David,
Unless the DVD titles become as cheap as VCD/SVCD titles, the DVD player in China
can not be as popular as VCD/SVCD players. And the DVD title owners simply won't
allow that to happen. The Chinese government, on the other hand, will crack down
on the counterfeit of DVD titles, believe it or not, they will do it.
This following EE Times article casts a dark cloud over the PC industry for 1999.
Hopefully the SVCD/DVD/VCD market in China is immuned.
Steve
****
Analysis: For '99, Asia still casts clouds over
chip forecasts
By Margaret Quan and Yoshiko Hara
EE Times
(12/29/98, 5:54 p.m. EDT)
NEW YORK ¡X A recent report from the International Monetary Fund and
reports emerging from Japan and Taiwan indicate continued weakness in the
semiconductor industry. The signals could presage a year of sluggish growth
at best, though analysts are still split on their projections.
In its World Economic Outlook, the IMF trimmed its forecast for global
growth to 2.2 percent for 1999, down from the 2.5 percent forecast in
September. The group highlighted such risk factors as a possible slowdown
in the U.S. economy in predicting that growth this year would come in at half
the tally for 1998.
In Japan, projections for a slight upturn in electronics production this year are
being undercut by a belief the restructuring steps take by the government
and the major electronics conglomerates have not gone far enough. And
Taiwan's two top semiconductor foundries reported that utilization rates fell
marginally in December, further signaling that 1999 is getting off to a slow
start.
There's been "a little too much optimism about a turnaround," said Dan
Scovel, an industry analyst in equity research at Fahnestock & Co. (New
York). "It's clear that the industry bottomed in August, but the question is
when the recovery will take hold. . . . "If it happens sooner than later, it'll be
a good year. If it happens later, it'll be a crappy year."
The short lead times for many parts have narrowed analysts' window of
visibility into the market's future, Scovel said. It's not clear whether the price
pressures that have lifted for commodity products in the past few weeks will
return at some point to batter the market, he said.
Given the continued economic weakness in Asia, key semiconductor
markets aren't likely to strengthen until mid-1999. As a result, the
semiconductor market will continue to confront foundry oversupply for the
next 18 months, and the DRAM glut could persist until mid- or late 2000,
said Joe Grenier, vice president and director of semiconductor device
programs at Dataquest Inc. (San Jose, Calif.).
While most market researchers predict a turnaround in the second half,
forecasters are all over the map in their predictions for the new year.
Dataquest predicts an 11.8 percent increase in chip sales for the year. The
Semiconductor Industry Association (San Jose) is more conservative,
forecasting 9.1 percent growth. The World Semiconductor Trade Statistics
organization expects 6.6 percent growth in 1999. Integrated Circuit
Engineering Corp. (Scottsdale, Ariz.) predicts IC sales growth will be flat; its
Scottsdale neighbor, IC Insights Inc., estimates growth at between 5 percent
and 15 percent, depending on which of three envisioned economic scenarios
pans out.
Clearly, Asia remains a flashpoint. The Electronic Industries Association of
Japan (EIAJ) projects that the country's total electronics production will
grow 2 percent over 1998. But last year saw the total production value of
Japan's electronics industry drop by an estimated 6.2 percent from 1997 as
the domestic economy endured its worst recession since World War II.
To jump-start the flagging economy, the government plans a 16 trillion-yen
economic revitalization program. But some say that the program is not
drastic enough and that it relies too much on tax cuts, which would saddle
future generations with debt.
A 4 trillion-yen tax cut will have some impact on personal consumption but
won't kick in until annual employee bonuses are paid in the early summer,
said Yoichi Morishita, president of Matsushita Electric Industrial Co. Ltd.
"Government investment . . . won't have enough effect to stimulate the
economy," he said.
Japan's giants project their semiconductor divisions will log red ink for the
fiscal year that ends in March, mainly because of DRAM price erosion.
Such companies as Hitachi Ltd.-which forecasts a roughly $1 billion
operating loss-and Mitsubishi Electric Corp. say they have drastically
restructured their operations to weather the downturn.
But semiconductor analyst Michito Kimura at International Data Corp.
Japan believes the moves haven't been drastic enough. Whereas"Texas
Instruments withdrew from the DRAM business by completely disposing of
fabs," he noted,"Japanese companies, in most cases, maintain fabs after
reconstruction. When fabs remain, the most costly personnel expenses
remain."
Indeed, Japan's giants could be ill-positioned to take advantage of the
DRAM supply/demand ratio's projected return to balance later this year,
analysts said. DRAM demand "will surpass supply by the end of the second
quarter or the third quarter for 16-Mbit DRAMs and by the end of third
quarter for 64 Mbit DRAMs," said Masahiro Suzuki, a senior industry
analyst at Dataquest Japan K.K. But Japan's major DRAM vendors have
almost given up the production of 16-Mbit DRAMs, shifting those lines to
logic chips.
