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November 2006

The Foundry Market Shows Its Maturity

Third quarter results have been posted and the fourth quarter is set. There are even some indications regarding the outcome for first quarter 2007 performance. Dedicated foundries have always provided a window to the next quarter performance through their visibility of orders and business activity.

Chartered, TSMC and UMC all expect a slower fourth quarter. Lower revenues will be a result of lower wafer shipments and/or lower ASPs compared to Q3 2006.

TSMC expects revenues to be down 8%-10%. TSMC believes the inventory correction for computing that started in the second quarter 2006 is over but the cell phone market adjustment which started in Q3 2006 and will flow through to the first quarter 2007. Chartered expects revenues to be down approximately 5%, while UMC expects to see shipments down by 2-3% and ASPs down by 5-6%.

Of the top four dedicated foundries, SMIC is the only company setting guidance for fourth quarter higher than third quarter. It's only a 1-2% increase but that's better than a decline. Smaller foundries such as Vanguard and others expect to see continued growth through 2006 and into 2007. Vanguard is guiding up 20%.

Nintendo: It has the Power

Nintendo recently announced a financial report showing a rise in revenue over last year by 70%. This is mostly attributed to the DS Lite, a handheld console that has been driving change in the gaming market. The DS Lite is different from other devices since it boasts two screens, a touch screen and a normal screen. The DS Lite's main competitor is the Sony's PSP, a handheld console with a larger screen and better graphics abilities.

The DS Lite has sold over 10 million units for the first half of 2006, up from 3.5 million units last year. Regionally, about half of that went to Japan, 20% to the Americas, and 30% to the rest of the world.

Due to the increase in DS Lite sales, Nintendo is increasing their sales forecast to 20 million units by March 31st, up from 17 million. Meanwhile, Sony has lowered their shipment forecast to 9 million units from 12 million.

Semico Spin

Both the popularity of the DS Lite and the lagging sales of the PSP are not surprising. While the PSP has stunning graphics and a larger LCD screen, its game line up has been lacking since its release. The DS Lite however has created a new way to play games with its touch screen, and has also lined up a variety of games that appeal to every age group.

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