Current Price Trends for Computer Parts

Last Update:
June 13, 2012

Hard Drive High Prices to Persist through 2014

Due to the flooding in Thailand last year, hard drive prices rose to an average of about $66 at year's end. That was a 28% increase from the $51 average price in the third quarter. The Thailand flooding caused a 29% plunge in shipments in the fourth quarter of 2012. Prices are expected to remain high, due to reduced capacity, through 2014. (iSuppli).

Chip Demand Slows

Computer makers from Asia have reported that demand for their products slipped dramatically in July. The market for DRAM and Flash has predictably suffered. "I'm a little surprised today we have as much pressure in the DRAM industry as we do," Steve Appleton, Micron. Micron shares were down 7.3% to $5.25 in recent trading.

The average selling price (ASP) for 2 Gb DDR3 (DDR) is about $0.75. Hynix has priced it product at $0.70, while Micron, the only U.S. manufacturer, is priced at $0.90. (DIGITIMES)

Impact of the Japan Crisis on the Technology Sector

The earthquake-tsunami, and the resulting nuclear crisis at Fukushima are still impacting the IC market, but the market has begun to stabilize.

NAND Flash demand, the memory most affected by the Japanese earthquake since Japan accounts for about 40% of worldwide NAND Flash capacity, has weakened. The NAND Flash average contract price has decreased by 10-15% since its peak in late April. Many customers added inventory in April to protect against potential shortages. With the supply now proven stable, these customers are consuming inventory and not placing new orders. The inventory should be returned to normal levels in Q3.

Japan is still an important supplier of electronic integrated circuits. Tokyo itself, is not an IC manufacturing region. Most of the chip fabrication is located in either Western or Southern Japan.

There have already been several international technology management operations that have relocated from Tokyo to Hong Kong. For the immediate future, a calculation must be made including the mobility of existing investments.

Silicon Wafers are used by Chip factories as the base material for production. Two Japanese operations, Shin-Etsu Chemical (located in Shirakawa) and MEMC Electronic Materials (located in Utsunomiya), have halted production. The MEMC plant is of less concern, since it has a smaller output, and the type of wafers produced can be substituted from many other facilities.

The Shirakawa plant produces 300mm wafers, which are in shorter supply. This plant accounts for 20% of global 300mm silicon wafer production. Shin-Etsu says that it can compensate for this plant's capacity by increasing production at its other facilities. For more information on Japan's crisis, see The Impact of Japan's Crisis on the Technology Sector.

There have been reports of shortages in niche markets. For example, Sony's CCD production has been affected, causing short supplies. CCD chips are used in cameras as the photographic element. Two factories operated by Texas Instruments suffered damage sufficient to cause a 2-3 month production outage, but a short-term disruption from the TI factories should not cause a significant problem.

Chip Inventories on Rise

Companies that rely on ICs are increasing their chip inventories to insure an adequate supply in the wake of the crisis in Japan.

In the 4th quarter of last year, global chip inventories surged to their highest level in over two years. Chip vendors had 84 days of inventory (DOI) at the end of the fourth quarter, up 5.5 days (about 7%) from 78 days in the third quarter. Chip inventories are a key measure of the balance between supply and demand and often indicate future pricing trouble (iSuppli).

Flash Memory Prices Likely to Decline

Once the hysteria concerning Japan recedes, then Flash memory prices should return to their pre-crisis levels, but it is not clear when exactly this will occur.

Hynix (Korea), Micron (Singapore), Samsung (Gyeonggi, Korea) and Toshiba (Yokkaichi, Japan) will begin production in new fabs later this year. Yokkaichi, near Kyoto, is about 200 miles SW of Tokyo. A glut of production capacity is anticipated.

NAND now sells for about $1.60 per gigabyte, but once the new factories are on-line, the price per gigabyte should decrease by 40-50%.

CPU Prices Decreases

Intel recently cut prices across a wide range of processors used in both mobile and desktop PCs, including reductions of up to 40% on its quad-core chips. The prices of other Core 2 Quad chips were cut by 16%-20%. These quad-core chips are used in high-end desktops.

Intel's move is in response to price pressure from rival Advanced Micro Devices, which earlier announced Phenom II quad-core chips for high-end desktops.

AMD has cut pricing on some Phenom II X4 and Phenom II X6 CPUs. The X4 (quad-core processors), the 955 BE, 965 BE and 970 BE, had price reductions of $10. The X6 (six-core processors) hav ealso seen price reductions, the 1055T is now $175, the 1090T is $205, and the 1100T costs $239.

AMD is exiting the high-end of the PC CPU market. The "bleeding-edge" technology requirements, in a market dominated by Intel, finally has proven too much for the much smaller rival. AMD will continue to supply general purpose modules. Repeated manufacturing SNAFUs at their Dresden factories were behind the AMD withdrawal.



Intel’s least expensive six-core processor (Core i7-970), is priced at $885.

Intel reduced the price for some of its Xeon CPUs for servers and Celeron processors for mobile devices. The quad-core Xeon 3370 is now priced at $316, a 40% drop from December, while the Celeron 570 chip was cut by 48%, from $134 to $70.

Overall, the Semi industry has managed to reduce manufacturing costs by more than 30% per year for the last half-century.
Source: IDG News Service

AMD Moves Toward GlobalFoundries-Free Future

AMD and GlobalFoundries have divorced. Since AMD spunoff their manufacturing division into what became GlobalFoundries, the new organization has struggled with the frantic technology pace set by Intel.

AMD's move had been expected. Last June, GlobalFoundries fired CEO Doug Grose, who was AMD’s VP of manufacturing, and replaced him with Ajit Manocha, formerly of NXP Semiconductor (formerly Philips Semi, Netherlands). Key GlobalFoundries executives have left the company last year including John Bruno, AMD's principle CPU architect. In 2009, GF officers confidently talked up their intent to win AMD’s discrete GPU business at 28nm. All of AMD’s advanced chips will be built at TSMC.

Elpida on the Ropes

Elpida, the world's No. 3 DRAM supplier with 18% market share, is in debt by $6 billion debt. Faced with daunting profitability challenges, Elpida has followed the well-worn bankruptcy path of former memory giants Qimonda and Spansion.

Elpida's liquidation will certainly include the Hiroshima Fab, a facility once valued at more than $1 billion.

Elpida's bankruptcy could result in DRAM price stabilization. For example, an estimate by the market research iSupply found if 25% of Elpida’s manufacturing capacity was shut-down, the price of DRAM would increase by more than 15 percent.

Thailand Floods Impact Hard Disk Drive Prices

According to the Thailand Business Report, the recent record floods in Thailand have caused a 20% increase in prices for hard disk drives (HDD). IDC is forecasting that there will be a 25-28% shortfall. SSD drives can be expected to meet some of the demand.

Thailand's flooding was the worst in over a century. Prices appeared to stabilize late in December when Western Digital's factories restarted production, but the impact will be felt for the remainder of 2012.

Lenova has reported shortages of high performance drives (7200 RPM), and as a result, is installing lower performance modules, and/or "off-brand" modules.

Thailand is a major player in the production of HDD. Western Digital's Bang Pa-In facility produces more than one-quarter of the world’s supply of HDD “sliders”. Western Digital has lost more than 75% of their production capacity.

Thailand also is important is automotive electronic components. The auto makers Ford, Mazda, Hino, Honda, Isuzu, Mitsubishi, Nissan and Toyota have all temporarily ceased work in Thailand. Honda and Toyota have been forced to slow production in factories in Indonesia, Japan, Malaysia, North America, Pakistan, the Philippines, South Africa and Vietnam due to the floods.

The camera manufacturers Canon, Sony, and Nikon have all suffered production disruptions. Sony has three fabs in Thailand. The disruption has caused Sony to delay product introductions of the cameras NEX-7 and the Reflex Alpha 65, and other components will be in short supply. Sony makes the CCD camera sensors and Digital Signal Processor (DSP) chips which are used to enhance the imagery. A product manager at the Sony fabs estimated that normal production would resume in 3-4 months, or around March 1, 2012.

Industry planners are receiving severe criticism, since most of the industrial growth in Thailand has been built in the flood plain north of Bangkok. Some OEM, notably Western Digital, will need years to recover from the damage to their reputation.

