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Politics : Formerly About Applied Materials

AMAT 262.30

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10:38 AM EST

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To: Gottfried who wrote (58253)	12/30/2001 3:14:01 AM
From: Jeffrey D	Read Replies (1) of 70976

Gottfried, semiconductor analysis from the Financial Times. Best regards, Jeff <<Semiconductors The best that can be said for the semiconductor industry is that it is past its worst. After a year when global chip sales fell by 30 per cent and D-Ram producers sold below cost, volumes and prices have started to firm. The inventory correction seems over. Capacity utilisation has probably bottomed at about 60-65 per cent, and should slowly recover as strong volume growth (boosted by low chip prices) erodes oversupply. But this thin gruel is not enough to justify the near doubling of chip prices since late September. It is not yet clear that stronger pre-Christmas sales represented sell-through to end customers rather than a short-lived rebuilding of inventory by personal computer makers. Investment, though cut back, remains too high for one to be confident that pricing power will return quickly. Industry capital expenditure in 2001 was a third higher than in 1999; even in 2002 it will be only a fraction lower. Process improvements alone should boost D-Ram production by 40 per cent in 2002; consolidation is yet to materialise. Moreover, it is hard to argue that investors should automatically buy the turn of the cycle when valuations never reached trough levels in the first place. At its September 21 low, the sector was trading on roughly 2.5 times forward sales, compared with 2 times in 1998; it now trades on 5 times sales. Unless end markets pick up, operational momentum will not live up to such high expectations. globalarchive.ft.com

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