techweb.com
Excerpt:
Plummeting PCs
"Everybody's got strong balance sheets," said analyst Mark FitzGerald of Merrill Lynch (San Francisco). "The management of these companies is so seasoned at this point-this is the sixth or seventh downturn these guys have been through."
Looming large for the equipment makers this time around is the decline
in business from PC-related semiconductor vendors, as it appears that
the industry can no longer bank on consumers replacing PCs every two
years. "That whole strategy is petering out, and I just don't see what's going to replace it," FitzGerald said.
That's critical to equipment firms because 50 percent of their sales
have traditionally come from fabs tied to the PC industry, he said. As
pricing gets tougher, particularly for big-spender Intel, "that's not a good sign for capital spending," FitzGerald said.
In addition, PC demand was down due to oversupply. "People stuffed the
channel-the Compaqs and HPs of the world," FitzGerald said.
FitzGerald believes the oversupply of fab capacity is an aftereffect of the industry's mild slowdown in 1996. After brief worries that the next down cycle had begun, semiconductor sales rebounded strongly in 1997-"came back with a vengeance," as FitzGerald and many others have phrased it. "In hindsight, the industry never should have come back as strong as it did," FitzGerald said. The wave of new construction that followed "exacerbated" an oversupply that was already there, he said.
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