It all depends on who you read...
Is the Semiconductor Industry on the Road to
Recovery?
From an article by Svetlana Josifovska in the August 2001
edition of Electronic Business Europe
August 13, 2001
Senior semiconductor industry
figures have shifted their
forecast for a recovery up a
gear. Some predict not only a
rosy future, starting in the New
Year, but capacity shortages
before its end.
?2002 will be a recovery
year?[but] I think we are going
to see shortages next year
[too],? said Wilf Corrigan, the
chairman and CEO of
system-on-a-chip firm LSI
Logic Corp. ?At a time when
people are curtailing capital
expenditure, you?ll see capacity shortages in 2002/2003, before
investments in 300mm start to show up in capacity.?
Although many-largely US companies-have been battered by
poor financial results over the past two quarters, Corrigan claims
that there?s been an over-reaction to the latest downturn,
suggesting that the industry is sticking to its historical
cyclical-behaviour pattern.
?We had similar collages of negative talk for 1970, 1985 and
1996 and each time everybody?s asking ?Is this the end of Silicon
Valley?? It?s nonsense. Cisco Systems Inc. said that this is equal
to a ?100-year flood?. Somebody else said, ?It?s just like turning
off the light switch.? We are in a cyclical business and we are
going through the cycles-that?s all.?
However, although seemingly short, this downturn is a
particularly vicious one for many firms, as they lined up to issue
profit warnings. Corrigan agrees: ?We are looking at a year
that?s down 20 percent or more. That?s the worst year we?ve
ever had, and it all happened when we were giving a cheerful
projection of a good growth pattern.?
As a reaction to the speed with
which this downturn
descended, companies
embarked on remorseless
cost-reduction programmes
just as quickly. For LSI Logic
this consists of mandatory
shutdowns in Q3, cutting off
consultancy and contractual
workers and slashing executive pay. At Texas Instruments Inc.,
there?s been a reduction in operating expenditures of nearly 15
percent and capital expenditure has been slashed by 20 percent,
although, according to the company?s CFO, Bill Aylesworth,
?fab expansion stays intact?. At Fairchild Semiconductor
International Inc. headcount has ?slowed down but not our R&D
and acquisition investment?, says the CFO, Joseph Martin.
Many believe the market is going through an inventory
correction. ?Financially, there?s nothing wrong with the
market. Once the inventory is burnt, the cycle will go up. [For
example] people are buying wireless handsets. I was led to believe
that they?re not, but the Nokias and Ericssons of this world are
just burning off inventory. So the selling is a positive sign,? said
Martin. ?There are good things out there-I?m not saying the
downturn is over, just that the signs are positive.
LSI Logic?s Corrigan believes the recovery, which he hopes will
begin as soon as Q4, will be lead by the computer sector.
?We are through the inventory correction in the computer
stocks. Second half is seasonally better for computers. We are
expecting them to lead, followed by storage systems; telephone
infrastructure will start to go up-if you remember cell phones
have been a year in negative inventory but they?ll come up; and
in networking, there?s a lot of inventory to go through. Cisco has
something like $4 billion worth of inventory to go
through. When it has $2 billion inventory, it?ll be buying again,
[possibly] by the first quarter of 2002.
However, many expect conditions to get worse before they get
better. The U.S. Semiconductor Industry Association
(SIA) expects this year to be the toughest with a 22 percent
market decline. Asia Pacific will follow with a slump of 16
percent, with Europe fairing the best with a 6 percent slide.
The slowdown has put the brakes on prices in the PCB sector with
some producers? capacity running as low as 50
percent. According to Purcon Consultants Group?s PCB Market
Tracker report, the book-to-bill ratio in the US has fallen below
1.0 for the first time in two years and in Europe this is down to
0.8. The slowdown has also started to catch up with the service
industry, with growth slowing down to single digits over last
year?s quarterly figures. But the sales figures are mixed. The
Distributors? and Manufacturers? Association of Semiconductor
Specialists (DMASS) claims that although sales in
microprocessors, microcontrollers, DSPs and peripheral devices
fell by 5 percent over 2000, some product areas in the distribution
market performed well above average. Among
them: programmable logic devices, analogue components and
discrete semiconductors.
For the next year, the SIA predicts rosier figures, with growth in
the semiconductor industry picking up initially by 20 percent,
followed by a further 5 percent rise in 2003. Corrigan believes in
2004 growth will reach 40 percent. ?I?m not guaranteeing it but
it looks like it?s going to happen,? he said.
Although some firms are positive that the recovery is just around
the corner, many would rather see it than predict it. Georges
Batarsé, marketing director for Europe at National
Semiconductor Corp., remains sceptical about the start of the
upturn. ?I would not bet on any of these dates-it?s all
speculation,? he said.
But Greg Smith, chief investment strategist at financial
organization and market researchers Prudential Securities, posed
possibly the biggest question of all. What happens after the
market picks up? ?In [the] technology [markets] the worst is
behind us. The question now is what?s the long-term future for
them. It?s difficult to predict. It?s hard to see how to do that
again-in terms of new technologies as with the mobile phones,
for example. There are things there, but we are not sure where
they are.?
Author Information
Svetlana Josifovska
Editor, Electronic Business Europe |
