I think the cyclical complacency has gone far enough.
Semi-equips are capital equipment suppliers with a very large multi-billion $ product, a fab. In the past, in spite of constant secular unit volume growth of their customer's output, chips, over-capacity lowered chip makers prices, profits, and their willingness to buy new equipment. Over-capacity did not last long in the face of constant demand growth and the up cycle began. Because of the large quantum nature of fabs, downturns and upturns accelerated rapidly.
Today, we are not faced with normal cyclical behavior. The drivers of chip consumption, PC and networking, have had tremendous growth due to Y2K and the dot com bubble. This growth has created an infrastructure that exceeds the demand for it. Forecasts are for flat to negative growth in both PCs and networking gear for an unknown duration. This means that chip demand is flat to negative and equipment purchases by chip companies may approach zero for capacity buys. Technology buys will continue from financially strong chip companies but they will decline as the downturn persists.
In conclusion, to paraphrase and modify a well known saying, when CSCO et. al sneezes, chip companies catch the cold , and semi-equips get pneumonia.
I will buy in the face of all this, but not with complacency. |