New Fines for Memory Factories

Last May 20, European antitrust regulators fined nine semiconductor manufacturers more than $400 million for price manipulation of the market for DRAM memory chips.

The group said all of the companies admitted their liability for the infringement. The companies were Elpida Memory, Hitachi, Hynix Semiconductor, Infineon, Mitsubishi Electric, Nanya Technology, NEC Electronics, Samsung Electronics, and Toshiba.

Micron was not included because it notified the Commission about the cartel in 2002.


Many analysts are forecasting 15-20 percent growth in semiconductor sales for this year. Semiconductor revenues may approach $250 billion or more for the year.



PC manufacturers have been reducing inventory, which has resulted in lower sales at the wholesale market. This has been driving down part prices in general. This process has now run its course, once inventories were reduced, and prices stabilized. Inventories are now again on the rise, which may begin to negatively impact prices if this trend continues.

The worldwide PC market increased by more than 24% in the first quarter of 2010 when compared to the prior year. But remember the context; in 2009 the market declined by about 7% relative the preceding year.

Memory

Prices of DRAM stabilized in December after a prolonged price slump. The price of the current benchmark DDR3 2 gigabit, 256Mx8 1333 megahertz is now at $0.88. Only 15 months earlier (September 2010), the same device was selling for $4.34.

InSpectrum Technology, (DRAM exchange) predicts lower prices for DRAM for the remainder of the year. Aggressive spending plans by DRAM leader Samsung Electronics has increased production capacity and has resulted in price declines as anticipated. Last year, Samsung increased its spending on new DRAM production capacity to 11 trillion Korean won (~$9.7 billion).

A shortage of memory chips early last year caused chip makers like Samsung to increase production. This has resulted in price declines which should continue for the rest of the year. Samsung's goal is to control about 50% of the total DRAM market. Samsung's currently controls about 41% of the global DRAM market, and with an aggressive factory expansion ($7.8 billion in 2011), the goal appears realistic.



The average selling price (ASP) for DRAM continues to challenge profitability, but there have been indications that prices are stabilizing in the 1st quarter (2012). The prices have been well below the cost to manufacture. Prices of dynamic random access memory (DRAM) devices rose marginally last April, but stayed below the $1 level, casting doubts on the prospect for their quick recovery. Globally, memory vendors have lost more than $12 billion in the last 3 years. For many manufacturers, the current prices are approaching a break-even level. If shortages do occur later this year, some money will be made.

Major DRAM producers are moving their DRAM manufacturing to more efficient production nodes. For example, Samsung is in pilot production at the 45 nanometer node (the smaller the node, the higher the circuit density = efficiency). Inevitably this will spur further price decreases, but the outlook remains very difficult to predict, and will also track the economy. If the world economy stays in recession, look for prices to remain very weak.

In an effort to stabilize prices, Samsung, Toshiba and SanDisk have reduced flash memory production by about 30% this year. A 16GB NAND flash memory chip sold for about $1.80 at the end of 2008, but is now selling for over $4. Apple's new 3GS smart phone is causing some of the increase in NAND flash memory prices, since each phone consumes between 8-32 gigabytes of NAND flash. Global sales of NAND flash memory is expected to rise for the foreseeable future at a compound annual rate of about 40%, (more than $900 million in 2013).

Last year, Apple made a $500 million prepayment to Toshiba for flash memory chips to ensure an adequate supply. Apple has been manipulating the market for NAND flash memory chips by ordering more chips than it actually consumes. This results in artificially deflated flash prices (Korea Times). Apple receives very good profit on its memory, but leaves manufacturers with more flash chips than needed.

Many memory factories are capable of producing either DRAM or NAND flash products. When the NAND market had oversupply problems earlier this year, DRAM prices were quickly affected since the factories shifted production from NAND to DRAM.

DDR3 DRAM (SDRAM) is now shipping from a several memory vendors. DDR3 is better because the chips can use 60 percent less power than DDR2, and provide almost twice the bandwidth (data rate). DDR3 is expected to eventually replace DDR2 as the memory of choice. Currently, DDR3 1066Mhz 2GB sells for about $24. DRAM vendors including Samsung Electronics have narrowed down the price difference between DDR2 modules and DDR3 in an attempt to encourage faster adoption of DDR3 by PC manufacturers. DDR3 allows for chip capacities of 512 megabits to 8 gigabits, for a maximum memory module size of 16 GB.

(Source: www.DramExchange.com)

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Capital Investment in New Manufacturing Capacity

The Semiconductor Industry is famous for its "Boom & Bust" cycles, and the model remains accurate. We have been in a major Bust for the last few years. If we emerge out of this recession in a slow gradual growth period, the industry will be able to track the growth with manufacturing capacity. If however, the economy recovers quickly (a "U" or "V" shaped recovery), then there will be severe shortages for many products, especially the chips that require the newest manufacturing techniques.

According to the research firm, VLSI, February 2010 chip factory utilization was 93% for the front end of the manufacturing process, 95% for test, and 94% for assembly.

SEMI now estimates that the industry experienced an 8% annual growth in installed fab capacity for 2010 (growth was -4.4% in 2009). The SEMI forecast projects another 8% increase for 2011, and 9% for 2012.

Spending in North America is included with approximately $9 billion forecasted to be spent for fabs in North America. 12 fabs investing over $100 million each, including Intel’s upgrades of its facilities in Arizona, New Mexico, and Oregon. GlobalFoundries (AMD) fab construction project in upstate New York, and Samsung’s 300 mm expansion in Austin, Texas. IBM, Micron, and Texas Instruments also are included. The semiconductor industry is increasingly dominated by just a few companies. According to IC Insights, this trend is likely to accelerate (Only 10 Players in 300mm Wafer Race).

A trend having enormous impact on capital investment strategies is the use of foundries. Foundries are most often found in Asia, especially Taiwan. Companies, including Intel, Texas Instruments, and AMD, have been using foundries for years to supplement their production capacity. Intel has been in the news for outsourcing the Atom, the microprocessor designed for netbooks, and Intel's most promising venture in years, to a foundry in Taiwan. Dongbu Semiconductor in Korea is for all practical purposes, a TI facility. Dongbu is the world's 6th largest foundry with two 8-inch fabs, a total production capacity of about 95,000 wafers a month (a single wafer results in hundreds of integrated circuit "chips"). TI executives hold two key positions at Dongbu Semiconductor: Lou Hutter, Senior Executive Vice President and General Manager of the Analog Semiconductor Division, and Shaunna Black, Senior Vice President of Manufacturing Operations.

But as recent problems at Taiwan Semiconductor Manufacturing Company (TSMC the world's largest foundry company) demonstrate, it can be dangerous to rely on a third party for critical production. TSMC recently confirmed a yield crash with their 40nm process technology that has resulted in yield rates below 40%. Major customers for TSMC's 40nm processes include AMD and Nvidia.

Capital spending by semiconductor companies declined last year by about 40%, to $26 billion (from $43 billion in 2008).

Samsung has reduced its capital spending by a third. Micron (Idaho) has cut its capital spending by almost 75%. DRAM suppliers have cut back the most. DRAM capital spending is 20% of its level in 2007. Intel, is the exception, and has cut its capital spending by only about 2%.

Forecasts for this year (notoriously unpredictable) call for an increase in capital spending of more than 10%, as measured from last years exceedingly depressed baseline. It should be noted that Applied Materials (the world's largest Semiconductor equipment manufacturer) has announced a headcount reduction of about 12% for later this year. "We have to be realistic about the markets we are serving," Applied Materials CEO Mike Splinter.


(Source: IC Insights)

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Microprocessors

AMD and Intel are surviving the slow economy better than the memory companies. Unit shipments increased to more than 280 million units last year. The inexpensive Atom processor helped to boost unit growth, but resulted in a lower average sale price (ASP). The Atom microprocessor used in notebook computers represented about 20 percent of Intel's mobile PC processor shipments. The CPU ASP dropped by 10 percent (IDC).

According to figures from the U.S. Bureau of Labor Statistics, microprocessor prices fell 49% a year between 2000 and 2006, declining more than the prices of personal computers (26%), storage devices (23%) and software (1%). Ironically, the European Union fined Intel more than 1.06 billion euros (~ $1.5 billion) for market manipulation. It would appear that Intel's manipulation was counter-productive.

