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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: SemiBull who wrote (7918)	6/13/1999 10:14:00 PM
From: Ian@SI	Read Replies (1) \| Respond to of 10921

Economist Dauvin On Link Between Semiconductors, Economy Date: 6/14/99 Author: James DeTar The U.S. economy has been sprinting for about a decade. For much of that time the chip industry has grown. But, in recent years, sales and profits at chip companies have been in a tailspin. The Asian economic crisis is partly to blame. Asian electronics firms aren't buying as many chips from U.S. companies as they once did. Also, as low-cost PCs have become more popular, profits at some chip companies have slid. Today, the chip market seems to be recovering. Economist Jean-Philippe Dauvin is one of those saying things are looking up. Dauvin talked with IBD about the reasons for the upswing, its effect on the general economy, and what he foresees for the 21st century. IBD: What are the prospects for the semiconductor market? Dauvin: 1999 will see a return to growth after three pretty bad years. The market started to recover in August, and things continue to go pretty well. Coming from minus 9% (in 1998) we should go to at least 15% growth. And there is a little bit of magic to that growth rate. It means prices can move up a couple of percentage points after three years of negative growth. Then there could be three booming years. All of these new applications are coming on-stream. IBD: Which applications, for instance? Dauvin: There will be 220 million mobile (telephone) sets sold in '99 -twice the level of PC sales. And the average car - not a luxury car, but the average car - will soon have more semiconductors in it than a PC. This should drop the price of the car and increase its functionality. IBD: What caused the chip market downturn? Dauvin: The cause in 1996 was an adjustment to the market. In 1997, it was the Asian issue. Forty-five percent of all semiconductor business is in Asia. It was deeply impacted. In 1998, there was overcapacity. IBD: What's causing the chip market to grow again? Dauvin: The market needs three ingredients. One is a good economy. That part is OK. I expect 3% growth in (worldwide) GDP. Europe will grow 2.5% to 2.8% and, even if Japan is flat or negative, in 1999 we probably will have a better year than '98. The worldwide depression was in 1998, not '99. The second thing the market needs is new applications. What's happening now is new applications that have emerged are starting to take momentum. One is mobile communications. The third driving force in 1999 -and the next few years - is the digital consumer market. Consumers are starting to buy DVDs (digital video disc players), and digital set-top boxes for televisions. There will be 600 million DVD players and 23 million digital set-top boxes sold this year. IBD: What effect will chip-manufacturing capacity have on this recovery? Dauvin: That has been a big issue for the last three years. There has been overcapacity everywhere. Now we are very close to a break-even point between supply and demand. IBD: Is there a possibility of a shortage of manufacturing space? Dauvin: Some intermediate-size companies could be in trouble. They don't want to build a fab, but they can't get foundry space. IBD: How will the chip-market recovery affect the general economy? Dauvin: The economy will be driven by the high-tech industry. Nobody in Europe understands why the U.S. keeps going up so much. But the economy in the U.S. is pushed by information technology. Europe started to be pushed by IT a year ago, too. The semiconductor business - and high-tech in general -is pushing the economy because it creates productivity. IBD: What parts of the chip market will grow fastest? Dauvin: For the next three or four years, the biggest growth will come from the communications market, both wireless and wire line. All these electronic devices are like putting cars on the road, but we need to build roads. Communications accounts for 20% of the total semiconductor market. I forecast 22% to 24% growth a year there. By the end of year 2000 or 2001, the digital consumer market will start to be big. Users will replace all the old TVs and camcorders. There are millions and millions of boxes that will be replaced. That will be a very strong market driver. IBD: Will there be a recovery in the chip gear market, too? Dauvin: Applied Materials and these other companies suffered negative 30% growth and had to cut staff by 15% to 20%. Now they're highly profitable. But they may have some trouble delivering equipment for the next six months. This is a brain business. This typical U.S. way of flying high is not a good way to do business. It's not so good to fire people. Imagine a good engineer has been fired. When the business is back what happens? The company has to start from scratch. People will make the difference.