FEATURE - Semiconductor business looks to new beginning
By Neil Winton, Science and Technology Correspondent
LONDON, Jan 25 (Reuters) - Things are looking up for the battered semiconductor industry.
After years of decline as over-capacity forced prices lower and plants to close, the industry looks set for a new beginning.
Semiconductor chips provide the brain power behind a huge range of devices such as personal computers, mobile phones and industrial process control systems.
With the rise of the Internet and the ubiquity of computers it seems odd that companies at the heart of this business should have hit trouble all. But experts say many chip producers over- estimated demand, produced too many of the wrong devices, or slipped behind technically.
The worst appears to be over. Many experts say a new and powerful recovery has already started.
''We expect positive growth for the whole industry this year,'' said Joe D'Elia, senior analyst at Gartner Group's Dataquest forecasting subsidiary.
The U.S. research organisation IDC shares this view.
''CONSUMERIZATION'' TO BOOST SEMICONDUCTOR DEMAND
IDC analyst Mario Morales said world semiconductor market revenues shrank by more than nine percent in 1998, but should recover in 1999 by eight percent to $134.6 billion.
This should signal the start of a strong recovery, with revenues reaching $232.0 billion by 2003, Morales said.
Morales said in a report that this upturn heralds a new trend in the semiconductor business which he calls ''consumerization.'' Successful chip makers will be those meeting the demands of consumers buying cheaper personal computers, mobile phone handsets, digital cameras, set-top boxes for digital TV, and hand-held computers.
According to a report from stockbrokers Morgan Stanley Dean Witter, the semiconductor industry has been paying the price for over-ambitious spending on new factories between 1993 and 1995.
But recovery has set in and semiconductor companies can look forward to improved profits.
SEMICONDUCTORS RECOVERY ALREADY UNDERWAY
''We believe the semiconductor industry is in the early part of a multi-year cyclical expansion phase,'' Morgan Stanley said.
''Margins should steadily expand as revenues increase and pricing power is re-established in 1999...We believe a new bull market has started to positively affect the semiconductor stocks,'' the report said.
Morgan Stanley raised its price targets on eight companies - Altera Corp, Broadcom Corp, the world's biggest chip maker Intel Corp, Lattice Semiconductor Corp, Microchip Technology Inc, Rambus Inc, Texas Instruments Inc and Xilinx Inc.
''In the near term, our three favourite stocks are Intel, Texas Instruments and Xilinx,'' the report said.
Gareth Williams, market research analyst at Frost and Sullivan, shares the view that the industry has begun bouncing back.
MOBILE PHONES, LAPTOP COMPUTERS DRIVE DEMAND
Williams said that the industry can thank booming sectors like mobile phones and new types of personal computers for this metamorphosis.
''PCs will change a heck of a lot next year. We will see the processing power differential between laptops and desktops disappear. Laptops should have their day as sales will gain considerably,'' Williams said.
Dataquest's D'Elia said the key to success for semiconductor makers is leadership in the production of fast memory products which can be made only in the very latest plants.
D'Elia agreed that personal computers and mobile phones would lead demand, and said companies like Siemens AG of Germany may regret having closed plants during the depths of the recession.
Siemens closed down a microchip plant in Tyneside, northern England, in July 1998, blaming the decision on a collapse in chip prices.
According to D'Elia, they might have hung on a little longer.
''Companies which should do well in this recovery period include Samsung (Electronics Co Ltd of Korea, Japan's) NEC (Corp ) and Toshiba (Corp of Japan), Micron (Technology Inc) of the U.S., and Siemens,'' said D'Elia.
''They made the investment over the past two years in the new manufacturing facilities. Siemens had over-invested in too much capacity, but in 12 months they might regret that Tyneside closure,'' D'Elia said.
On Thursday, reports suggested that Siemens might have found a buyer for the Tyneside facility. Siemens said talks were continuing.
HOME NETWORKING WILL BOOST CHIP USE
The big computer and consumer electronics companies are getting excited about the idea of home networking, where all the various devices in a household are connected up.
A survey from the Yankee Group in the U.S. said about 30.5 percent of personal computer households in the U.S. want to connect devices such as PCs, printers and televisions in their homes so they can be centrally controlled and shared.
According to Frost and Sullivan's Williams this promises to give another huge boost to long-term semiconductor demand.
''We will see increased chip use in the home with digital TVs, home networking and Internet access through set-top boxes, there'll be smart refrigerators which dial up the supermarket when the milk runs out.
''We will be placing our lives in the hands of electronic devices. Let's hope we don't see many cases like that BMW driver who trusted his satellite navigation system too much,'' Williams said.
A German motorist on a Christmas Day trip guided by the on-board satellite navigation system arrived at the River Havel, near Caputh in eastern Germany.
The navigation system urged him on, despite the absence of a bridge, apparently unable to tell the difference between a ferry and a bridge.
The driver believed the on-board computer and drove straight into the river.
18:31 01-24-99
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