1. Intel had over $21.5 billion of cash in the bank at the end of 2010.

The European Union fined Intel $1.45 billion in May. Late last year, Korea's Fair Trade Commission fined Intel $18.6 million. And in November, Intel agreed to pay $1.25 billion to AMD to settle all antitrust and patent suits. A billion here, and a billion there, and pretty soon, you are talking about some real money.

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Samsung Fined for Price Fixing Again

Samsung Electronics Co, Sharp Corp and five other makers of liquid crystal displays (LCD) have agreed to pay more than $550 million to settle claims that they colluded to fix prices for LCD panels in televisions, notebook computers and monitors.

"This price-fixing scheme manipulated the playing field for businesses that abide by the rules, and left consumers to pay artificially higher costs for televisions, computers and other electronics," New York Attorney General Eric Schneiderman said in a statement on Tuesday.

Samsung will have to pay $240 million, Sharp $115.5 million, Taiwan-based Chimei Innolux Corp $110.3 million, and Hitachi will pay $39 million.

The agreement follows a second settlement earlier this month by eight companies, including Samsung and Sharp, requiring payment of $388 million to settle litigation by direct purchasers of the LCD panels.

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Hard Disk Drives

The overall proportion of total computer costs for data storage continues to rise. Storage will soon account for more than half of total computer hardware and software costs.

Hard disk manufacturing and design has improved dramatically in recent years to result in drives of higher capacities for the same price. At the beginning of the decade, 40GB was the highest capacity generally available, but now drives of 3 TB (75X increase) are available.

3.5" HDD Survey 8/2/2011

3TB          $170
2TB          $70
1 TB          $55
750 GB      $45
500 GB      $40


2.5" HDD
Demand for the 160-GB through 500-GB SATA units is stable.

IDE drive production continues to decrease as the market moves to the SATA interface. Spot shortages in the IDE interface may be expected.

(Source: www.converge.com)

SSD Drives are still more expensive than conventional HDD. An SSD Drive now costs about $1 per gigabyte while a HDD drive costs less than $0.10 per gigabyte. The price of an SSD continues to improve (SSD drives once sold for more than $25 per gigabyte), and with manufacturing volumes anticipated, the price difference should be further reduced. Prices for SSD decreased by more than 20% in 2011.

The Thailand floods could provide a direct push to SSD. Hard-drives are expected to be in short supply though the end of the year, and SSD could contribute to a solution.

A new player to SSD is Super Talent Technology. Super Talent combines flash technology with the latest specification of USB (3.0), achieving read speeds of up to 125 MB a second, and write speeds of up to 50 MB a second. This would permit 500 MB of data to be downloaded in 10 seconds.

SSDs are an ideal storage solution for netbooks. One can buy an 80 GB HDD for $30-$35, but that would only get you 15 GB of flash capacity. At the current technology node (42 nm), it is not possible to manufacture SSD at $1/GB, but when the manufacturing node reaches 24 nm, this price looks feasible. Toshiba became the first fab to begin 24 nm volume production in 3rd Quarter 2010.

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Netbook and Tablet Computers: Hybrids of a Smart Phone and a Laptop Computer

April 15, 2012


There is a huge market niche between mobile devices like the iPhone and laptop computers. More than any PC product in recent memory, devices like the Netbook and iPad are a "game-changers", with their super-sleek design, portability, and software designed to take maximum advantage of the Internet.

These devices are trying to address two markets at once: low price and small size. Most netbook computers are selling for less than $400, with tablets selling for about 60% more less with an Internet Service contract, and are much smaller than the typical laptop. The timing is right for these products. Surveys find that the average teenager is already online an average of five hours a day.

“This is the true beginning of a new era,” said Jen-Hsun Huang, the chief executive of Nvidia. “You will get computing devices of all shapes and sizes.”

The netbook era began in earnest last year with almost 12 million units sold. Now, almost every PC maker offers the tiny laptops. Current forecasts call for 25 million netbooks to be sold this year, in an otherwise depressed tech economy.

Apple's iPad Dominates Tablet Market

The global PC market saw an 8 percent drop in shipments in the first quarter of this year, caused primarily by poor desktop PC sales (iSuppli), but netbooks saw an increase in sales of about 10%.

In the tablet market, research firm Gartner said it saw Microsoft winning a little more than 4% of the market in this year, with its upcoming Windows 8 platform, while market leader Apple would control 61% of the market and Google's Android platform 32%.

The research firm said it expected Microsoft's market share to rise gradually, helped by enterprise purchases, but to reach just 12% in 2016.

"Many vendors will wait for Windows 8 to be ready and will try to enter the market with a dual-platform approach, hoping that the Microsoft brand could help them in both the business and consumer markets," according to Milanesi.

Nokia, once the world's largest cellphone maker by volume, is set to unveil its first tablet using Windows 8 software later this year.

Gartner said it expected the market to roughly double this year, with all vendors in total selling 119 million tablets.

This class of devices must make compromises in order to stay inexpensive and small. This sometimes includes less RAM, no DVD or CDROM, and a smaller hard drive. The display is usually 7-8 inches with a vertical resolution of 600 pixels. The price can also be reduced further by using Linux instead of Windows XP. Vista is generally a very poor choice for most Netbooks; it needs too many resources, and results in a very slow response.

ABI Research predicts that approximately 140 million netbooks will be sold in 2013. In the Netbook market, price is extremely important. Since budget conventional laptop computers running Windows XP can be purchased for about $500, the netbook vendors have a great deal of pressure to be inexpensive. Smartphones will compete at the lower price points. And there undoubtedly will be much overlap between the platforms.

The computer industry is at an inflection point in a new generation change. Twenty per cent of new laptop buyers now choose a "netbook" class computer. Behind this trend, there are two driving forces:

First, the world economy is stagnant, so the price of anything, including computers, is more closely scrutinized by the consumer.

The second driving force is the availability of an alternative microprocessor (many), operating system (Linux), and software environment ("Cloud Computing").

There are several parts to this argument, and this is a case of the total impact being greater than the sum of the parts.

The Atom Generation

History will undoubtably call this development the "Atom Generation". Currently there are several significant competitors in the Netbook microprocessor market. Intel's Atom is selling very well in spite of the slowing economy.

The Atom CPU family has modern functions (i.e. EM64T, SSSE3) mated with older x86 architecture. Power management and price are emphasized, but at the expense of performance. The Atom was designed to compete with the new generation ARM microprocessors currently marketed by the likes of Texas Instruments and Freescale. But the Atom, with its x86 legacy, can make use of the latest Windows versions and benefit from broader software compatibilty than the ARM CPUs.

AMD’s has finally begun sampling to device makers the embedded G-Series processor which consumes less than 9W of power and includes dual 64-bit x86 CPU cores, an ATI Radeon GPU, system and DRAM controllers, PCI Express, and High Definition video interfaces into a package that occupies about half a square inch of PCB space.

VIA's new Nano CPU (x86) aims to take its share with a cost competitive, faster version of the Atom. Via upgraded their specifications at April's Embedded Systems Conference West. Via has modified the microcode of the Nano CPU, which boosted performance and lowered power consumption. The Nano is expected to announce several design wins by the end of the year. Already in the Via camp are Samsung, with its NC20 netbook, and Dell with a Nano based blade server.

"Intel's new Core processors and AMD's new Athlon processors are ramping, and at a time when, IDC believes, consumers and corporations will be anticipating a much healthier 2010 and looking for more value than just low price in their PCs. Intel's low-end Atom processor for netbooks represented 20 percent of the chipmaker's mobile PC processor mix in the first quarter, down from 24 percent in the fourth quarter of 2009." Shane Rau, IDC.

The latest player is Freescale (formerly Motorola). Freescale calls its microprocessor the i.MX515. The unit benchmarks at 2100 Dhrystone MIPS at speeds up to 1GHz. It also uses 1/3 the power and will sell for 1/3 the price of the Atom.

The i.MX515 is of the "ARM" class of microporcessors. An ARM netbook should have about an 8 hour battery life, as compared with two hours for an Atom netbook because the ARM chip has been designed from the beginning to be power efficient.

