Gloom takes hold as chip makers brace for
long downturn
By Will Wade
EE Times
(04/04/01 11:02 a.m. EST)
SAN JOSE, Calif. — This year is
turning out to be a grim one for the
semiconductor industry, and some
analysts think it's going to get worse
before it gets better. While many
executives once predicted that a
recovery could come as early as the
second half, that scenario is starting
to look a bit too rosy, and companies
are beginning to dig in their heels for
a painful, protracted downturn.
"I am not a believer in the V-shaped
recovery graph," said Dan Niles,
senior semiconductor analyst for
investment-banking house Lehman
Brothers, referring to the
quick-recovery forecasts. "I think it
will be more like a bathtub-shaped,
or an L-shaped, one," with a long,
flat bottom.
Speaking at the Fabless Semiconductor Association's State
of the Fabless Industry luncheon here Tuesday (April 3),
Niles said the current downturn could be the worst the
market has seen in several years. "This is not 1996, and it
definitely is not 1998. The current downturn is more like
what we saw in 1985," he said. "It's going to be long, it's
going to be painful and it's going to last for a while."
Historically, the ups and downs of the semiconductor cycle
have been pinned to an excess of manufacturing capacity.
But Niles said this slump is worse because it combines both
overcapacity and slackening demand. As a result, Niles
expects total sales for the semiconductor industry to fall
some 10 percent this year, with the DRAM segment taking
the hardest hit and declining more than 20 percent from
2000's totals.
He sees weak demand in all major end-use categories,
notably the PC and both wireless and wired communications,
leading to a glut of inventory. This will eventually back up
the channel to the companies and lead to price cuts, which
will further hinder already weak sales, Niles said.
On top of this are fab utilization rates that have fallen to the
70 percent range, which means the foundries are scrambling
for business and the big chip companies are seeing their
expensive fabs sit idle. "The upturn is still not visible," said
Niles, "and I would say it is still getting worse."
Niles presented his forecast alongside the release of the
FSA's newest wafer demand survey, which painted a similar
picture. "Daily, things are changing, and unfortunately for
the worse," said Jodi Shelton, executive director of the
Dallas-based trade group. While she said the fabless-chip
market remains healthy, and the fabless companies are
posting better returns than the semiconductor market
overall, her study shows a drop in silicon consumption.
From the last quarter of 2000 to the first quarter of 2001,
the FSA tracked a 13 percent drop in wafer consumption,
the first negative report since the group began monitoring
silicon use. Revenue fell 21 percent in the same period, the
FSA said, as average selling prices were pummeled by slack
demand at the end-user level.
While the FSA report shows improvement for the rest of the
year, this could be misleading. Shelton pointed out that the
forecasts were derived from data submitted by the
companies in late 2000, before the depth of the current
slump was apparent to many.
Discomfort grows
"We are not at all comfortable about the numbers for the
rest of the year, because there seems to be so little visibility
going forward," she said. "I think our forecast is much too
optimistic, and will probably have to be scaled back. We
could see a bigger decline than the companies have reported
so far."
Jim Kupec, president of UMC Group's U.S. operations, has
also seen a major dip in wafer orders. "It's like we have gone
from 100 miles an hour to 10 mph, in about 10 feet," he said.
"There has been a terrific deceleration going on." Kupec
reported that UMC's facilities are running about 75 percent
full, compared with 98 percent at the end of 2000, and
pinned the decline on the dual drops in cellular phone
shipments and PC components.
"This is absolutely the steepest descent of business in our
industry, ever," said Bruce Freyman, corporate vice
president for product operations at packaging powerhouse
Amkor Technology Inc. "Everyone is collectively reeling from
this recession."
Despite these gloomy assessments, not everybody was as
pessimistic as Niles, and several chip executives said they
expect to see some hint of recovery by the end of this year.
"I think these doom theories are overplayed," said Faraj
Aalaei, chief executive officer of Centillium Communications
Inc. And with fab utilization down, Aalaei suggested that the
fabless companies may be able to find a bright spot by
negotiating better rates from their foundry partners.
Paul Costigan, chief executive officer of Massana Inc., saw
another silver lining in the dark economic clouds. "On the
upside, we can expect some fast turnaround from the
foundries," he said.
However, even with the best-case scenario — a recovery at
the end of the year — it is still likely that 2001 will show
overall economic losses for the industry.
"I am pretty bearish, but I think [Niles] was too pessimistic,"
said Mark Edelstone, senior semiconductor analyst for
investment-banking firm Morgan Stanley. He expects to see
semiconductor sales slide by 15 to 20 percent this year, and
with very low visibility into the future, he is reluctant to
forecast any further than that.
However, Edelstone does not expect the protracted slump
that Niles has forecast. While the overall economic picture is
clearly resulting in slower purchases by end users, Edelstone
expects to see an effect from the Federal Reserve's lowering
of interest rates, boosting the economy and pumping up the
sales of electronics.
"This is going to be a very severe down year," said
Edelstone. "But we aren't going to see an industry-wide
depression." |
