***OFF TOPIC???***If the chip industry slump can last longer than originally forecast (actually, most 'experts' didn't see it coming until after it had already arrived), why can't the same thing happen with the disk drive industry?
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biz.yahoo.com
Sunday June 7, 4:42 pm Eastern Time
Worldwide semiconductor slump to last another year
By Kourosh Karimkhany
PALO ALTO, Calif., June 7 (Reuters) - The two-year-old worldwide semiconductor slump may drag
on due to the Asian financial crisis, lackluster personal computer demand and a worldwide glut of
memory chips, industry analysts say.
It now appears that the $140 billion worldwide semiconductor industry will not return to its historical
annual growth rate of 17 percent for at least another 18 months, experts said.
''It's going to be 1999 or 2000,'' said Mark Edelstone, analyst at investment bank Morgan Stanley Dean
Witter (MWD - news). ''It's not going to be this year.''
Some market researcher firms had expected modest growth in 1998 and a big jump in 1999. Those
forecasts have been trimmed in recent weeks.
Last week, the Semiconductor Industry Association said it expected global sales of computer chips to
drop 1.8 percent to $134.6 billion in 1998, largely because of Asia's economic woes.
As if to prove the point, the day after the chip forecast came out, Motorola Inc. said it might report a
loss in the second quarter because of disastrous chip sales and will lay off up to 15,000 workers in an
attempt to cut costs.
Other semiconductor companies also have had sobering news in recent weeks. Intel Corp., the world's
biggest chip maker, has said it does not expect revenue to increase this year and that it plans to
eliminate up to 3,000 jobs.
National Semiconductor Corp plans to lay off 1,400 people. Applied Materials Inc., the biggest
equipment supplier to the industry, is offering voluntary severance packages.
Still, some executives say the industry could recover quickly because of the world's ravenous demand
for electronics.
''It's not that bad,'' compared with previous downturns, said George Scalise, president of the
Semiconductor Industry Association in San Jose, Calif.
Consider what happened last time. Worldwide chip sales plunged 35 percent in 1985 during a vicious
international price war and a dropoff in PC demand.
This time around, demand remains relatively healthy. Unit shipments of all types of computer chips are
up substantially. The trouble is, overcapacity and falling Asian currencies are forcing semiconductor
producers to slash prices.
Memory chip sales, for example, totaled $40 billion two years ago. Even though the number of memory
chips has increased since then on rising computer sales, revenue has collapsed to $20 billion, said Dan
Carracino, a partner at American IC Exchange, a commodities firm that trades semiconductors.
''The contract price of a 16-megabyte DRAM (a common memory chip) was $50 in 1995,'' he said.
''It's now in the $2 range.''
Even though some companies have been mothballing chip factories, chip production is increasing
because of more efficient manufacturing, Carracino said.
And American companies have to compete against Asian producers like Korea's Samsung Electronics.
As Asian currencies collapse, Asian products become less expensive on world markets without hurting
their companies' profits.
''The memory chip market has gotten even worse than what even the most pessimistic people thought,''
said Nathan Brookwood, an analyst at industry researcher Dataquest.
Then there is trouble at companies like Intel and Motorola. Both misjudged the speed of technological
advance.
Intel, for example, underestimated the power of its own microprocessors. Even its low-end chips, which
appear in PCs that cost $1,000 or less, are powerful enough to run all but the most sophisticated
software. It cannot sell enough of its high-end chips to keep its profit margins fat.
And Motorola, which makes most of its money from wireless phones, pagers and telecommunication
infrastructure, misjudged the popularity of a new generation of digital cellular phones and the
back-office equipment that makes them work. Now it is stuck with unused inventories of chips for its
older products.
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Larry
PS: I seem to be running around like Chicken Little; but I think the news (in general) is interesting/fascinating/whatever. I'd just like to be able to make some money off it before I go broke.
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