It is very likely that the cell phone you currently own has an ARM processor as its brain. The drawback behind the ARM processors is they are limited in application compatibility, for example, a computer using an ARM processor cannot run Excel. Warren East, CEO of ARM, estimates that ARM CPUs will be sold in six million netbooks in 2010, about 20% of total netbooks sales.

Intel architecture CPUs will hold about 95% of the netbook market in 2009 (over 22 million units), but ARM microprocessors should gradually overtake Intel over the next 3-4 years.

Intel will make an estimated 31 million netbook CPUs in 2010, while ARM designs will command about 8 million units. By 2012 Intel will ship about 43 million CPUs while ARM will make 53 million units, (ARM 55 percent, Intel 45 percent). (Robert Castellano, The Information Network (New Tripoli, Pennsylvania)).

Netbook vendors using ARM processors are marketing their products as "smartbooks". Microsoft does not plan a Windows version for ARM, since these CPUs do not comply with the x86 instruction set used by Intel and AMD. ARM machines will instead use Linux, Google's Android and other operating systems.

Microsoft does offer a version of Windows Mobile that is compatible with ARM, but does not plan to adapt that product for the netbook.

A system equipped with any of these microprocessors is very low power consuming (the idle current is less than 50 Watts), and is multimedia capable. All are compatible with advanced DDR2 RAM and supporting chipsets.

"We see a huge opportunity in the netbook market as consumers demand more cost-effective and higher performing solutions," said Lisa Su, senior vice president and general manager of Freescale's Networking and Multimedia Group.


The Atom comes equipped with 56KB L1 cache and 512KB of L2 cache. The Nano has 128KB L1 cache and 1MB L2 cache. The Freescale microprocessor has 64 KB L1 cache and a 256 KB L2 cache. Benchmark tests show that an Atom PC is nearly comparable to a Celeron PC, but the Nano is faster than the Atom on most benchmark tests. Be sure to check the model of CPU when comparing these units. For example, the VIA microprocessor benchmark tests were performed with top-of-the-line units (1.8 GHz), buts some vendors like Samsung are using a lower performing module (1.3 GHz).

A system equipped with one of these microprocessors is capable of SDTV video replay. This is important, because the price difference between a portable DVD player and a netbook continues to shrink. Via has claimed in marketing releases that it is capable of HDTV (even 1080p) playback, but independent tests have disputed this claim.

Intel's next generation Atom class microprocessor is almost ready. The product, code-named "Moorestown," marries the low-power Atom processor with a graphics processor and a memory controller. This should enable Intel to compete well in consumer electronics and wireless gadgets like genius-class cell phones. Moorestown will offer similar performance to the current Atom, but with a 50x reduction in idle power, and a 3x reduction in power when processing High-Def video.

According to Intel CEO Paul Otellini, "The market is coming to us more than we are chasing after the market". Marrying computing power to the mobile world is a lot easier than utilizing a chip designed for mobility and adding the ability to handle computing applications. "All consumer electronics, and I mean all, are aimed at bringing the Internet into devices".

Intel has been worried that the netbook market would cannibalize the conventional laptop market, but Intel's latest estimates conclude that only about 20% of netbook sales, would have been laptop sales, had the netbook never existed.

Netbook Operating System

Ubuntu is a powerful, user-friendly operating system based on Linux. Linux operating systems were only for the masochistic a few years ago. Now, Ubuntu is an elegant solution for laptops computers. It contains all the applications you want including a web browser, and it includes open-source presentation, document and spreadsheet software. The best thing about Ubuntu is that it is free.

Dell Computers estimates that one-third of its Inspiron Mini 9 systems are shipped with Linux instead of a Microsoft operating system.

Moblin is an Intel's version of an open-source operating system (OS) for netbooks. Moblin is designed specifically for the Intel Atom CPU (x86), that currently has the lion's share of the netbook market. Moblin is a Linux OS, but with significant enhancements to the user interface. It is also free.

A hybrid of Moblin and Nokia's OS, Maemo, will be called "MeeGo". MeeGo is expected to make its commercial introduction in time for the 2010 Christmas shopping season. MeeGo is designed for both Intel's Atom and ARM microprocessors.

Google is also a player in the netbook OS market with a product called "Android". Android is designed for use either with smartphones or "mobile internet devices" (MID). Acer computers (Taiwan) has announced plans to market a line of Android netbooks later this year.

"The Android operating system offers incredibly fast wireless connection to the Internet,” said Jim Wong, Acer, President of information technology global operations. Acer has demonstrated that the Android netbook has a very fast boot-up time (~18 seconds) and a less than 1 second shutdown.

Microsoft's strategy for netbooks is to market a crippled version of Windows 7, and then encourage the purchase of optional features. Microsoft will sell several editions of Windows 7 for netbooks. Microsoft had originally planned to limit the most basic Windows 7 version, called "Starter Edition", to only run three programs at a time, but they backed down from that position due to complaints from the market.

But Windows 7 Starter Edition will not allow use of more than one monitor, support Windows Media Center for the watching of recorded TV, or contain a number of other features. Microsoft points out that its more advanced Windows 7 versions will also work on netbooks, but for a premium price.

Microsoft has banned netbook OEMs from utilizing hybrid storage solutions (both SSD and HDDs) with Windows XP. This restriction will join the already enforced rule which limits netbook manufacturers to a maximum of 1GB RAM with Windows XP.

The netbook is a problem for Microsoft. Currently, if a netbook uses a Microsoft operating system, it is XP (not Vista), and Microsoft's profit margin is much thinner for XP. More troublesome, many netbooks use Linux or Google's Android, completely bypassing Microsoft. Microsoft recently announced the first sales decline ever for Windows. Microsoft blamed netbooks for the historic drop.

Netbook Software Environment

In the United States and many parts of the world, it is becoming increasingly possible to assume a broadband Internet connection. This is more of a challenge for netbooks since they are portable. Tethering (using a cellphone as an internet modem) will play an important role.

WiMax and LTE, next generation broadband wireless services, will be implemented in large cities in the U.S. over the next two years. These technologies will fill the gaps of internet access. WiMax requires a new network to be built whereas LTE is an evolution of existing WCDMA/HSPA networks. The upgrade to LTE makes it a natural choice for many telecom carriers.

Verizon will launch LTE in two cities before the end of this year, and in as many as 30 metropolitan areas in 2010. LTE can provide a maximum speed of a 80 Mbps, about 25 times faster than the current networks. Verizon will use the 700MHz frequency band that was previously used to broadcast TV.

The reliance on Internet services to provide technologies that have been conventionally thought of as on-board, is sometimes called "Cloud Computing" or "Software as a Service" (SaaS). Examples of Cloud Computing services include Salesforce.com, NetSuite.com and Google Apps. These business applications are accessed online while the software and data are stored on the servers. Some of the services are free, while the others are on a pay by use structure.

SaaS is consistent with current trends of centralized databases and mobile devices like netbook computers. The use of this software environment enables the user to minimize the cost of capital expenditures for hardware and software. For example, graphics applications can require significant hardware and software resources. If these applications are accessed via the Internet, those resources can be provided by the on-line application.

SalesForce.com has both a paid service, and a reduced-feature version that is free, called "Mobile Lite". SalesForce.com estimates that it may add 1 million new customers with the Mobile Lite version, and that many will choose to upgrade to the full featured paid version.

Microsoft has entered the SaaS arena with free Web-based versions of its Office suite, including a Word, Excel, and Powerpoint. Microsoft will make money by including commercials.

For the business customer, Microsoft will host an Internet business version of Office, charging companies for a small fee.

Ericsson has engineered the ability to remotely prevent use of a Netbook when it is equipped with one of Ericsson's latest generation of modems. Ericsson calls this function a "kill pill". The technology can also be used to secure corporate data if the netbook is stolen.

The kill pill becomes more relevant as telecom companies are subsidizing the purchase of netbooks, in return for a monthly Internet access fee (for example AT&T-RadioShack is selling an Acer netbook for $99, but a 2 year contract at $60/month for wireless access is required).

"Pixel Qi" adds Kindle-Like Features to Netbooks

The netbook market is about to swallow the E-Reader market (Kindle). A startup called Pixel Qi has introduced a display that should allow a netbook to include the needed features.

