Chip, Chip Hooray
David Manners
Despite the blows from the NASDAQ, Dow Jones, FTSE and Philadelphia Index, the semiconductor industry is upbeat. And with reason—full order books, many products on allocation, rising prices and clamoring customers all make for a happy end to a tumultuous year.
Atmel is typical among the semiconductor companies. "We're on allocation for many major products. Everything is sold out six months ahead," said Jeff Katz, Atmel's vice president of marketing.
"The up-cycle will continue for the next three years," said George Perlegos, Atmel's chief executive officer.
The management at STMicroelectronics agreed with him. "When we reported our third-quarter results, we said we saw a strong fourth quarter—growing on the third quarter—and that we see 2001 as another strong growth year with growth of 25 percent to 30 percent," said Pasquale Pistorio, CEO of STMicro. "We said that one month ago, and we see no reason to change our forecast."
"We made capital investments of $950 million in 1998, $1.5 billion in 1999 and $3.2 billion in 2000—the third largest after Intel Corp. and Taiwan Semiconductor Manufacturing Co.," Pistorio added. "There are two reasons why we have confidence: demand is very strong and will be strong for the next 10 years (we are just at the beginning of the e-commerce era); secondly, supply. The normal capital expenditure level of the industry is 23 percent to 27 percent of sales. If we spend below that, there's shortages; if we spend above that, there's over-supply."
Pistorio said that last year STMicro spent less than that 23 percent to 27 percent on capital expenditures, but "this year we are spending 28 percent, so we're not going to affect the supply situation adversely. I expect we'll see the next slowdown in the second half of 2002," he added.
More words of agreement rolled in from the president and CEO of Motorola Semiconductor. "The fundamental issue is that the semiconductor market will grow 40 percent this year. Some people have too much inventory, which affects the market temporarily, but resales are strong through distribution. We have to be cautious for a few weeks," Fred Schlapak said.
Shlapak projected a 2000 semiconductor market worth $212 billion and a 2001 market worth $250 billion. He pointed out that Moore's Law remains a formidable driver of decreasing cost per function. "The 0.13-micron technology gives us 200,000 gates per square centimeter of silicon; in 18 months' time that's 350,000 to 400,000 gates, and 18 months later it's 600,000 to 800,000," Shlapak pointed out.
Moreover, a lot of the products produced through this capability are system-on-a-chip (SOC)-type products, which typically are sole-sourced and priced to value as a consequence.
If the bustling halls and aisles of the Munchen Messe in Munich, Germany, at the recent Electronica 2000 tradeshow are any evidence, then the stories of STMicro, Atmel, Motorola, Analog and IR are nearer to the industry's mood and the state of the industry than the pessimism shown by the stock market. So why the market gloom? It all goes back to that curious tribe once described by Nigel Lawson, former Chancellor of the Exchequer, as "teenage scribblers"—stockbrokers' analysts. Analysts tend to work to logical models rather than market feel. They look for trends and patterns. Theirs is the view from the ivory tower. Moreover, they like to publish views that will churn, or encourage people to buy and sell stock, because stockbrokers make their money from taking a commission on the churn.
Echoing Lawson, Steve Hanson, president and CEO of ON Semiconductor, said, "As long as 23-year-old analysts spit out bad stuff, there's a problem with market perceptions—if they only realized the explosion happening in electronics!"
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