No Rebound in Sight for Computer Chip Industry
By Eric Auchard and Daniel Sorid
NEW YORK (Reuters) - Production cutbacks by Japanese chipmaker Toshiba, a profit warning from German chip manufacturer Infineon and a continuing slump among major U.S. chipmakers signal no rebound is near for the hard-pressed industry.
Makers of the tiny components that help propel electronics innovation are facing the worst downturn in 15 years as they struggle with a glut of manufacturing capacity and unsold customer inventories that are creating huge industry losses.
The slump has affected chipmakers across the world fairly evenly, said Merrill Lynch semiconductor analyst Joe Osha.
``The fact that North America ran into economic problems first maybe impacted consumption here,'' he said. ``But guess what, that immediately hit companies in Taiwan'' where most of the world's electronic goods are assembled, he said.
``We're just now starting to digest Europe,'' Dan Niles, a Lehman Brothers U.S. chip and computer analyst, said of the latest wave of bad news from Germany's Infineon. (IFXGn.DE) (NYSE:IFX - news)
Earnings from No. 1 memory chipmaker Micron Technology Inc. and the monthly book-to-bill figures on the chip-equipment industry are both due out on Thursday, as the corporate earnings season begins to get underway.
PROJECTIONS TOO ROSY
Toshiba Corp. (6502.T), Japan's biggest chipmaker, said on Wednesday it will temporarily cut chip factory output this summer in the first public sign the Japanese industry's projections for a recovery later this year were too rosy.
German chipmaker Infineon warned on Wednesday it would make a pre-tax loss of up to 600 million euros ($512.4 million) in its current third quarter and gave a bleak outlook, dashing hopes of an early recovery in battered technology stocks.
Up-start chip designer Transmeta Corp (news - web sites)., which designs power-saving microprocessors for notebook computers, also on Wednesday slashed its sales projection, because of a slowdown in shipments to Japan. It said that sales for its second quarter would fall by as much as 45 percent from the $18.6 million it reported in the first quarter.
The slump, which some analysts believed would lift later in 2001, now appears set to drag into 2002, leading chip market research firms to slash industry sales forecasts well below the 14 percent drop predicted by the industry's main trade group.
In the latest such move, IC Insights, based in Scottsdale, Arizona, predicted on Monday that global chip sales would fall 21 percent in 2001 from sales of $177 billion in 2000. It said the ''best case'' scenario was for a 15 percent decline in 2001 and the ''worst case'' scenario was for a 28 percent drop.
The Semiconductor Industry Association, the chipmakers' main trade group, forecast a 14 percent decline last month.
BATTLING PESSIMISM
Speaking in London, Craig Barrett, chief executive of Intel (NasdaqNM:INTC - news), the world's largest chipmaker, sought to battle the mounting global pessimism, saying he believed the market had reached a floor.
``We perceive that we're at a stable bottom of this trough,'' he told journalists. ``We're kind of bouncing along at what we perceive as the bottom at this stage.''
But while Barrett argued that the glut in personal computer chips that began last fall appears to have stabilized, the communications chip industry ``is still in a dreadful state of flux.'' Intel only derives 80 percent of its revenue from the more stable half of the industry focused on PCs, he noted.
Meanwhile, lending weight to the glum market outlook, French-Italian chipmaker STMicroelectronics, the world's sixth largest semiconductor producer, said it expects the global semiconductor market to decline by 17-18 percent this year even if the company expects to fare better.
``The consensus estimate is for the global chip market to decline between 15 and 20 percent this year. Our own estimate (for the market) is within that range -- about 17-18 percent,'' Pasquale Pistorio told Reuters after a speech in Paris.
The sour chip market prompted long-time specialty chipmaker LSI Logic Corp. to pursue further cost-cutting measures, this time a reduction of 225 jobs, or 3 percent, of its total global workforce of 7,700.
Analysts expect profits at the semiconductor units of Japan's five chipmaking conglomerates will fall well short of official targets for the year to next March, with semiconductor demand, especially from cellphone makers, especially sluggish.
Earlier in June, Merrill Lynch analyst Hitoshi Shin estimated that the five -- which include Hitachi Ltd. (6501.T), NEC Corp. (6701.T), Fujitsu Ltd. (6702.T) and Mitsubishi Electric Corp. (6503.T) -- would post a combined operating loss in semiconductors of 56 billion yen ($455.8 million), compared with the firms' own combined profit target of 224 billion yen.
The conglomerates' share prices have tumbled in recent weeks as the chances for a second-half chip-market recovery ebbed, and many extended their losses on Wednesday.
SHARES PLUMMET
The Infineon loss was far greater than investors expected and sent its shares plummeting more than 15 percent.
``In just the last few weeks, there was an ... avalanche of cancellations in orders,'' Infineon Chief Executive Ulrich Schumacher said at a news conference. ``There was not any kind of indication before. It was a very, very sharp drop.''
In a related announcement, Infineon said it planned to scale back investments in new plant capacity for commodity memory chips by more than 1 billion euros in 2002.
While the move will cap the sales potential for the company next year, the silver lining is that such a cutback could help ease a worldwide glut of chips that have put brutal downward pressures on prices.
IC Insights said a ``red flag'' for this historically boom-and-bust industry is that during a 26-year span from 1970 through 1995 there were only two years in which sales shrank -- 1975 and 1985. But in the last six years, semiconductor sales contracted in 1996 and 1998 and appeared certain to shrink in 2001.
``This is not business as usual!'' IC Insights's report said.
Lehman's Niles, based in San Francisco, said recent data from key Taiwanese makers of PC components show no sign of a pickup. In addition, once solid PC sales in China, now one of the top five markets, appear to be slipping, sapping chip demand.
``That's what makes this so dangerous. Everybody's so busy focused on the U.S. and whatever little words Alan Greenspan (news - web sites) has to say that they forget that close to 70 percent of semiconductor consumption comes outside the U.S.,'' Niles said.
``While we're all busy focused on the 30 percent of the market, the other 70 percent is meltdown,'' he said. |