A netbook that is capable of E-Reader function is a natural. E-Readers are priced at levels comparable to a netbook. Products from Sony and Amazon range between $299 and $359, and the upscale Kindle DX retails for $489. Add the ability to surf the Internet, watch movies, and answer Email, and the potential for a hybrid device is obvious.

The screens should be available on netbooks by the end of this year. The new netbooks will be designed to include e-reader functions that will probably include a display that can swivel to cover the keyboard. said John Ryan, chief operating officer at Pixel Qi.

The first Pixel Qi product, called 3qi, is a 10.1-inch netbook screen designed to work in three modes: a black-and-white mode for reading text and e-books, and 2 color modes, designed for use indoors or in bright sunlight. This just squeezes under Microsoft’s threshold of a 10.2 inch screen in order to quality for a cheap OEM licence for the Windows 7 Starter edition.

Microsoft's pricing scheme of Windows 7 is unusual. Windows 7 will cost $75 for large screen laptops, but $25 for a screen less than 10.2 inches. It is the same software.

To utilize the netbook as a "Kindle", netbook users will need e-reader software, which is available from several companies, including Adobe Digital Editions, and Microsoft Reader.

Power consumption is another issue Pixel Qi tackled in its 3qi screens. They have addressed the problem with innovative design. E-ink mode extends battery life by shutting off the backlight, and is intended for reading e-books, documents, Web sites or blogs and other text-based material. "What you're looking at is a screen that's entirely reflective," said Ryan, at Pixel Qi's temporary office in Taipei. "It's just running like e-paper so that it's running on the ambient light. It's not fighting the office light , it's not fighting the sunlight. That makes it better for reading but it also cuts the power consumption. The backlight in the screen is typically the largest power drain in any notebook computer."

The screens may cost a slightly more than a conventional LCD screens at first, but the costs will go down as production volume picks up. Pixel Qi designs are based on TFT-LCD (thin-film-transistor liquid crystal display) technology, which is the most common technology and production line process. This should simplify manufacturing.


The Year of the Netbook

"This is going to be a polarizing year," says Francis Sideco, senior wireless analyst with research firm iSuppli. "You are going to see all the partnerships lining up. If Intel had come in a year later, I might have said the ARM world had it all wrapped up. But this is Intel. They are still the biggest semiconductor maker on the planet, and you can't put anything past that R&D machine they have over there."

2009 will be the year when:

a netbook market leader emerges,

Ubuntu (Linux) becomes mainstream, and

the Cloud Computing concept is tested by the marketplace.

The implications are enormous. The leading platform from the netbook battle will have the advantage when similar questions are asked at the next generation of smartphone, what is being called the "genius-phone".

The lines continue to blur between notebook computers, netbook computers, and smart phones. A smart phone today has much in common with a notebook computer from 6-8 years ago. Netbook computers currently fill a market niche between notebooks and smart phones. Notebook OEMs are squeezing the niche from the other side.

Sony recently introduced a notebook computer that is similar in weight to a netbook. Weighing in at a lithe 1.6 pounds (including battery), the Vaio X is only a half an inch thick. The system includes built-in 3G mobile broadband and a solid-state drive. The notebook will utilize Windows 7 Pro with prices starting at $1,300. Sony uses a two-GHz Intel microprocessor for the CPU.

In the market space between smartphone and netbook, Qualcomm has introduced what they call a "smartbook", which runs on their ARM processor ("snapdragon"). The device, manufactured by Lenovo, boasts that it is the first system fully flash compliant, making on-line video more accessible. The device size is slightly larger than most smartphones, and includes a full keyboard. Qualcomm believes that by 2014, the amount of monthly mobile data traffic will exceed the total amount of data traffic in all of 2008, and that by 2011, smartphone unit sales will exceed all computer unit sales.

The categorization of systems into one group or the other will continue to become more difficult. Vendors already have incentive to avoid the "netbook" label, as consumers are assuming netbook equals cheap.

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Who is Universal Surveillance Systems (USS)?

Universal Surveillance Systems (USS) is a national supplier of security camera systems to "major" retailers. USS imports security tags from Hangzhou Century Plastic and Electronics (Hangzhou, China), and camera equipment from manufacturers in Taiwan. Typically, USS hires local contractors for installation and maintenance.

USS lacks significant technical expertise. Instead, the USS operation has been almost completely dependent on the profit received from deceptive business practices, especially when at the expense of local contractors. In some instances, clients have been complicit in these activities. It is very troubling, that otherwise mainstream retailers, would knowingly be involved with a company known for using these practices.

Universal Surveillance Systems has earned the Geeks Informed Smell Test rating of Very Stinky.

Universal Surveillance Systems also operates with the business names "LP4LP‎", "Ussi Elm One‎", "Aegis Security", "Jagerhorn", "Ussi Elm Two‎", "BMS", and "Victorville Rl", all from the same address with the same business officers.

Corporate Address:

Universal Surveillance Systems
11172 Elm Avenue
Rancho Cucamonga, CA 91730-7670
Phone: (909) 484-7870
Website: UniversalAS.com

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The Jab as a Crisis Management (CM) Tool

Marketing has sometimes been compared to pugilism, a sport more commonly known as "boxing" in the United States. Like boxing, marketing is capable of periods of manic-intensity, or crisis.

The time period for the maturation of a marketing trend was once weeks or months, but now this period may be only a few hours. For marketing professionals, Crisis Management (CM), in the age of Facebook and Twitter, is a challenge with terrifying new dimensions.

A reactive CM strategy is like a counter-puncher in boxing. The fighter waits for an attack, and responds. In a rapidly evolving environment, this strategy may be doomed to failure.

Hewlett-Packard's response to the Mark Hurd scandal was performed with the classic counter-puncher strategy. The failure of this approach was measured by a decline of HP market value of more than twenty percent. In the space of a few months, for what was by all accounts, a mere juvenile flirtation story, HP was decimated. The counter-puncher protocol was once again discredited.

A few pioneering businesses now supplement the counter-puncher approach to CM with a more assertive strategy. In boxing, they call it the "jab". With a jab strategy, the boxer seeks to keep the opponent off balance with frequent low-force punches.

In the business world, a jab scheme uses a pro-active campaign to defend against the future crisis. Instead of waiting for a problem, the jab approach uses a variety of media to positively feed a message to the audience.

There are layers to this blueprint. Successful public relations (PR) professionals have long fed cream-puff stories to the news media, and this maneuver is still relevant. However, the audience has become more jaded and resistant to this tactic.

For a retail business, a highly effective layer can be added at the public interface, in the store showroom. Regardless of whether the message is presented visually or aurally, jab-marketing is most effective if the message is presented at least twice using the same media. The degree of conversion is proportionate to the number of repetitions. ²

An example of one of the most complex CM challenges is PetSmart (PETM), a company specializing in products for dogs, cats, and other small domestic animals. Servicing this market, PetSmart must deal with the occasional accident, most often in the grooming or boarding operations.

These events can result in a tremendous PR challenge. On occasion, a media circus has put the event on the local TV news, with children crying on camera, and pet owners emotionally blaming PetSmart for their tragedy. After all, 81% of Americans identify their pets as "full members of the family", and family members are defended.

After years of mixed results using only reactive response techniques, PetSmart chose to proactively deal with this challenge. PetSmart hired the respected Public Relations (PR) firm, Markowitz Communications, to build a positive shield of marketing buzz. The Markowitz PR effort was an "opportunity to reinforce PetSmart and its experts as sources for safety tips, trends and products, as well as position PetSmart stores as places for pet and pet parent (sic) events." Markowitz offers "a proactive, integrated approach to marketing and public relations." ¹

When a customer visits a PetSmart, a fifteen second audio message is repeated every two minutes, and this voice follows the customer as they pass through the store. Each cycle is like a boxer's jab, repeated low-force punches.

With each repetition of the message, PetSmart reinforces the thought that they are a trusted friend. In the typical twelve minute "customer experience", the soundtrack (jab) will have been repeated six times. Subconscious to the customer, their perception of PetSmart has been immunized against future negative events. ²

An important Jab-Marketing enhancement can be the use of a recognizable voice, especially a celebrity whose voice is linked to a prior positive memory. Even if the listener cannot specifically identify the personality, a connection is much more likely if the subject hears a familiar voice.

