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To: tech101 who wrote (399)	10/25/1999 12:31:00 AM
From: tech101	Read Replies (1) \| Respond to of 1056

LSI Logic CEO Wilf Corrigan says the PC is no longer the predominant growth driver for the semiconductor industry; the Internet has taken that role. HOT BUTTON: NEW CYCLES IN SEMICONDUCTORS cycles BY WILFRED J. CORRIGAN Published Sunday, October 24, 1999, in the San Jose Mercury News FIVE years ago, many executives in the U.S. semiconductor industry thought the era of chip industry cycles was over. Times were good. Some of the attendees at the Semiconductor Industry Association's annual forecast dinner contended that the roller-coaster effect that characterized our industry for the past four decades would soon become a distant memory. They reasoned that the growing semiconductor content in end-products, the diversity of applications and the sheer size of the industry would insulate semiconductor manufacturers from the steep slides that have been an undeniable part of Silicon Valley's history. This bold prediction was obviously wrong. Since then, chip manufacturers endured the longest slowdown in the industry's history, which lasted from the third quarter of 1995 through the third quarter of last year. Semiconductor company stock prices plummeted almost as fast as the prices of the chips themselves. New factories and expansions of existing facilities were either postponed or canceled altogether. Companies in Silicon Valley and around the world were required to reduce their workforces. The tide has turned, and the global semiconductor industry is completing its first year of recovery. At the U.S. industry's annual dinner this Wednesday, the SIA is expected to forecast 1999 global industry sales approaching $150 billion, the first double-digit increase since 1995. Prospects for 2000 and 2001 are even better. As the semiconductor industry continues its recovery, so, too, will the semiconductor equipment industry. A feeling of euphoria has already replaced the worries of the last three years. But like it or not, another pothole lurks somewhere down the road. We need to accept the fact that downturns and slowdowns are normal parts of the business cycle. However, chip and chip-equipment companies and their employees are better positioned to withstand downturns than at any time in the industry's history. Why? First, consider what has changed since the steepest downturn ever in 1985. In that year, global semiconductor sales shrank from $26 billion to $22 billion. There was sincere doubt about whether Intel was going to survive another year. The Japanese industry was beating U.S. competitors in the production of the ubiquitous memory chip. Thousands of pink slips were issued in Silicon Valley and in other parts of the country. Since then the industry has matured, grown and diversified. Instead of $22 billion in worldwide annual sales, the global semiconductor industry is now generating nearly $150 billion. Instead of an industry dependent on the manufacture of commodity chips, we are in the era of specialization. Consider that Intel and AMD compete in the microprocessor arena. LSI Logic and IBM are leaders in the ASIC space. Xilinx and Altera are major PLD players. Micron is known for DRAMs and Texas Instruments for DSPs. The U.S. semiconductor industry of today is not monolithic. A downturn in memory chip prices will not spread to custom semiconductors, and vice-versa. American semiconductor manufacturers are better positioned to manage the business cycle. Most have built extensive intellectual property libraries and defensible market positions. The PC is still a major economic engine for the semiconductor industry, but it is not the predominant growth driver. The Internet has taken that role. The PC is now an important peripheral to the Internet, but by no means is it the only access point. The continued growth of the Internet is stimulating an infrastructure building boom, which in turn will require more semiconductors than ever. That translates into major business opportunities for players in the networking, communications, computer and storage markets. Consider that a computer mouse click from a PC at LSI Logic in Milpitas seeking information from a Dataquest server in Colorado touches silicon in every one of the routers, switches, network interface cards, firewalls and servers between the two locations. That's about 20 chips in all -- and takes 41.3 milliseconds. The return trip also pulses through the same silicon and takes another 41.3 milliseconds. Yet the person in Milpitas won't get the information nearly that fast. Why? Because there is too much traffic and not enough capacity. And that points back to the need for semiconductor solutions and how the long-term growth of the Internet will increase demand for chips. Look at what's happening to securities markets. In 1989 only 28 percent of American households owned stock. Ten years later that number jumped to 48 percent, in part because of online trading. Assets online will reach $600 billion in 2000 and will eclipse $3 trillion three years later. There were only a handful of Internet brokerage firms in 1996. Today, there are more than 120. All these financial transactions and other forms of e-commerce will require more and more infrastructure, and thus more semiconductors. Does meeting the challenge of building the Internet infrastructure mean that cyclicality will cease to be a factor for Silicon Valley semiconductor and semiconductor-equipment companies? The Internet will probably moderate the next down cycle, but it will not eliminate it. In the final analysis, cycles are an inescapable fact of life for our industry. We must continue to plan for the inevitable slowdowns and downturns. In the meantime, good times have returned and we should enjoy the party. But we must always be mindful that history has a funny way of repeating itself.