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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Proud_Infidel who wrote (35364)	5/24/2000 12:53:00 PM
From: Jeffrey D	Respond to of 70976

Interesting article on the boom and bust cycle in the industry. Could the recent weakness in AMAT and others be more than simply stock market conditions and valuation? Could it be investors are worried that with the interest rate hikes come less consumer demand for gadgets with chips in them? And with with less demand for chips comes less demand for all kinds of chip equipment? I can't see it but thought I would ask. Jeff << COMMENT & ANALYSIS: Flash to bang 98% match; Financial Times ; 24-May-2000 12:00:00 am ; 345 words To design tomorrow's microprocessor, the saying goes in the semiconductor industry, you have to start yesterday. This is a business characterised by long lead times and a reactive approach to customers' requirements, which means that supply and demand are frequently out of balance. The industry's history since the invention of the integrated circuit in 1971 has been a series of boom and bust manufacturing cycles, of which the current shortage of flash memory chips is the latest example. The world's largest semiconductor manufacturers, Intel of the US and Fujitsu of Japan, are responding by investing several billion dollars apiece in new production facilities. An analysis of the reasons for the cyclical nature of the industry is complicated by the fact that its products are far from homogeneous - flash memory, which does not require power to store data, is technologically more complex than D-Rams, the commodity chips of the electronics industry. There are, nevertheless, three principal reasons for the swings from glut to famine. First, the semiconductor industry is the lowest link in a food chain that ends in products such as internet infrastructure, personal computers, MP3 audio, players and mobile phones. Predicting demand for these products is difficult. There was, for example, a failure to anticipate the way in which demand for mobile phones, which have a voracious appetite for flash memory, would explode over the past two years. Second, technological change brings its own cyclicality. New generations of memories or processors require huge investment in design and manufacturing process. Initial unit costs are high - in the hundreds of dollars - but fall to a few dollars when they become commodity items. Third, semiconductor companies are notoriously reactive in their attitude to the market. As their margins widen, they increase production and vice versa. Even Intel, which goes further than most in staying in touch with its customers, was caught out by the demand for flash memory. Some argue that as the business matures, so the cycles will become less pronounced. But the industry is already half a century old and shows few signs of learning from its history. Semiconductors will in all likelihood always suffer from a measure of cyclicality. Such is the nature of the business. But a closer and more proactive relationship between the chip makers and the chip users could see the worst swings moderated - to the clear benefit of both.