More on the KLIC "slowdown":
Is the Sky Falling?
Analysts, tool makers say no
By Jeff Chappell
One would have thought the sky was falling on the
semiconductor industry last Thursday morning as
technology stocks dropped, with semiconductor capital
equipment shares leading the way.
Chicken Little must be an investor.
Assembly equipment company Kulicke and Soffa Industries
Inc. (K&S) Wednesday evening announced that it
experienced some customer order deferrals and pushouts
for ball-bonder tools because of space constraints and
wafer and substrate shortages affecting certain
customers.
"We hope no one overreacts to this news," said C. Scott
Kulicke, the company's chairman and chief executive
officer.
But overreaction is exactly what happened according to
analysts and other equipment manufacturers.The K&S
announcement, coupled with reports that Motorola Inc.
would reduce its projection of demand for wireless
handsets, prompted already nervous investors to sell off
technology stocks Thursday.
On Thursday as of noon EDT, the tech-heavy Nasdaq index
had lost 22 points, or 0.61 percent, falling to 3,635
after dropping more than 3 percent earlier in the day.
Even the consistent performers in the capital equipment
industry weren't immune; Applied Materials Inc. was down
$3.56 and closed at $69 per share. The Nasdaq rebounded,
however, to close at 3,750, up 101 points.
While many chip stocks, including chipmakers IBM and
Intel, ended Thursday on positive notes, equipment stocks
remained tepid. The Semiconductor Equipment and Materials
International (SEMI) index of equipment companies ended
the day down more than three points. Technology stocks in
general seemed to be holding their gains on Friday—the
Nasdaq was up more than 14 points as of 12:45 p.m. EDT.
Equipment stocks, however, continued to be lukewarm; the
SEMI index was down another 1.5 points.
No Cause for Alarm
Technology and financial analysts said investor reaction
had to do with mixed signals in the marketplace, and not
the analog/digital kind.
On one hand, there was the K&S announcement, the Motorola
announcement, and recent reports from some companies that
near-future earnings may not be as high as predicted. But
this tends to be typical for second-quarter reports
during the summer, even during an upswing. Furthermore,
many companies are posting record earnings and aren't
experiencing the traditional summer slowdown. Also, the
Semiconductor Industry Association (SIA) last Thursday
reported that world semi sales had topped $16.6 billion
in June, a 48 percent year-to-year increase over June
1999 and an all-time record.
"(The SIA) figures are through the roof, which indicates
the industry is as good as it can get, and every time we
say that, it gets better," observed Risto Puhakka, vice
president of VLSI Research Inc. He added that the stock
price of chipmakers doesn't seem to be getting stronger,
however, and some have even declined recently. "We have a
lot of mixed signals from the marketplace," he said.
"The basic thing is that the industry is at full swing,
and you see shortages here and there," Puhakka said. As
for sensitive investors and bouncing stock prices,
everyone is trying to figure out where it's going to peak
and how soon, he added.
Several analysts noted that assembly equipment companies
have much shorter lead-times on orders than front-end
tool makers, and that they are the first to feel the
effects of a downturn because the assembly industry
closely tracks the chip industry in general. This may
have been part of the reason investors reacted the way
they did, said Dick Greene, principal equipment analyst
with SEMI.
"I haven't seen anything in our data that reflects any
particular signs of a downturn," Greene said.
S.G. Cowen Securities Corp. analysts concluded that the
reasons behind K&S's announcement were essentially the
same reasons behind Teradyne Inc.'s previous announcement
of lower than expected quarterly earnings, said Tia-min
Pang, managing director and equipment analyst.
Pang said that K&S revealed in a conference call Thursday
that a Taiwanese subcontractor was primarily responsible
for the order push-out because of space constraints at
its facilities. Looking to other customers to fill the
vacant slots, K&S discovered that other subcontract
accounts had tempered their outlook, taking a more
conservative approach to near-term spending, Pang said.
The company indicated that most of these customers are
located outside of Taiwan and for most, the issue is a
lack of finished wafers from their foundry fab partners,
he added.
This was consistent with Teradyne's announcement that
customers in Korea and Singapore had eased spending
because the number of available finished wafers was less
than anticipated, according to S.G. Cowen. The firm
concluded that Teradyne and K&S share a mutual customer,
Amkor Technology, that contributed to both companies'
announcements. Amkor reported quarterly earnings
Wednesday night. The packaging and test company said that
its fab utilization rates were 75 percent, which could
mean one of three things, according to Pang. Either Amkor
experienced a lack of wafers to test and package during
the quarter, lost market share to its Taiwanese
competitors or Amkor and Teradyne's specific market
segment is experiencing softness, Pang said.
"In digging deeper, it appears to be customer-,
(geography-) and chip-application-specific," Pang
concluded. "We're not seeing it anywhere else, just these
two companies."
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