"There are no companies [in Japan] that can increase production of 16-Mbit
DRAMs," said Suzuki. And nearly two years' worth of budget cuts may
make it difficult to ramp production of 64-Mbit DRAMs as well, he said.
NEC, the largest producer of DRAMs in Japan, has established monthly
production levels of 10 million units for 64-Mbit DRAMs. But the company
is focusing its DRAM growth efforts on advanced 128-Mbit parts, with a
target of 5 million units per month by year's end.
At the same time, analysts warn, too many vendors have crowded the
fledgling Japanese market for systems-on-chip, sparking a price war for
highly integrated parts. "Unless the market grows at about 25 percent per
year, the R&D cost for a systems-on-chip cannot recouped," acknowledged
Susumu Koike, director for Matsushita's semiconductor business.
Meanwhile, reports from both Taiwan Semiconductor Manufacturing Co.
(TSMC) and United Microelectronics Corp. (UMC) point to a slight
downturn for early 1999.
November sales figures from TSMC were down 24 percent from November
1997. Fab utilization for October and November was up to about 70 percent
because of the Christmas rush, but sources at TSMC said December's
utilization slid to about 65 percent.
The same pattern was seen at UMC, where fab utilization of about 80
percent in October and November dipped to 75 percent in December.
Taiwan's fabs currently have cycle times of about 45 days from the
beginning of wafer fabrication to final test. Thus, how Taiwan's foundries
fared in November and December points to how strong IC and PC
production will be in early 1999.
One bright spot in the Taiwanese foundry scene is strong demand for
leading-edge process technology. "At our newest fabs, we are basically fully
loaded," said Jon Wu, deputy director at UMC. UMC joint venture United
Semiconductor Corp. currently turns about 7,800 wafers per month at 0.25
micron and below.
"Foundry capacity at 0.25 micron and below is at a premium now," said
Richard Chang, president of Worldwide Semiconductor Manufacturing Corp.
"We are fully loaded at our current level of 7,000 wafers per month. We
expect to continue ramping up at about 2,000 to 3,000 wafers per month."
But the equipment outlook for this year is mixed. TSMC, for one plans no
pickup in equipment buys this year. "Our equipment purchase budget for
1999 is flat," said Rick Tsai, executive vice president for operations at
TSMC. "We aren't looking to increase our equipment purchases until 2000."
Indeed, a broad and continuing decline in capital-equipment expenses has
some analysts worried. In December 1997, capital spending for the year hit
a high of 28 percent of IC sales, a figure that set the industry up for
overcapacity, a chip-supply glut and attendant price erosion. Researchers
estimate capital spending fell to 21 percent of IC sales by December 1998
and will continue to fall this year, to 19 percent of sales-a level some
researchers think will set the stage for a tight inventory situation in late 1999.
Scenarios and dart boards
"A couple of months ago, I was bullish on 1999 and projected capital
spending would be up 10 percent," said George Burns, president of Strategic
Marketing Associates (Santa Cruz, Calif.), which monitors the market for
fab gear. "But as I look at the slowness of the industry's recovery and the
fact that companies are doing technology upgrades rather than building new
fabs, I changed my prediction to a 3 percent decline in spending in 1999."
Burns expects a second-half uptick in fab spending, but he doesn't believe it
will be strong enough to have a positive affect on the full year's results.
"We're in a period of tumultuous transition," Burns said. In particular,
"Japanese companies are in a lot of pain and have no resources to add
capacity or build fabs."
Analyst Bill McClean at IC Insights is more bullish in his view of the overall
chip market. McClean uses fourth-quarter 1998 chip sales, which he says
grew 13 percent growth over the previous quarter, as his barometer. "If you
figure that business holds steady with fourth-quarter '98 levels for the entire
year in 1999, we can expect 10 percent growth in '99," he said. "As it is, we
expect a slight decline in the first quarter, with a pickup in business through
the end of 1999."
But that projection is based on the most likely of three possible scenarios
McClean sketches out for 1999. His underlying assumptions include
worldwide gross domestic product growth of between 2 percent and 2.5
percent and an improvement in Asia's economies late in 1999.
The scenario-based approach belies the deep uncertainty shared by market
analysts as they as they survey the clouded horizon. That uncertainty was
reflected in a recent presentation by chief executive officer Ron Leckie of
Infrastructure (Saratoga, Calif.), which tracks the market for fab equipment.
The visual theme for Leckie's most recent presentation: a dart board.
"We need demand-we need to have pull, so that factories fill up and thus
become more efficient, and then the industry buys more tools," said Leckie.
"Without that pull in demand, I am nervous."
--Additional reporting by Mark Carroll |