Jab-marketing has rewarded PetSmart with a more than nine percent annual growth rate in its pet services, fueled largely by the grooming and boarding services.

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¹ Case Studies, Marcowitz Communications

² Do You Need To Change Your Store Atmospherics?, Andrew G. Parsons, Helene Wilkinson, Auckland University of Technology

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Who is United Service Source (USSI)?

Outsourcing of technical service is a growth industry. One organizational structure for this application is the use of independent contractors organized by National technical service organizations (NSO). It can be expensive to hire direct employees across the country, and outsourcing the work via a NSO is often the less expensive alternative.

But the NSO community has a terrible reputation for paying their bills. The NSO business model is built on using contractors as a firewall. It's like a South Carolina Football team. If a play is successful, the credit goes to the brilliant coach. If a play fails, the blame goes to the flawed quarterback. The coach is never responsible for failures.

It's a classic David versus Goliath story. The NSO is Goliath, with deep pockets, and a staff of lawyers on retainer. The "David" is a small contractor operator, who not only cannot afford large legal bills, but he (or she) is also dependent on the NSO for future work.

With a problem NSO, the contractor finds themselves begging for money that has already been earned. According to Committee of Sponsoring Organizations (COSO) of the Treadway Commission, fraudulent activity of this type occurs most frequently in the computer hardware and software industries.

United Service Source Inc. (USSI) in Brevard County, Florida (Melbourne) is an interesting case study. USSI organizes work for companies across the United States through a network of subcontractors. USSI also does business as (DBA) "Kyadax", "National Service Source", "United Residential Services", and "Ascent Media Systems and Technology Services", all from the same location and with the same employees.

Companies like USSI have a poor record for meeting the financial obligations with their contractors (see Fraud Against Contractors or Programmer Sues USSI for Delinquent Payment). On average, a contractor working for USSI will spend 1 - 2 hours in haggle time for every hour of billable time. And beware of the large project, where USSI has a track record of reneging on agreements.

USSI Known Associates
Organization	Vendor	Application
Financial Consultants	E-Trade	Stock Broker
Hotels	Lodgenet	Hotel Pornography
Hospitals	TipTV	Infomercials
Hospitals	Newborn Channel	Infomercials
Kentucky Fried Chicken	NCR Enterprise	Digital Display Menus
Kentucky Fried Chicken	Wireless Ronin	Digital Display Menus
Enterprise Rent-a-Car	AirMagnet	Order Processing
Pediatricians	Enqii KidCARE TV	Child Care
Oral Medicine	Dynasign	Dentists
Animal Medicine	EmebaVet	Veterinarians
Animal Medicine	Enqii PetCARE TV	Veterinarians
AT&T	Samsung	LCD Television
Corporate	Verizon	Business Satellite Link
Corporate	Samsung	LCD Television
Corporate	Star2Star Communications	Telephone via Internet (VoIP)
Movie Theaters	Mainstream	Satellite link for pre-movie commercials
Federal Aviation Administration	SPL Integrated Solutions	Communications
U.S. Postal Service	Logix	Internet Services
U.S. Postal Service	Target Vision	Postal Vision Employee Training

NSO-Governmental Relationship

A corrupt NSO will typically cultivate a cozy relationship with the local government. It is not an accident that most of these operations are based in rural jurisdictions, probably more malleable to their needs. Non-locals should not expect objectivity with disagreements. The local judiciary acts as a "home-town referee". Florida Today (November 23, 2008) called the situation in Melbourne, USSI headquarters,

"an ugly pattern of incompetence and impropriety that cries out for investigation," Florida Today further said "It would be negligent at this point for the Governor to ignore his duty to the public to make sure that the laws and the Constitution are faithfully enforced. Today, reasonable people are making the conclusion that Brevard County systemically engages in corruption and collusion."

Florida, ranks as the state with the most federal corruption convictions over the past decade. Florida, with 824 convictions of local, state and federal officials, even exceeded Illinois (Blagojevich) and Louisiana (William Jefferson). Florida is the only state in the union to charge court fees to those who cannot afford to pay, effectively holding hostage the Constitutional rights of millions of Floridians to access the courts without sale, denial, or delay, a basic tenet on which our government was founded.

USSI manipulated local government officials in 2010 to receive local tax abatements. USSI feigned interest in moving the company to Texas, and used this leverage to give local authorities enough cover to award USSI a tax exemption. Insiders know the play was a complete ruse.

USSI has earned the Geeks Informed Smell Test rating of Somewhat Stinky.

Wolves tend to operate in packs. Many of companies that do business with USSI, including Samsung Electronics and Verizon Communications, have a lengthy history of marginally illegal activities.

Samsung has a long history of involvement with organized crime. A former CEO of Samsung, Lee Kun-Hee was convicted of tax evasion and security law violations. For his crimes, Lee was fined over $100 million and was sentenced to 3 years in prison (suspended because of his age). Lee stole a more than $2 billion.

Seong Hwan Kim, chairman of Samsung general labor union, was imprisoned even after Amnesty International selected him as a Prisoner of Conscience. Samsung maintains "free union", which effectively eliminates unions at their factories with violence. Samsung has legally maintained that any industrial disaster in one of their semiconductor factories is classified as a natural death.

Verizon is no stranger to involvement in seedy activities. In a well publicized example, a contract with the State of Pennsylvania wound up in court, because Verizon promised broadband services that it never delivered. Verizon made more than $1 billion in profit from this contract.

"The president of Verizon Pennsylvania struck a secret "gentleman's agreement" with State Sen. Vincent J. Fumo under which the phone company agreed to pay millions to a law firm of Fumo's choosing." Philadelphia Inquirer (6/26/07)

Fumo used his considerable influence in the Pennsylvania government to end a lawsuit in which state regulators opposed a plan to restructure Verizon into wholesale and retail units. Former Senator Fumo (D., Phila.) was recently convicted of 137 counts of fraud and corruption. Fumo joked with his girlfriend that he was good at spending "OPM", short for other peoples' money. Fumo will be eligible for release from prison (Ashland, Kentucky), in January 2013.

---

Is Your Neighbor Involved?

The strategy used by these companies brings back memories of Love Canal. In years past, large companies would hire a contractor to do their dirty work, most famously dumping highly toxic waste into the rivers and lakes. The strategy provided plausible deniability while the waterways were permanently destroyed. They could pretend to be as guiltless as a Southern Preacher and point their finger at the contractor as the Bad Guy who had Ruined the Environment.

Toxic waste from factories, chemical industry, and nuclear power plants can be very expensive to handle properly. Bean-counters from these industries are motivated to reduce these costs. An unfortunately common scenario would include a business partner hired to manage the waste. Of course, the lowest bidder would win the job. A competing bidder that properly performed the work would find it impossible to compete. The bean-counter would be unaware (and did not want to know) that the waste was being illegally dumped, after all, the responsibility had been delegated to the contractor -- the bean-counter's hands were clean. The resulting damage from thousands of these contracts has caused countless health and ecological problems in the affected areas, and the taxpayer is still paying for cleanup of these sites. Ignorance is no excuse.

As awareness improves, two trends are occurring:

Consumers and businesses are recognizing the benefits of hiring locally, and avoiding the participation in criminal enterprise.

Responsible clients are monitoring the NSO companies with whom they do business, and avoiding the ones with poor reputations.

Everyone must realize that if they do business with NSO operations with "questionable" business ethics, even through a 3rd party, they will ultimately be held accountable.



United Service Source Contacts


David Christiano, President, dave.christiano@ussi.org

Phone: (321) 723-5395, ext 114


Abed Alghani Zein, Director of Operations, azein@ussi.org

Phone: (321) 723-5395, ext 122

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A Guide to Importing Security Cameras from China

China is the world leader in labor-intensive manufacturing. China is the OEM (original equipment manufacturer) for about half of the world’s shoes and clothing, toys, electronics, appliances, and furniture. For items like security cameras, China controls more than 80% of the $13 billion U.S. market (1). Much of the manufacturing in China is performed in a region of Eastern China, in the Pearl River Delta in Guangzhou, and in particular the city of Shenzhen.

