Communications IC market to drop 15.1% in 2001, but wireline will fall faster and last to recover
By Mark LaPedus
Semiconductor Business News
(06/28/01 13:49 p.m. EST)
SCOTTSDALE, Ariz.-- Chip consumption in the communications market is projected to fall by 15.1% in 2001 over last year, according to a new report from the In-Stat Group here today. But given the financial reports from various chip makers this week, the communications IC market may be falling at even faster--and unprecedented--rates.
Wireline-chip makers have been especially hard hit in the market. These once-high-flying suppliers began to see a slowdown in orders late last year, but they insisted it was a mere and minor inventory correction at that time.
But the "inventory correction" has quickly turned into a major disaster for some. The bad news started on Tuesday when communications-chip maker Applied Micro Circuits Corp. (AMCC) warned of a first-quarter loss and a staggering 62.8%-to-67.9% sequential drop in sales. This could be the largest sequential decline reported by major chip maker (see June 25 story ).
On Wednesday, AMCC's arch-rival--Vitesse Semiconductor Corp.--warned of a net loss and a 51% sequential drop in revenues in the current quarter (see June 26 story ).
On the same day, programmable logic supplier Xilinx Inc.--which counts on the communications market for the vast majority of its sales--said it now expects revenues to drop 32% sequentially in the quarter (see June 26 story ).
The company's main rival, Altera Corp., on Wednesday announced it will lay off 152 people, or 7% of its workforce. It also reaffirmed its previous projection of a 25% sequential drop in revenues for the second quarter (see June 27 story ).
The announcements also do not bode well for other companies that offer wireline-oriented chips, such as Agere, Broadcom, Conexant, Infineon, Intel, PMC-Sierra, Texas Instruments, Transwitch, and others. Most of these companies have yet to report their financial results.
Chip vendors blame the problem on a slowdown in spending in the telecommunications sector and a shakeout among the weaker carriers. But given the recent problems at 3Com, Cisco, Lucent, Nortel, and other systems manufacturers, the communications chip market may not recover for months, perhaps another year.
"I'm thinking it's mid-2002," said Bob Pierce, vice president of sales and marketing for the Communications Group at Infineon Technologies Inc., based in San Jose.
"From a business standpoint, [2001] has been a lousy year," Pierce said. "For us, the design activity has been good. We'll see the orders come in sometime in November," he said.
Others are slightly more optimistic. "We don't have a lot of visibility out there, but we happen to think that the market will improve by the end of this year," said Elie Massabki, director of marketing for the Broadband Internetworking Systems business unit at Mindspeed Technologies Inc. The Newport Beach-based company is a spin-off of Conexant Systems Inc.
Still, the current outlook is bleak. "Current business conditions continue to be very poor," said Dave Rickey, chairman, chairman and president of AMCC of San Diego. "New order activity has remained weak throughout the quarter and our overall backlog has declined," Rickey said.
During a conference call with analysts, Rickey said that the company had a break-even point of $70 million in terms of sales for the current quarter, but only realized $65 million in its backlog.
But cancellations and pushouts will cause the company to realize only $40-to-$45 million in sales for the quarter, he said. "Cancellations have slowed at AMCC, but they have not subsided,' he told analysts.
"Overall, business conditions continue to be weak, and we have seen no improvement in visibility at a majority of our customer," added Lou Tomasetta, president and CEO at Vitesse of Camarillo, Calif. "Inventories in our customers' channels remain at high levels and the process of reducing excess inventories is taking much longer than anticipated."
In any event, wireline-chip makers may be last in line to feel the recovery, according to one executive who closely tracks the industry. "The consumer-chip market will [be the first to improve]," observed said Tien Wu, president of the U.S. and European operations for Taiwanese IC-packaging and test giant Advanced Semiconductor Engineering Inc. (ASE).
Headquartered in the southern Taiwan city of Kaohsiung, ASE's customers include chip companies in the consumer, communications, and PC markets.
"The next market to improve will be the PC, and then wireless," said Wu, who is based in Santa Clara, Calif. "I think the infrastructure business will be last," he said. |
