Analyst Predicts Another Year Of Woes For Chip-Equipment Makers
Dow Jones Online News, Friday, September 18, 1998 at 10:03
By Dean Takahashi, Staff Reporter of The Wall Street Journal
SAN JOSE, Calif. -(Dow Jones)- Makers of semiconductor-manufacturing
equipment are headed for more trouble, a prominent analyst predicted at
the industry's annual forecast dinner.
Brett Hodess, an analyst at Montgomery Securities, said weakening
orders for about 25 equipment makers will cause many of them to fall
short of current earnings estimates in the third and fourth quarters. He
predicted industry revenues will be down 10% to 20% next year, compared
with his firm's estimate of a 26% drop in 1998.
"We have never had two years of double-digit declines like this,"
Hodess said in a speech sponsored by the Semiconductor Equipment and
Material's Institute Wednesday night. "It looks as if there is another
year of pain ahead of us."
The Mountain View, Calif., trade group doesn't forecast itself, but
chose Montgomery analysts to present their conclusions. But Elizabeth
Schuman, an analyst for the Semi group, concurred that industry sales
will drop at least 20% this year based on the actual results so far.
Most equipment stocks have been pummeled this year, with many companies'
stocks down about a third compared with the start of the year.
Some analysts aren't as pessimistic as Hodess. Dataquest Inc., an
influential market-research firm, predicts a small increase in sales
next year. Gus Richard, an analyst at Hambrecht & Quist, still thinks
next year's orders will be flat, but agrees that orders have weakened
lately.
"The upturn I anticipated isn't materializing," Richard said. "Orders
have weakened in the last 30 days."
The negative outlook contrasts with some recent positive signs among
companies that make chips and buy production equipment. Intel Corp.
(INTC), the world's biggest chip maker, announced last week it expects
sales to be up 8% to 10% in the third quarter compared with the second
quarter.
Another Montgomery analyst, Jonathan Joseph, said during the dinner
that he believes a downturn in the chip market is bottoming out. William
McLean, analyst at IC Insights in Scottsdale, Ariz., estimates the
industry will post a 10% gain next year compared with a 9% decline this
year.
But equipment companies are lagging behind. Hodess said that Korean
companies nearly have stopped buying new equipment because of cash
problems and that the overall imbalance in supply and demand still is
plaguing companies. For instance, Taiwanese chip makers known as
foundries, which make chips for other companies, are running at 40% of
their production capacity.
George Burns, an analyst at Strategic Marketing Associates in Santa
Cruz, Calif., estimates about $18 billion in plants and equipment
additions have been deferred, canceled or closed this year; Motorola
Inc. (MOT) this week said it was halting work on a $3 billion chip plant
in Virginia.
James Morgan, chief executive of No. 1 equipment maker Applied
Materials Inc. (AMAT), declined to comment on the status of orders. But
the company is in the midst of reorganizing its business and making
cutbacks in order to weather the downturn.
"I don't think anybody knows how things will turn out," Morgan said.
"We're just trying to sell one machine at a time. It's tough right now
but it's bottoming out. We are investing to be there for the upturn."
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