Shenzhen has received more than $30 billion in foreign investment and has grown in population from about 300,000 in 1985, to more than 10 million today (31X). This region of China has come to dominate many world markets in a very short time.

The challenges of importing cameras from China for use in the U.S. include the control of instrument quality, efficient shipping, the safe transfer of money, and the support of equipment warranties.

Quality

Profit margins in China are usually very small for commodity items like security cameras. Competition with other manufacturers is intense, and copy-cat products are very common. There are often several dozen companies making products so similar distinction is difficult. This forces the suppliers to ruthlessly compete on cost.

   • A thin profit-margin explains the
     behavior of the typical OEM in China.

Thin profit margins also equal thin margins for error. If a product fails at your customer, the OEM business model in China may not account for return shipping costs and repairs (2).

Shipping

Shipping costs will be an important component in your total overhead.

The major international carriers serving the China to U.S.A. market include UPS, Federal Express, and DHL. Air delivery, which usually takes 3-4 days, will cost on average about 3 times more than delivery for the same package across the United States.

Most OEM are proficient at negotiating a fair rate, and passing that cost to you. The OEM usually bundle a handling charge into the quoted shipping cost.

Payment

The customer will usually need to prepay for goods at the time of order. Wire transfers (TTL) with your bank or Western Union are often used for the transfer of money. Many, but not all, OEM in China now accept credit cards and/or PayPal.

I have transferred money many times with both Western Union and banks with reputable companies from China, and to date, have never been victimized. But there is certainly a vulnerability to the process (see “warranty” below).

Credit cards and PayPal do offer some added security, but be advised, the time period for filing a grievance is usually 45 days or less. A transaction from China, if it includes any complications, will probably exceed 45 days.

If in doubt, when approaching the 45 day window, file a grievance. It can be cancelled if necessary.

Warranty

Every OEM has field failures. Electronics from China, including security cameras, are usually of very high quality. My failure rate on received cameras has been less than 5%, and the failure rate of the cameras once past the initial 10 day period, is less than 3% for the first year.

Many times, I have returned cameras to the OEM for repair because of failure during the warranty period. Once, I received fully operational cameras returned within 20 days (it would seem that was an aberration). On the second occasion (same OEM), I received the cameras back, but the cameras were still faulty, I returned them again, and received cameras, faulty for the 3rd time. With a second supplier (you can guess why I changed suppliers), the OEM received the cameras, sent them to their laboratory for “research” and they were never returned, despite many complaints.

A fourth incident with this same supplier resulted in another black-hole of warranty repair cameras shipped to the factory, never to be seen again. If you install many cameras, you may have hundreds or even thousands of cameras in the field before a trend of premature failure, and a derelict OEM, can be identified.

I am now on my third camera supplier in four years. The problems with the first two suppliers proved financially disastrous.

The lack of warranty support from the OEM may be the result of the extremely thin profit margin. When something goes wrong, there is no money in the budget to correct the problem.

If you place significance on customer service, then the costs of a warranty will need to be included in your own local business model. This is contrary to business norms in the U.S., but “it is what it is”. The warranty from the OEM is usually worthless.

This leads the conversation to an important point in the business relationship. In the United States, if an OEM failed to deliver on an important commitment, you as the customer would have options. You might contact the Better Business Bureau, or failing that, you could sue the OEM. As a practical matter, none of these options exist in China.

One option that is supposed to exist is a company called Alibaba, until recently, a China partner of Yahoo. Alibaba runs an Internet directory, and supposedly vets and polices China vendors. Alibaba proved to be asleep at the wheel. Multiple entreaties for assistance did not receive a reply, not even any automated acknowledgment.

   • It is worth noting that companies like Apple, Hewlett-Packard, and Dell, companies
     with great resources, still choose to do only do business with China
     via a Taiwanese intermediary (FoxConn). According to China's Ministry of Science and Technology,
    83% of all technology products manufactured in China, are managed by a company from outside of China.
    This number has remained stable over the last decade.

Conclusion

Using our example, the security camera, China so dominates the industry, that for the economy application, a choice will almost surely be an instrument from China. In many cases, there is not a reasonable alternative.

This can be frustrating if one does enter the business acknowledging the problems. Be prepared to solve those problems without support from the OEM.

But even after accounting for these issues, in a risk-rewards calculation, the China option is still often the logical conclusion.


References/Footnotes:

1 Asia-Pacific to Propel Growth in Global CCTV Market, RNCOS, May 29, 2009

2 Explaining China's Quality Control Problems, Paul Midler, U.S. News and World Report, April 23, 2009



Customs Requirements: Import Rules from U.S. Customs

About the Author:

Brian Bradshaw is the General Manager of B.V. Technology in Plano, Texas. B.V. Technology has imported electronics from China, Japan, South Korea, Taiwan, Singapore and Malaysia.
BV4Tech.com

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The Rise and Fall of the American Chip Industry

By Brian Bradshaw

The semiconductor chip is at the core of what we think us as technology. Computers, cell phones, iPods, medical equipment, avionics, etc. have only been possible because of the chip. The American chip industry has been damaged by the recent economic slowdown like most industries, but more importantly, the chip business in the United States has been in a slow fall for 30 years.

Over-investment in chip factories has resulted in steep losses of over the last five years. The chip business has been compared to farming. If too many farmers plant cotton, then the price of cotton will drop (supply and demand).

The semiconductor industry sold just over $300 billion in chips in 2011, slightly less than a one per cent increase from a very depressed 2010 ($299 billion).

The American chip industry, outside of Intel, is an endangered species. AT&T, Hewlett-Packard, and others are already gone from the field. Others, like Texas Instruments, have set a path for the eventual elimination of manufacturing. These companies have gone "fabless", meaning they will continue designing applications, but leave the process technology and manufacturing to someone else (most often to companies in Asia).

The microprocessor market has been the exception, especially Intel. The microprocessor market has been controlled by Intel. It has been a kind of monopoly. But Intel, when operating outside the microprocessor arena (i.e. DRAM or Flash memory), has followed the general model.

Intel has recently closed 3 factories (the industry calls them "Fabs", short for fabrication): one in Colorado, one in Oregon, and one in California. But Intel is building microprocessor fabs at the same time, currently building a factory in Phoenix and one in Israel. Intel is doing OK. Intel had over $12 billion of cash on hand at the end of 2008.

In the last three years (2009-2011), an additional 17 chip fabs closed in the United States. Japan also experienced 17 fab closings, and 12 fabs were closed in Europe.

In 1980, one of the pivotal events in the history of the chip industry, was IBM's selection of Intel to build the microprocessors for the IBM personal computers. IBM chose Intel over Motorola and Zilog (Zilog was founded by ex-Intel engineer Frederico Faggin, who invented the MOS process while at Fairchild).

IBM insisted that Intel facilitate second sources for the microprocessors by allowing companies like AMD to alternatively manufacture the chips. Intel's wealth has been almost fully acquired because of their control of the personal computer. IBM ceded control of the personal computer away with this agreement, or more accurately, their failure to execute this agreement.

The Rise of the American Chip Industry

The Chip Industry has its roots firmly in the United States. Scientists at AT&T Bell Labs invented the transistor in 1947. The chip, or integrated circuit, was invented by Jack Kilby of Texas Instruments and Robert Noyce of Fairchild (later Intel) in 1958. There were many interim steps between these two seminal events, most accomplished by the teams from Fairchild and RCA.

In 1975, the U.S. had more than 70% of the world's market share for chips. The chip industry titans during the development years were IBM, AT&T, Texas Instruments, Motorola, and Hewlett-Packard. These were established technology companies that had success in the emerging field.

Silicon Valley, in California, was largely the result of startup companies with ties to Fairchild, who was located in the area. Fairchild was a technology pioneer, but most of the success came from Fairchild alumni, what became known as the "Fairchildren". Alumni from Fairchild founded Intel, AMD, National Semiconductor, LSI Logic, Altera, Xilinx and many others. One notable Fairchild alumni was Eugene Kleiner, who would later found Kleiner Perkins, a venture capital firm that would help Amazon, Google and Sun Microsystems become billion-dollar companies.

The Fall of the American Chip Industry

Since the U.S. had such a commanding market share in the 1970's, it was natural that this position would be difficult to maintain. The first challenger was Japan, who was very successful at capturing the DRAM market, at the time the most important chip market. By the mid 1980s, 80 percent of the DRAM market belonged to Japan.

