Here's something I found on another thread, I believe Alliance Semi.
Concerns Rise Over Layoffs, Asia, Overcapacity
It's beginning with equipment makers, but where will it end?
From Page One of Electronic News: March 23, 1998 Issue
By Richard Bruner
With the country's two major semiconductor equipment makers laying off a total of
approximately 1,000 workers, some analysts speculate about the possible beginning of
a trend.
Since December, Applied Materials has gradually let go 300 contract workers at its
Austin facility. And just last month, Lam Research of Fremont, Calif., laid off
approximately 700 workers. So far, only one semiconductor
manufacturer--Cypress--has cut back on its work force (EN, March 16), but analyst
Will Strauss of Forward Concepts believes the worst is on its way. "We're in for a
difficult time," he told Electronic News.
"Those laid off now will find jobs immediately. Those who get laid off later will be in
trouble. There are plenty of jobs available at the moment. But we're going to start seeing
hiring freezes in a lot of places. The reason why is we haven't yet seen the full effect of
the Asian flu."
But others believe the economic problems in Asia are not the primary cause of a
slowdown in the semiconductor market.
Paul Lemberg, a San Diego technology consultant, attributes what he sees as an
approaching industry downturn to "cyclicality" in which chip companies are perpetually
behind the curve. "You don't build a fab until the demand is already in the marketplace;
then, demand rises; then, you start to build the fab; the fab comes on line; it dumps a
whole lot of capacity onto the marketplace; prices drop; demand drops; and you start
the whole cycle all over again. Overcapacity is the cycle."
"This is an industry characterized by shrinking and swelling over the years," said Ed
McCann, the managing director of the technology group in Advest investment bank of
Boston.
A Lot Of Slack Capacity
--------------------------------------------------------------------------------
He pointed out that, in a year's period, the use of world semiconductor capacity "has
dropped from 90 percent to about 82 percent, so there's a lot of slack capacity. Much
of it is DRAM in Asia." In order to "cure" the overcapacity, Mr. McCann
believes planned fab construction will have to be reduced by $20 billion. "About
$14 billion of that was earmarked for DRAM fabs mostly by Korean chip
makers that now don't have the capital," he said. "It looks like between 15 and
20 new fabs and plant upgrade projects have been pushed back." That means
"industry production will probably move into balance toward the end of the
year."
Market research company Dataquest has revised its earlier forecast of the worldwide
semiconductor market. In a statement, it said "the market is likely to reach
approximately $160 billion by the end of 1998," down from its earlier forecast of $175
billion. Dataquest analyst Clark Fuhs said the impact has already affected the
semiconductor equipment sector with most equipment companies either cutting jobs or
freezing hiring right now.
The Semiconductor Industry Association (SIA), however, said world semiconductor
sales of $10.97 billion in January made it the second strongest January in the 1990s
(EN, March 16). At the same time, "all major markets showed sales declines from
December to January."
Actually, some factors will probably mitigate the industry lag. Mr. Lemberg said one
such factor is "the increasing use of semiconductors in all sorts of things. Basically, what
you've got is more and more semiconductors being used in more and more products
worldwide. So that, I think, is going to mitigate the cycle overall.
"You're still going to have the cycle in each category: you're still going to have the cycle
in memory chips; you're going to have the cycle in microprocessors. Yes, you're going
to have layoffs, but the layoffs are not going to be across the board in every sector of
the industry. They're not going to be as deep as they have been in the past. And what's
likely is they're not going to last as long as they have in the past."
Steps Taken Before Layoffs
--------------------------------------------------------------------------------
Not all observers believe layoffs are just around the corner.
Walt Lahti, an analyst and group manager at In-Stat in Phoenix, said, "Layoffs are not
inevitable, although probably likely. I don't think they will be massive. The market will
grow a little this year. I would say that the first thing that happens is they have hiring
freezes. Then, if that doesn't work, they ask people to retire early. If that doesn't work,
they start having layoffs. I don't think the market is in such bad condition they're going to
have massive layoffs. But there may be layoffs in other parts of the world as well."
Mr. Lahti also tempers his view of semiconductor fab capacity. "Yes, there is an
overcapacity," he said. "But it's mostly for memory products. There are probably some
other products in overcapacity, but I wouldn't say that everything is in overcapacity."
Says Situation Overstated
--------------------------------------------------------------------------------
Jeff Weir of the Semiconductor Industry Association believes both overcapacity and the
Asian crisis have been somewhat overstated.
"Equipment makers are feeling the initial force of the Asian economic problems, because
their orders for new equipment are coming in slower than they previously expected.
That's because some of the Asian countries--Japan and Korea--have announced that
they are reducing some of their capital expansion in order to do some short-term belt
tightening. The declining currencies in Asia make U.S. equipment more expensive for
them to buy. It's not just supply and demand based on the economics of what's
happening in the chip industry, but it's also the increased price for chip equipment in
today's market in Asian countries. So they're sort of having a double whammy of
activities that are affecting them economically."
However, chip makers who are not focusing on the microprocessor market are
seemingly not affected by the Asian economic crisis. Mr. Weir pointed out that "Texas
Instruments still has a very optimistic outlook in '98 for its product lines. It all depends
on what is hot in the marketplace. Companies not dependent heavily on the PC market
could be growing at a different rate and be very happy about it. That's what you're
seeing. The DSP line--Texas Instruments--is growing dramatically. What you have is
more diversification than people traditionally have given the industry credit for. There's a
tendency to lump all companies into one boat. There's also a tendency right now to
blame Asia for anything that's going on and that's equally misleading."
Spokesmen for both Motorola and Intel are sanguine about current developments.
Chuck Granieri of Motorola said, "We don't want to speculate about what steps we will
take in the future. A lot depends on what our share of the market is and that sort of
thing. We don't want to take a public speculative position."
Spokesman Howard High said Intel has no plans for layoffs and currently has a higher
capital expenditure budget than it had a year ago.
But, lower on the food chain, the nation's largest equipment manufacturer, Applied
Materials, decided to take a number of cost-cutting steps--a reduction of capital
spending and spending associated with conferences and off-site meetings and travels.
And, most importantly, it trimmed its work force of contractors and temporary workers
by 300.
The reason, according to spokesman Steve Taylor, is "a lot of announcements of delays
in putting up new fabs around the world. The Asian situation has sparked a lot of it. A
good number of fabs are being delayed. As a result they are postponing orders. Or
putting them on hold. "There's a lot of uncertainty in the marketplace right now." |
