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Japan Ills Darken Semicon
Chip equipment forum is downbeat about recovery
Dan Fost, Chronicle Staff Writer Tuesday, July 14, 1998
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Jitters from the Japanese election added to the pall cast over Semicon West, the huge chip-equipment trade show that kicked off yesterday at Moscone Center.
With Japanese Prime Minister Ryutaro Hashimoto resigning Sunday, analysts and executives fear that the turmoil could prolong any economic boost for one of the industry's key regions.
''Any momentum in Japanese stabilization has gone away,'' said analyst Clark Fuhs, vice president of Dataquest, a research firm in San Jose. ''The exchange rate is a concern. There are some critical levels where it starts bringing China into the equation.''
A plunging yen makes Japanese exports cheaper, and that leads to worries that China could devalue its currency to remain competitive in world markets.
''With all of the problems in Japan, there's no real good news in that scenario for us or any other manufacturers,'' said Jon Tompkins, chairman of San Jose-based KLA-Tencor. ''Demand for chip-based products of all types are depressed there.''
Even without more bad news out of Asia, chip equipment-makers remain mired in a slump that's worse than anyone can recall.
Computer chips have always been a cyclical business, in which improvements in making chips periodically cause too much supply, which in turn drives down prices -- and profits. And when chip companies make less money, they order less equipment, which puts the equipment industry into a tailspin.
But this cycle is even worse than the downturn of the early 1980s, said Jim Morgan, the veteran chief executive of industry leader Applied Materials. ''It's among the toughest and most unforgiving that I've seen,'' he said.
One New York analyst who follows the industry is pessimistic, but he said he's not allowed to use the ''r-word.'' He said his company won't let him use the r-word ''until we're in the d-word.''
The industry expects revenues for this year to be $19.7 billion, a 22 percent drop from last year's $25.3 billion.
Santa Clara-based Applied has asked certain employees to consider buyouts, in hopes of shedding 1,000 jobs by the end of this month. The company has been shutting down on Fridays as a cost-saving measure that could continue until year end, a spokesman said. On Friday, Applied said earnings for its latest quarter will be lower than expected.
Applied is not alone. Other chip equipment-makers, such as Lam Research and Novellus, have laid off workers.
''There's more layoffs coming,'' said analyst Mark FitzGerald, a vice president at Merrill Lynch in San Francisco. ''People are talking about a 15 to 20 percent head-count reduction in this area'' at some companies.
Another sign of the troubled times: Semicon West attracted 62,000 people last year, but Stan Myers, president of Semi, the trade association that sponsors the show, expects the number to drop this year. He won't know by how much until the show ends. It runs in San Francisco through tomorrow and moves to the San Jose Convention Center for Thursday and Friday.
''This is prime exhibit space, and we could throw firecrackers there and not hit anybody,'' said Jerry Karls, CEO of Integrated Circuit Engineering Corp.
On the show floor, there seemed to be more exhibitors scouting the competition than customers looking for new products. ''Everybody's scratching for customers,'' said Applied's Morgan.
Despite the business conditions that border on recession -- and which no one sees the industry pulling out of for another 12 to 18 months -- many companies tried to put a positive spin on the technology on
display.
Much of it looked arcane: large machines that whirred, Rube Goldberg devices that manipulate chips, signs touting new ''exhaust control,'' ''atmospheric robot,'' ''automated wet process'' and other
intricacies of the chip-equipment business.
Many firms tried to make their products entertaining. Mimes donned the white suits used in chip- making clean rooms. One man was covered head to toe in copper -- the next big material in chip manufacturing.
Some chip companies are switching from aluminum to copper for the wiring inside chips. The equipment-makers want to encourage the shift because it also requires new machinery.
Novellus of San Jose rented out the spacious Yerba Buena Center for an elaborate display touting the move to copper.
Visitors to the Novellus complex walked through a ''de-aluminizer,'' in which steam and flashing lights pretended to eliminate aluminum from the body. Guides in black turtlenecks and black slacks guided them into a theater like one used in ''Clockwork Orange,'' in which flashing messages on a screen tried to brainwash them to use copper. They donned virtual reality-type headsets in which the message was drilled home.
Then, if they were Novellus customers, they got to go into another wing of the building for a massive show of the latest equipment. Novellus displayed no hint of industry panic there, only unbridled optimism at the technological advances.
''We're all set to rock and roll,'' said David Godwin, a software engineer. He watched with pride as Novellus' $3 million Sabre machine rinsed silicon wafers and spun them dry. ''This thing's going to make us a lot of money,'' he said.
c1998 San Francisco Chronicle Page B1
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