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To: TideGlider who wrote (14841)	2/19/1998 9:17:00 AM
From: Paul Dieterich	Read Replies (2) \| Respond to of 25960

TG, Here's the IBD article: The Asian Flu Won't Be Fatal To Chipmakers Date: 2/19/98 Author: Norm Alster After a down year in '96, worldwide chip sales rose 8% last year. And '98 should be better, with sales likely to swell 17%, says Integrated Circuit Engineering Corp. , a Scottsdale, Ariz., research and consulting firm. This, despite still-depressed prices for memory chips and Asia's economic and currency problems. But as ICE President Jerry Karls explains, the chip industry still has some major things going its way. Chips represent more and more of the value in all sorts of electronics goods. And the economies of North America and Europe are in good shape. Karls recently spoke with IBD about some of the crosscurrents in the global chip trade. IBD: What impact will the Asian flu have on U.S. chipmakers? Karls: The Asia-Pacific region in terms of consumption of electronic systems is - relatively speaking - low. The U.S. chipmakers should not see a significant drop because of the Asian flu, other than in some end-use drop in demand in respect to PCs and some computer systems. The real negative for U.S. firms is that they already have a lot of (manufacturing) capacity on line in Korea and most of Asia-Pacific. And they're going to shift some of that capacity into other markets - ASICs (application-specific integrated circuits), specifically. So that will put some price pressure on suppliers like LSI Logic (Corp.) that are ASIC driven. IBD: Some Korean chipmakers are cutting back on capital spending. Won't that help U.S. chipmakers? Karls: It'll stabilize some of the DRAM (dynamic random access memory) pricing longer term. But you have to also consider Taiwan. Taiwanese manufacturers are continuing to expand their capability and capacity. It'll take a little while for that to be absorbed. IBD: When will demand again catch up with supply in DRAMs and other types of chips? Karls: It depends on how fast the DRAM suppliers shift capacity into ASICs. It is our anticipation that toward the end of '98 and the beginning of '99, the supply and demand will be much more in balance - actually the late third quarter or fourth quarter with respect to DRAMs. IBD: Could all the currency problems and excess capacity lead some Asian chipmakers to dump their wares on U.S. markets? Karls: Dumping is a reflection of selling below cost. That's a dangerous word to use. I think that the currency exchange rates and the need to have their fabs (manufacturing plants) working at full capacity will encourage them to market at a lower price into world markets. IBD: So wouldn't this added pressure on pricing erode chipmaker profits? Karls: I think that what we're probably going to see is pricing stabilize in its current range. That's about $2.50 to $4 for 16-megabit DRAMs and probably $14 to $18, maybe $20, for 64-megabit DRAMs. It'll be in that sort of a range. IBD: And yet you're pretty bullish on '98, forecasting worldwide growth of 17%. Karls: That's primarily because the user economies of Europe and North America are still going very strong. As a matter of fact, Europe is strengthening probably as we speak. IBD: How do you expect the major Japanese chipmakers to do over the next couple of years? Karls: They're going to struggle, primarily because of their ability to raise capital . . . . Many of the Japanese banks are in trouble as far as meeting their overall capital requirements. The banks themselves are shaky . . . . Other Japanese companies that are relying on that system for funding are going to have some challenges. IBD: What's the outlook for capital spending by U.S. chipmakers? Karls: Intel (Corp.) still looks to be fairly strong. North American companies appear to be gearing up into the $15 billion to $15.5 billion range. Intel is leading the way. They look to be about $4.5 billion to $5 billion. IBD: We've heard a lot about the switch to larger 300-millimeter wafers boosting chip equipment sales. Is this proceeding on course? Karls: No, it's slowing . . . . That's where the Asian flu is going to impact capital spending. The cash available to put $3 billion in a fab is tight, to say the obvious . . . . Also, our discussions with various equipment and raw wafer suppliers indicate that while a lot of people are talking about it, there's more talk than there are dollars flowing into it. IBD: Doesn't this then cloud the outlook for chip equipment makers? Karls: Some will do very well. And some are going to just be taying) in place (or) stepping back a little. IBD: What will be the impact of IBM's new technology that substitutes speedier copper circuits for aluminum in the making of chips? Karls: It'll have impact five to eight years from now. But nothing probably in the next several years. (C) Copyright 1998 Investors Business Daily, Inc. Metadata: LSI INTC I/3675 E/IB