John, interesting article predicts 30% growth in semi's this year.
news.ft.com
Chip shortage threatens global PC production
By Louise Kehoe in San Francisco
Published: May 10 2000 18:17GMT | Last Updated: May 11 2000 05:58GMT
Widespread shortages of semiconductor chips are threatening to slow production of cellular telephones, personal computers and other electronics products over the next 12 months, until chip makers can catch up with soaring demand, according to US market researchers.
"Every chipmaker is scrambling to increase production capacity," said Will Strauss, president of Forward Concepts, a semiconductor market research group, "but demand is outstripping supply."
Semiconductor foundries, which manufacture chips under contract, are fully booked and the chip factories of leading producers are working at full tilt.
Rapid growth in the cellular telephone market, in particular, is creating chip shortages. Some 435m handsets are expected to be shipped this year, with production growing to over 900m handsets by 2003, according to Forward Concepts.
However, shortages of flash memory chips, an essential component, will be "the gating factor", Mr Strauss said.
Flash memory chips will continue to be in very tight supply for the next 12 months, added Bill McLean of IC Insights, another market research group.
Chip shortages, which are already impacting companies ranging from Motorola to Cisco Systems and Hewlett-Packard, will get worse before the situation eases, Mr McLean predicted.
"Shortages will be much worse in the second half of this year," he said, "as PC production ramps up to meet seasonal demand, cell phone shipments continue to grow and video game machine production kicks in advance of the Christmas selling season."
In efforts to keep pace with rising demand chipmakers are re-equipping older production facilities, equipping plant "shells" that had laid dormant during leaner times, and moving to new generations of chip production technology that enable more chips to be scribed on the silicon wafers that are the base material for semiconductor chips.
Chipmakers are also boosting their capital spending to build new plants.
Intel has raised its capital spending to $6bn for this year, while Motorola has increased its spending plans to $2.6bn, from $1.5bn. Industry wide, capital spending is expected to rise by 48 per cent this year to about $50bn worldwide, Mr McLean said.
However, leading semiconductor production equipment producers are also capacity constrained. "Many of the equipment suppliers are booked out for this year," Mr McLean said. "There are no quick fixes to this situation."
Worldwide semiconductor sales are expected to grow by about 30 per cent this year, according to the market researchers, with strong growth expected to continue through next year.
However, by 2002 or 2003, depending upon general economic trends, the chip industry may have surplus production capacity. "The cycle will continue," Mr Strauss said. "Despite predictions to the contrary, the semiconductor industry remains highly cyclical."
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