Predicting The Unpredictable Semiconductor Cycle
"Soft" period predicted for next twelve months.
Recent events reinforce quantitative forecasts, issued more than one year ago, that the Semiconductor Industry would enter a "soft" period in the second half of 2000 and beginning of 2001.
Since early 1999, and against the industry's sentiment, Advanced Forecasting, Inc. (AFI), a Cupertino, California-based forecasting firm for the semiconductor and related industries, has predicted that demand for semiconductors would encounter a slower growth rate during the second half of 2000. Contrary to most other forecasters who fell into the common trap of extrapolating the strong IC growth (that began in mid 1998) into the future, as far as 2003, AFI has been alerting its readers of such extrapolations and the danger of building excessive capacity to match the inflated demand. Taken directly from AFI's monthly publication dated March 10th '99: "The (IC) Cycle Forecast indicates the early signs of a plateau forming in Q3-2000. Until then, our forecast expects the IC Industry to climb steeply," and from AFI's May 10th '99 publication: "Our long term forecast indicates a change in direction for the second half of 2000, from a strong to a moderate growth rate."
Recent industry news and the stock market's backlash indicate that the semiconductor industry is reaching a state of over-capacity due to capacity buildup that was based partially on "wishful thinking". It seems that AFI's quantitative forecasts are being realised, again. Early negative signs clouded the declarations of record revenues for the third quarter, including: an announcement of push-outs from a large supplier of equipment, lower than expected quarterly sales from manufacturers and retailers of consumer electronics, increasing skepticism regarding PC unit growth rates, and weak reports from top telecommunications companies doubting the true demand for communications equipment, which has fuelled the latest IC boom.
Though the equivalent of 50 new fabs is expected to go online around the world in 2001, North American suppliers of semiconductor capital equipment just reported a decline in orders for September. "For quite a few months we have warned that semiconductor equipment bookings have over heated during the first half of 2000 and now, as anticipated, the industry is experiencing signs that may indicate a forthcoming change in direction sooner than other sources have expected," states Dr. Moshe Handelsman, President of AFI, adding that "extrapolation now is dangerous because although demand will not disappear, it will slow while supply is geared for larger demand evolving into over-capacity."
Being responsible for very early industry warnings of changes in direction is not new to AFI. In July of 1998, Advanced Forecasting, Inc. was the only firm to call the bottom of the 1998 IC Industry recession, about four months before other industry analysts made the same call. According to David Crume, AFI's Sales and Marketing Director, "Advanced Forecasting was the only firm in mid 1995 to go against the prevailing sentiment of `no more silicon cycles' and call the downturn of 1996." Due to its quantitative methodology, AFI's track record has been accomplished without retroactive modifications of its forecasts.
By providing early identification of industry turning points and a check and balance system to traditional sources of subjective information for its clients, AFI hopes to reduce the effects of severe overheating and overcorrecting that have plagued the semiconductor industry for years. AFI offers quantitative forecasts of all ICs and discrete devices, semiconductor equipment (Front-End and ATE), disk drives, PCBs, Fab Capacity Utilization, Wafer Shipments and DRAM ASPs. AFI is the only forecast firm that guarantees its forecasting services with a full refund period since its inception (1987).
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