YEARAHEAD-Little relief for chipmakers in 2001 first half
By Duncan Martell
SAN FRANCISCO, Dec 26 (Reuters) - It's been anything but
merry for semiconductor stocks in the second half of this year,
and the industry looks set for some pretty rough sledding for
the first quarter of 2001.
Disappointing holiday sales of personal computers, too much
inventory among mobile phone makers and a slowing global
economy conspired to make the second half of 2000 dismal. Most
chip stocks are down more than 60 percent from their year
highs.
Because of slack PC sales, many analysts believe Intel
Corp. and its rival Advanced Micro Devices Inc. are saddled
with excess inventory of microprocessors and fear that if they
dump the chips in the market -- instead of writing them off --
it would be disastrous. Outside the PC industry, though, other
chip companies are nearly finished working off excess inventory
and should be in a better position next year. Demand, analysts
say, still looks pretty good overall.
"This, of course, all precludes a recession," said SG Cowen
& Co. semiconductor analyst Drew Peck. "If the economy falls
apart, then all bets are off on any of these semiconductor
companies. But short of a significant recession, the rest of
the industry is actually reasonably well-positioned because
demand looks pretty good."
ROUGH SEVERAL MONTHS
That said, it's been a rough several months for chipmakers.
Among the semiconductor companies that issued profit warnings
for the fourth quarter are: Altera Corp. <ALTR.O>, Cypress
Semiconductor Corp. <CY.N>, Intel Corp. <INTC.O>, Lattice
Semiconductor Corp. <LSCC.O>, LSI Logic Corp. <LSI.N>, National
Semiconductor Corp. <NSM.N> and Xilinx Inc. <XLNX.O>.
"Semiconductor companies are rapidly reducing capital
spending plans in response to higher inventories and weaker
demand," wrote Salomon Smith Barney analyst Jonathan Joseph in
a recent report. "Intel is the latest example of that, with
plans to push out a microprocessor (plant) expansion in Ireland
and Flash (memory chip) pushouts in Colorado and New Mexico."
Others have already joined the chorus. Samsung Electronics
<05930.KS>, the world's biggest maker of dynamic random-access
memory, or DRAM, chips, had said 2001 investment would be
similar to the 2000 level of 7 trillion won ($5.9 billion), but
company spokesman James Chung said in November, "We see a
possibility of reducing our planned investment for next year.
We've become more conservative in dealing with a changing
industry."
Another, Micron Technology Inc. <MU.N>, one of the biggest
makers of memory chips for PCs, on Dec. 20 said it believed
memory-chip makers will spend at a slower rate in 2001. Thomas
Weisel Partners analyst Eric Ross in a report revised capital
spending estimates downward from a 40 percent increase to "20
percent and subsequently to flat based on various negative
indicators within the industry."
EUROPEAN CHIP FIRMS MOSTLY UNSCATHED - SO FAR
Meanwhile, for the most part, European semiconductor stocks
have shrugged off PC-related market woes, because they don't
produce many chips for personal computers. Moreover, they are
not heavily exposed to generic network applications, sales of
which have been hurt by tapering capital spending and inventory
corrections.
Also, France's ST Microelectronics <STM.PA> and
Netherlands-based Philips Electronics <PHG.AS> are primarily
chipmakers for consumer products, telecommunications devices
such as phones and networks, automotive, industrial and smart
cards.
Steady consumer spending in areas such as interactive
television keeps them going, while selected mobile phone makers
such as Nokia <NOK1V.HE>, Siemens and Alcatel <CGEP.PA> also
show business is strong, with no signs of the weakness reported
by Ericsson <LMEb.ST> and Motorola Inc. <MOT.N>.
Of course, this doesn't mean European chipmakers are
immune.
Inventory corrections from more semiconductor customers in
the United States could well affect European companies in the
coming year, analysts said. Another risk is slowing economic
growth and a subsequent fall in consumer spending, which
already is happening in the United States.
WORST NOT OVER
The rather grim outlook comes as the chip industry
recovered from its worst-ever slump last year. For 2000, sales
are forecast to rise a robust 37 percent this year to a record
$205 billion, according to the Semiconductor Industry
Association, led by chips for data networking, broadband,
wireless and optical fiber communication systems.
Growth for next year was initially pegged at 20 percent,
with worldwide sales of semiconductors rising to $249 billion,
but now analysts say that may be too optimistic.
"Due to slower economic growth and an inventory correction,
the semiconductor industry has experienced a significant
deterioration in overall fundamentals," said Morgan Stanley
Dean Witter semiconductor analyst Mark Edelstone.
"Following peak year-over-year revenue growth of 52 percent
in August, rates of change decelerated to 45 percent in
September and 39 percent in October," Edelstone wrote in a
note. "Although the data will not be available until early
February, we believe the growth rate will decelerate to the
mid-20 percent level in December, with 10 percent growth likely
by the middle of next year."
(( duncan.martell@reuters.com // (415) 677-2536 in San
Francisco, with additional reporting by Lucas Grinsven in
London and Michael Kramer in Taipei.))
REUTERS
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