Rx for the downturn: give it time--18 months, say analysts
Veteran industry observers believe business won't get worse, but it will bounce at bottom for a spell
By Mark LaPedus
Semiconductor Business News
(08/23/01 16:05 p.m. EST)
SAN JOSE -- While there are solid indicators that the current semiconductor downturn has finally hit bottom, it may take nearly 18 months for the ailing IC industry to be back at full health, cautioned senior analysts, during a panel discussions here.
During the discussion on Wednesday, analysts predicted that the road to full recovery would be a long and arduous for both semiconductor and production equipment suppliers. In the near term, companies will still face painful times, said analysts at the lunch session hosted by the Semiconductor Equipment and Materials International (SEMI) trade group.
Just how bad is it right now? "Tracking the IC industry in 2001 is like watching my dog getting hit by a car," bemoaned veteran chip analyst Bill McClean, president of IC Insights Inc.
Average selling prices and unit demand for chips "are still going down," warned McClean, who is based in Scottsdale. "We are not seeing a kick [up in conditions], because there is too much capacity in the market."
IC Insights is predicting that the semiconductor industry will end up with its biggest decline ever in 2001. The research firm is forecasting a 26% drop in worldwide revenues from 2000, which would a steeper drop than 17% in 1985--until now, the worst year ever for the chip industry.
On the positive side, IC Insights believes the global IC market will rebound with a 16% increase in 2002. And there is a chance relief could come before 2002. "We're looking at some sequential growth [in the IC market] in the fourth quarter of this year," McClean told the SEMI luncheon crowd.
"We also look at 2002 to be the 'healing' year, but not a great year," he added. "In 2003 or 2004, the industry will be rolling again."
On the positive side of the situation, chip companies and their equipment suppliers appear to have hit the bottom of the severe fall, said analysts during Wednesday's discussion session.
"We think we're at the bottom," declared Carl Johnson, president of Infrastructure. "But we also think we will be bouncing there for a while," he added.
On a surprising note, it looks like some segments--including DRAMs and graphics ICS--are beginning to show new signs of life. The microprocessor segment is also registering a pulse, but conditions remain weak for communications ICs, digital signal processors (DSPs), and the silicon foundry markets--chip industry segments that were considered bright stars last year.
Suppliers of graphic ICs are "ramping up production" in anticipation of solid growth by year's end, especially in the game-machine business, Johnson told SBN after the panel discussion. "There is also some positive signs for suppliers of mixed-signal and analog chips," added the Dallas-based analyst.
Another potential bright spot is Microsoft Inc.'s new Windows XP operating system software, which is expected to be delivered to PC makers on Friday. Analysts believe this new operating system could help to jumpstart the weak PC business in the shopping season of the fourth quarter.
Prices for the lowly DRAM are inching to a modest degree, said analyst G. Dan Hutcheson, president of VLSI Research Inc.
But on the other hand, the silicon foundry business remains extremely weak, noted the San Jose-based veteran analyst. Leading providers like Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) and Taiwan's United Microelectronics Corp. (UMC) are only showing fab utilization rates in the "low 30% range" right now, he said.
"If you look at the new foundries in Malaysia, they are running at only 10% to 20% [in terms of fab utilization]," he added.
The semiconductor equipment market remains deep in the tank and will not recovery at least until the second half of next year, Hutcheson told executives at the SEMI's luncheon meeting. "As a group, the semiconductor equipment suppliers are still lagging, but what we're seeing is the end of the down cycle," he told SBN after the session.
"We've seen some cancellations for technology buys [for tools] in the last couple months," he said, referring to investments in ledge-edge equipment for advanced wafer fabs. "We've seen some cancellations for copper-based tools and 193-nm lithography tools. We've also seen a lot of vendor movement among the chip makers," added Hutcheson, referring to suppliers winning and losing key customers in the downturn.
VLSI Research projects that the semiconductor equipment market will slide to $43.2 billion in 2001, a 26.1% drop from last year's total revenues. In 2002, however, the market will increase by 10.6% to $47.8 billion, according to the San Jose research firm. |
