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Interesting information from Intel about their capital expenditure budget and how it fits in with the larger or longer term picture.

Although the Cap-Ex spend for 2003 will be around $3.7B which is down from 2002, 50% of that budget will go for fabrication equipment and 90% of that 50% will be solely directed at being the leader in the industry at converting to the new wafer 300mm equipment. Intel's management called this "not normal" cap-ex spend with regards to the longer term trend as this one devotes so much to upprading to a new technology. Although the headline states "cap-ex cuts", one has to look behind exactly what it is that is being cut and where the money is going. It's actually focused on new fabrication capital equipment for the new wafer size. The longer term result of that is that they actually spend less money on equipment going forward because the equipment they are converting to can get more chips out of the larger wafer size for the new products - yet, they will be able to meet the demands of any upturn because the equipment can produce more than the current generation of equipment. Better technology at less cost. Nobody else in the industry has made this conversion (according to Intel), so they are being very pro-active by targeting this cap-ex at the new 300mm wafer equipment by being the first. Once the leader in the chip industry makes the move, it will see the followers of the leader being forced to upgrade as well.

All of this is in tandem with the words coming out of management at Applied Materials with regards to the industry move to 300mm wafers. So in watching Intel, the other chip makers and the cap-ex equipment company leaders such as Applied Materials, KLA-Tencor, Novellus, etc... it will be interesting to see the evolution of the new wafer size equipment being sold and which chip makers move into that arena and how well they make that transition. Intel claims to be throwing down the gauntlet in the pro-active, first mover advantage to put them into a good position for any demand pick-up once it comes at a cost cutting measure of less equipment (better technology) for producting more output. So in this particular example of the upgrade cycle about to hit the chip industry in terms of capital fabrication equipment, the driver is a more efficient way to make the new technology chips via less capital equipment.

I just mention this in relation to the previous posts concerning how the Big 5 are on a health basis as an example of how one of them is positioning themself for the future. Outside of that, I think Intel's management did a nice job of conveying the message that economic conditions have been horrible, depressed and challenging which is no surprise to anyone at this point in time. They also did a nice job of conveying the message that they are positioning themselves quite well for the future. This again, ties in well with the previous posts concering the Big 5.

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