IBM Micro expects memory share to drop

Electronic News, July 31, 1995 by Reinhardt Krause

EAST FISHKILL, N.Y.--Anticipating the DRAM boom will come to an end as more plant capacity comes on stream, IBM Microelectronics will reduce memory sales to just a third of its semiconductor product revenues by 1998, down from 60 percent in 1994.

IBM's evolving DRAM strategy is part of a wider reassessment of its OEM marketing efforts, which since 1993 have included a barrage of products such as microprocessors, MPEG video decoders, RAMDACs, and other devices. IBM, for example, last week said that it has put on hold any plans to enter the field programmable gate array (FPGA) market, despite having made noises in that area for about two years.

"Our strategy during the last 2-3 years has been one of marketing through distributors and through manufacturers reps and we basically sprayed the marketplace with those products," said Michael Attardo, IBM senior VP and general manager of IBM Microelectronics. "Our strategy now is a more focused strategy on internal accounts and key strategic external accounts. So we will redirect those DRAMs that we make into those more strategic accounts that we have."

Dr. Attardo added: "We are segmenting our markets and becoming more focused on those segments that we choose to participate in. And we are working closer with our key customers and defining what those customers really want as opposed to spraying the market with technology that may or may not be used."

While "a significant fraction" of IBM Microelectronics' DRAM production is currently going to the merchant market--due to its recent OEM efforts and strong industry demand, it is being cautious about the cyclical nature of the memory business. While the memory percentage of revenue will decline, total memory dollar sales will still increase, however.

IBM said it expects that microprocessor-related revenues--including PowerPC, x86 and other devices--will rise from 16 percent to 45 percent of its overall semiconductor sales during the next five years. While ASIC sales are projected to drop to 8 percent from 10 percent of revenues, I/O and communications-related semiconductor products are forecast to increase to 17 percent from 14 percent.

In an interview at IBM's East Fishkill, N.Y. facility, Dr. Attardo said: "By no means are we going to exit the memory business. We will continue to stay in a significant way in the memory business. If you are a $6 billion or $7 billion company, 30 percent of that is a pretty big number." He noted that IBM has qualified its 64Mbit DRAMs and has working parts for its 256Mbit generation.

IBM is expected to soon announce plans to build a new U.S.-based semiconductor plant for making 64Mbit DRAMs--a project that may involve Toshiba, Motorola and possibly Siemens, according to industry sources. Asked to comment on rumors that IBM will soon announce a new 0.35-micron semiconductor plant with Toshiba and Motorola, Dr. Attardo said: "I prefer not to. But we will be putting a fabricator in place to manufacture 64Mbit DRAMs...The output will be in the second half of 1997."

Toshiba has cooperated with IBM in DRAM research and development and also makes active-matrix LCDs with IBM in a joint venture in Japan. Motorola and Toshiba already produce 4Mbit and 16Mbit DRAM chips at a joint venture in Japan.

IBM has committed about $1 billion to plant expansions in 1995, including retooling in Burlington, Vt.; Essones, Frances, and East Fishkill, N.Y. It has also launched the "Micrus" fab project with Cirrus Logic and a joint venture with Philips. However, some industry analysts have recently contended that IBM's semiconductor capacity is "goldplated" and not well-positioned for merchant competition in the DRAM market.

Dr. Attardo responded that "in all aspects our manufacturing today in 1995--be it structure, capital utilization, asset turnover, be it people--we are competitive." He added that on a corporate level, IBM is prepared to support its microelectronics division with further capital outlays. "I think you will see some announcements in the not-too-distant future that will sanction my response."

IBM has been primarily a captive supplier of DRAMs; in the 4Mbit generation, for example, IBM held an estimated 2 percent merchant market-share in 1994, according to Integrated Circuit Engineering Corp. In describing IBM Microelectronics' memory revenues as 60 percent of overall semiconductor product income in 1994, IBM officials last week said that figure included both merchant market and captive sales.

Dr. Attardo last week stated that "a significant fraction of our DRAM production is going to the merchant market." IBM Microelectronics reported earlier this year that it recorded $1.7 billion in merchant market revenue in 1994; industry analysts estimated that between $1 billion and $1.2 billion of that was from DRAMs.

Asked to elaborate on why IBM's DRAM revenue will decline as a percentage of overall revenue, Dr. Attardo said: "It's going down because what we want to do is protect ourselves from the volatility of the marketplace and what we want to do is have a more balanced portfolio of products such that when oversupply in the DRAM business happens, which I think it will at some point in time, it's only a question of when it will happen.