Many outside of Asia fail to give proper credit to the emergence of Japan in the chip industry. The common perception is that the sole reason for Japan's success was low labor costs. In fact, the primary reason for Japan's ability to manufacture at lower cost was a superior technical strategy. American DRAM manufacturers switched to a lithography technology called "steppers" a generation before the Japanese. The Japanese continued to utilize the previous generation lithography technology called "scanners". The American companies falsely believed that scanner technology would be inadequate for the newest memory devices. Scanners are significantly faster and less expensive to operate than steppers. Because the lithography step is so important to the overall process, the Japanese had a significant advantage, and used that advantage to capture the DRAM market.

In 1987 the United States started a research consortium called Sematech to combat the loss of market share. The plan called for the chip companies to share research costs, with a government subsidy. Member companies contributed $124 million to Sematech's 1990 budget and $100 million was contributed by the government through the Defense Advanced Research Projects Agency (DARPA).

Japan's market share did drop in the early 1990's, but this was probably more as a result of problems in the Japanese economy than with developments in the U.S. chip industry. The Japanese stock market "bubble" burst, much like the dot-com market burst in the United States. Japan's market share of total chip sales peaked in 1988 at about 49%. Today, Japan's world market share of the chip business is about 25%.

Sematech had a positive impact on the U.S. chip companies' circuit reliability. Statistical process control (SPC) techniques were led by Sematech and resulted in dramatic improvements. Motorola, a Sematech member, was the first winner of the Malcolm Baldrige Quality Award. The progress in reliability enabled chip customers to forego incoming inspection of chips, a huge cost savings.

Sematech was very active helping an immature U.S. equipment industry improve their tools. Sematech effectively moved the technology center of semiconductor industry from chip manufacturers to the chip equipment companies like Applied Materials and KLA. Before Sematech, the customers were the process experts, but now the process tool companies included process expertise with the equipment. This was very good for the lucky equipment companies, but Sematech was very selective. Many tool vendors were shut out by Sematech.

Those outside the chip community sometimes fail to understand the degree to which the chip equipment industry is internationalized. A fab requires hundreds of different process tools for the many different process steps (some chips require more than 500 process steps). Many of the tools cost more $1 million. Most fabs will attempt to standardize on a tool supplier for a particular process step, but all fabs have equipment from many different companies.

A few years ago, a major "Wall Street Analyst" cut his forecast of Applied Materials' business prospects based on the growth of the Taiwan semiconductor industry. The flaw in this logic is that a Taiwanese factory uses U.S. equipment at about the same rate as a United States based company. U.S. companies also commonly use equipment manufactured from outside the U.S, especially from Japan.

Since the chip equipment industry is so globalized, if Sematech makes an advance, U.S. companies gain little, if any, advantage. Chip manufacturing has become highly homogeneous, from company to company, and from country to country. Because the equipment companies now controlled the process technology, it became much easier for countries like South Korea, Taiwan, and China to enter the market. If a company had the money, the technology was for sale.

The result of the work done by the industry, especially by Sematech and its Japanese counterpart, Tohoku University, was that the process of manufacturing chips became less of an art, and more of a science. Chip manufacturing became "paint by the numbers". Once the industry reached this level of maturity, the price of capital, and the price of labor, became the dominant factors in the choice of manufacturing location.

A state of the art fab requires an investment of $3-4 billion. Chip manufacture is now a commodity business involving huge production volumes and low profit margins. A recent count of the last 40 chip factories built showed that 35 were in Asia, 3 were in the United States, and 2 were in Europe.

The memory market, including the products DRAM and Flash Memory, is the most competitive chip arena. South Korean companies currently dominate the memory market. Samsung is the leader, with more than 30 per cent market share, and Hynix is second, with more than 18 per cent market share. Elpida (Taiwan) with 15 percent, Micron (U.S.) with 11 percent, and Qimonda (formerly Siemens/Infineon, Germany, currently in bankruptcy) with 8 percent, are the other significant market share holders.

The Emergence of the Chip Foundry

Chip manufacturing technology continues to become more of a commodity. Companies that once designed, manufactured, and marketed chips, now hire a third party for the manufacture step. This is what is meant by a "fabless" company. The company that performs the manufacturing step is the "foundry". The design is accomplished via collaboration between the foundry and the fabless company.

A modern foundry provides software tools so that the fabless company can accomplish their objective using standard process cells, technology that is owned by the foundry. One of the world's first chip foundries was created in Taiwan by Texas Instruments in 1989 to manufacture DRAM. The company was called TI-Acer.

Taiwan Semiconductor (TSMC), with $30 billion market capitalization, is the current leader in the foundry chip industry, and currently boasts more than 44 per cent of the world market share of chip foundry business. TSMC was founded in 1987 as a joint venture of Philips (Netherlands), the government of Taiwan, and private investors. Morris Chang is the founder of TSMC, and continues to serve as the Chairman. Mr. Chang's resume includes 25 years at Texas Instruments, leaving as a group vice president in charge of the company's worldwide semiconductor business. TI-Acer merged with TSMC in 1999.

The world's second largest foundry is also in Taiwan. UMC claims more than 14% of the foundry business worldwide. Taiwan, a country about the size of Vancouver, Canada, has the highest concentration of semiconductor manufacturing in the world.

It is interesting to note that two of the executives instrumental in recent events in the semiconductor industry are on the TSMC board of directors: Carly Fiorina and Thomas Engibous.

Carly Fiorina is now best known as John McCain's Economic Advisor during the last election. She is the former CEO of Hewlett Packard where she oversaw HP's exit from the chip manufacturing business. In addition, Ms. Fiorina spent nearly 20 years at AT&T and Lucent Technologies Inc. where she served as Executive Vice President, Computer Operations for Lucent and oversaw the exit of AT&T from chip manufacturing.

Thomas J. Engibous (former Texas Instruments Chairman, former president and CEO 1996 -2004), was the department manager of TI's semiconductor group when TI established TI-Acer. Texas Instruments has eliminated their R&D operation, and plans to be fabless for most of their production. TI was one of TSMC's first customers. Much of the foundry model has roots from within Texas Instruments.

The Future of the American Chip Industry

Intel will continue to dominate the Personal Computer microprocessor business for the foreseeable future. There are threats. AMD does everything well except make money. A Taiwan company called "Via" may be the more significant long-term threat. Via designs the chips and manufactures them at the local foundries. Via's core designs originated with Cyrix Semiconductor, a company started by ex-Texas Instrument engineers. Cyrix was sold to Via in 1999. Via's processors are competing well against the Intel "Atom" microprocessor, in less expensive laptop computers.

AMD recently completed an agreement with a company from ATIC (Advanced Technology Investment Company) funded by the Government of Dubai, that should enable them to continue to compete with Intel. AMD plans to build (with their partner), a chip manufacturing facility in Saratoga County, New York. AMD currently manufactures all of its microprocessors in Dresden, Germany.

AMD has a technology exchange agreement with IBM. IBM continues to do well. IBM's strategy is to participate in higher margin products and avoid commodity markets like DRAM. IBM remains a world leader of chip technology.

Foreign companies continue to invest in U.S. fabs, but at a reduced rate. Samsung is doing well with its DRAM factories in Round Rock, Texas, a few miles north of Austin. Samsung operates two fabs; the newest fab opened in 2007 and is considered state-of-the-art.

There are also success stories at the lower end of the technology scale. X-Fab, a German company, operates a fab in Lubbock that is a bright star on a bleak landscape. X-Fab excels by thinking "out-of-the-box", something exceedingly rare in the chip industry today, ironic considering its history. It would be impossible for X-Fab to compete in a high volume, low margin business like DRAM, but they do very well with custom analog chip production. The facility was originally built by Texas Instruments.

More than half of the chip fabs in the United States in operation at the beginning of the decade are now closed. Outside of Intel, there has been little to cheer about. There is little mystery about what the future holds. Our actions today determine our consequences tomorrow.

About the Author: Brian Bradshaw is a 25+ year veteran of the Semiconductor (Chip) Industry. His career includes work at AMD, Varian, and Sematech. He is currently General Manager of In Situ Host Systems.

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