Answers About Strategic Manufacturing

Last year, Alliance made a number of substantial investments in wafer manufacturing facilities, including an equity investment with Chartered Semiconductor. In addition, Alliance and several other partners entered into foundry venture arrangements with UMC-a manufacturing partner with whom we've worked closely for four years-to build state-of-the-art 8-inch wafer fabs in the Pacific Rim. One of these facilities is in production today, while the other is slated to come online in 1998.

There are several reasons for adopting this equity investment strategy for wafer manufacturing. While Alliance will continue to contract much of its manufacturing to independent suppliers, partial ownership of facilities is designed to ensure that we'll have capacity during the periods of strong demand that occur with regular frequency across the semiconductor industry. Our equity position also gives us an added measure of control in our manufacturing operations-an important consideration now that we've diversified and expanded our product offerings. And finally, these equity investments are enabling Alliance to enjoy the benefits of a wafer fab without entailing the huge investments required for sole ownership of a state-of-the-art manufacturing facility.

Alliance's complex and innovative design approach enables us to create high-speed memory products at increasing densities while continuing to use a process that is substantially simpler than that of many of our competitors, which typically require a greater number of mask steps and metal layers to achieve similar product performance. Because yields typically decline as manufacturing complexity and the number of process steps increase, Alliance's approach is designed to provide higher yields that translate into more cost-effective production. In addition, our simpler process also helps to reduce manufacturing cycle times, which in turn can enable us deliver our products to market faster than many of our competitors.