I haven't reached the conclusion that this downturn is as severe as in 1996. I don't have links to specific posts/articles but I think it was Carl Johnson (it may have been Leman Bros.) who noted in one of his more recent news letters that fab capacity is higher today than it was during the 1996 downturn.
I will not dispute the fact that ASPs have fallen dramatically, which is the reason for the slump in chip maker's revenues/earnings. The implication here is that even a slight increase in chip demand will translate quickly into capacity expansion.
Now I don't pretend to believe that chip makers and semi cap equip companies have a rosy outlook over the near term. What is most concerning (not to beat a dead horse) is the situation in Asia. The belief that the U.S. economy can muscle its way through a tough period without Asia is absolutely ludicrous. If nothing else the decline in consumer confidence following all the announcements of layoffs (or job loss through attrition) at INTC, MOT, etc. will weigh heavily on our economy.
Factors outside of the U.S. will have significant impact on our future. If Japan tries to export its way out of its current economic mess, it will force other countries to devalue their currency (either voluntarily or through market action), which will make it harder for Pacific Rim countries to purchase American goods/services. Without an expanding market for computers, networking equipment, internet access equipment, telecommunications equipment, etc. all those things that have high chip content, the semiconductor industry will remain in a slump. And, as long as ASPs are depressed, chip makers will not upgrade or increase capacity in a significant way.
That being said, this is not a situation that will correct on its own. I don't foresee chip makers pulling themselves out of a situation that has its roots in general economic conditions (global economic slowdown and decelerating demand for goods) versus a simple over supply condition like we had in 1996 where there was just too much capacity in the chip making industry alone.
Does this mean that I think the market is going to collapse? No, but what is most pertinent here is to keep our eyes on the factors that will reverse the current slump in the industry - Japan and the other Asian economies. When we see some positive signs here, that will signal a turnaround.
What about product transitions? Will the rest of the world upgrade to Windows 98 and NT5 if they can't afford to? I don't know, you tell me. What we need is some new paradigm shift in software that will drive the next mass computer upgrade. Software drives hardware. Why buy a new computer if the one you have works fine? Yeah, computers only make up a portion of the semiconductor industry but look at DRAM and processors and how important these makers are to the perceived health of the industry.
Who will transition to 300 MM wafers if not the DRAM makers? Who will transition to .25um geometries if not Intel and MU? A mass upgrade in computers will quickly end the oversupply in DRAM and improve the overall health of the industry for chipmakers and equip suppliers alike.
I know this sounds trite, but maybe the internet will drive the next upgrade as the computers transition from a tool to run software to a communication device that can link people up with the rest of the world. New features such as video, digital imaging and DVD may be the next driver in the industry. People will need a device that can display and process graphics quickly so they can send video e-mail or a picture album of their kids to their grandparents, or, download a movie from a media provider. These kinds of things will demand processor speed, memory and disk storage, and, will force people to upgrade.
Enough of my rambling. SFAM is a great company with enough cash to ride out a downturn. CMP is an enabling technology for die shrinks and disk drive makers. If the global economy continues to slip into recession in Asia and closer to recession here in North America, none of the SFAM's great qualities will matter. |
