Taiwanese chip maker, said its plants were running at 50% capacity in the first quarter, up from 36% in the third quarter. It expects 70% capacity in the June quarter.
The chip sector is known for its ups and downs. Many might swear that this recent downturn has been the harshest in recent memory. As sales of computer, networking and wireless gear plunged in the past two years, chip companies felt the fallout. They tallied up massive losses and laid off thousands of workers.
But improvements at the foundries could mean that semiconductor companies are starting to order more chips to fill their own orders. Improvements in chip spending means businesses are investing more money in computer and networking systems. And as system spending improves, so will other parts of technology.
Just take a look at our local guys. Newport Beach-based Conexant Systems Inc., which has two quarters of sequential sales growth under its belt, projects revenue for the June quarter to come in about 5% higher than the March one.
Irvine’s Broadcom Corp. also saw sales pick up by 5% in the first quarter,its third-straight sequential quarterly gain. Broadcom officials see sales in the June quarter improving on the first, though they aren’t saying by how much.
While a far cry from the strong growth two years ago, the results have instilled a more positive tone among the top chipmakers. OC’s chipmakers are reporting earnings this month.
Some analysts and industry officials are saying the signals still are too mixed to tell.
“Flat to slow growth of semiconductor sales in the first quarter of this year is in line with expectations,” said George Scalise, president of the Semiconductor Industry Association, an industry trade group. “Our forecast calls for the second quarter to be slightly stronger with accelerating growth in the second half of 2002.”
For the year, global chip sales are pegged to rise 3.1% to $143 billion, with Asia being the largest market, followed by the U.S. and Europe. With a projected 27% growth rate this year, Asia is set to account for all of the industry’s growth.
MTI Gets Credit
Anaheim-based MTI Technology Corp. recently announced a $7 million credit line with Lindon, Utah-based The Canopy Group Inc., one of the company’s major stockholders. MTI makes storage products for computer networks.
MTI’s stock has been on a slide, declining some 60% this year. The company is in the midst of a massive restructuring, including layoffs, closing facilities and dumping other assets. The credit line will give the company a financial cushion to continue operations.
Under the terms of the agreement, subject to certain conditions, MTI may borrow up to $7 million under the revolving line of credit. At the same time the company ended its agreement with Silicon Valley Bank for a $15 million credit line.
Like other storage product makers, MTI has been sacked with slowing demand for its products. The company’s servicing business helps somewhat, but times still have been difficult.
“We see no real change in the economy that would cause us to expect any improvement in the first quarter of 2003,” said Tom Raimondi, MTI chief executive. “However, unforeseen events have caused us all to understand that the unexpected can always occur. Fiscal 2002 reflected the economic decline in demand for data storage products.”
Telelogic Lands Two Deals
Irvine-based Telelogic North America Inc., an arm of Sweden’s Telelogic AB, recently signed a deal for 5,000 licenses of its development and testing tools. The contract is worth $1.2 million.
The company makes software used to develop and test other software.
Telelogic didn’t disclose the identity of its customer except to say it was a “Global 500” telecommunications company.
The software, from a Telelogic product group called “Tau,” is actually distributed from servers in the U.S. As part of the deal, Telelogic will monitor usage levels and anticipate license demand so it can provide new licenses right when the customer needs them.
“This ensures they receive the maximum return on investment for each license while reducing administrative overhead and the total number of licenses needed while reducing the overall cost of implementation,” said Scott Raskin, president of Telelogic Americas.
Telelogic has signed a string of software deals recently. In March, the company closed a government contract worth $500,000. In that deal, Telelogic also booked extra revenue as an add-on to the contract but didn’t disclose the amount.
In April, the company landed a two-year, $1.5 million contract with an unnamed U.S. telecommunications company. That deal added more than 500 new licenses for two of Telelogic’s applications that help manage system and requirements configurations. The contract also gave Telelogic a two-year maintenance and services pact worth more than $400,000 annually.
