Forget the recovery, analysts wonder if bottom will hit in Q2 or Q3
By J. Robert Lineback
Semiconductor Business News
(03/19/01 13:30 p.m. PST)
NEW YORK -- During the start of the annual SEMInvest conference here today, Wall Street analysts and semiconductor equipment executives groped for the bottom of the industry recession. All they could come up with was antidotal evidence that suggests the worst of the worst may soon be over.
If so, hopeful executives believe the bottoming out of the surprising downturn could be as close as May or June. Most speakers indicated that they are not looking for measurable improvements until the August-September timeframe.
Several industry segments are still in a tailspin--in particularly pure-play silicon foundries, said analysts presenting at the New York City conference. "Production overall will be slower in the second quarter, and capacity utilization at foundries will be in the 40-to-60% range by April compared to 100% in the fourth quarter of 2000," said analyst Ali Irani of CIBC World Markets in New York.
During his opening remarks at the conference, Irani said the world's largest chip foundry, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), was now "closer to 70%" and No.2 United Microelectronics Corp. (UMC) "closer to 60%," while the fourth largest foundry--Anam Semiconductor Inc. in South Korea--was running at 42% capacity. But the deeper the inventory-driven recession goes, the more likely a recovery will take shape in the fourth quarter, he said.
Overall, chip sales will end up "contracting" by 22% in the first quarter from the fourth quarter, Irani said. Officially, the CIBC researcher team is calling for a 15% drop in worldwide chip sales to about $175 billion in 2001 from $204 billion in 2000. Irani's current forecast shows semiconductor sales rebounding by about 17% in 2002, back up to the $205 billion range.
But Irani said there is a good chance that his 2001 forecast will be lowered to a decline of 20-to-25%, based on new input that shows the second quarter being worse than Q1 revenues. In an interview at SEMInvest, after his presentation, Irani said he still believes month-to-month sequential growth in chip sales will begin late in the third quarter--most likely September--partly with some help from seasonal-growth factors.
While the bottom of the slump remains uncertain, there are suggestions that the worst may soon be over for some waylaid tool segments--in particular backend chip-assembly and test equipment, according to analyst Robert Maire of Bear, Stearns & Co. Inc in New York. He told the SEMInvest lunch crowd today that the "backend book-to-bill looks like it is beginning to bottom out" from its steep six-month drop.
Based on recent visits at Asian manufacturers, Maire said it now appears that the backend assembly segment might start showing signs of improvement in the second quarter. The wafer fab equipment segment is lagging the backend tool sector in the downturn by about three to six months, he said. The frontend wafer tool markets could reach the bottom of the slump in the second or third quarter, Maire suggested.
"The backend will bottom out sooner because it is more unit drive," he told attendees at the conference, which is sponsored the Semiconductor Equipment and Materials International (SEMI) trade group. Maire said this downturn is a rare unit demand-driven slump, unlike most of the industry's recessions that were caused by too much capacity.
"A funny thing happened on the way to excess capacity--demand dropped," he said. Maire, like most of the speakers at SEMInvest today, said the economy more than anything else will play the biggest role in determine whether or not a full recovery begins by the fourth quarter.
This cycle is also different from others in that it reflects a fundamental change in what's driving chip sales--consumer buying vs. business investments of past, said the Bear Stearns analyst. That means consumer confidence in the economy will be a larger factor in chip and equipment sales, he said. That change "snuck up on us," said Maire, referring to investors as well as chip executives.
In Asian, chip makers are "not spending a penny on 200-mm [fabs] because everyone sees 300-mm as cost savings." The largest chip makers in the Asia Pacific region told Maire that they expect to cut their production costs by 30% using 300-mm fabs, once the business recovers.
But most analysts and industry managers are preparing themselves for things to get uglier before the bottom of the slump finally hits.
"Don't be surprised when you see the [semiconductor equipment] bookings 50-to-60% off on a year-to-year basis by the end of the year," warned analyst Carl Johnson, president of Infrastructure, during an overview of the industry.
But those kind of ugly numbers are needed to show the bottom has been reached, and it's time for investors to return to the semiconductor and capital equipment sector, he told Wall Street analysts and U.S. investment bankers. |
