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To: MileHigh who wrote (60)	11/26/1998 8:24:00 AM
From: MileHigh	Read Replies (1) \| Respond to of 236

ICE forecasts flat chip market for 1999 By Margaret Quan EE Times (11/25/98, 4:38 p.m. EDT) SCOTTSDALE, Ariz. — There will be virtually no semiconductor revenue growth for 1999, according to the just-released Status 1999 forecast report by Integrated Circuit Engineering Corp. ICE estimates worldwide total semiconductor sales will remain flat at $120 million to $121 million for both 1998 and 1999. The ICE report also projects only modest unit volume growth in 1999, with continued downward pressure on average selling prices for microprocessors and only modest memory price recovery. It estimates semiconductor capital equipment spending for 1999 will be flat with 1998, which has been a down year. ICE's predictions for 1999 are notable because they stand in contrast to more optimistic predictions from industry groups such as World Semiconductor Trade Statistics and the Semiconductor Industry Association (SIA), and from other market researchers such as Dataquest Inc., International Data Corp. and IC Insights. The latter groups have projected single-digit growth in semiconductor revenue for 1999, ranging between 6.6 and 11.9 percent. Being a contrarian doesn't concern ICE Corp. president Jerry Karls, though he said the difficulty of such a forecast is that it may not be what the industry wants to hear. “We tend to think ours is more real,” Karls said. At press time, ICE was sending its Status 1999 forecast to the printer. Karls shared some of the highlights from the report. One factor affecting revenue growth in '99 will be the continued downward pricing pressure on all PC components due to the shift — not to the sub-$1,000 PC — but to the sub-$600 PC, Karls said. Other key factors will be: the continued overcapacity of memory chips; the focus by too many chip makers on the same non-PC markets, such as communications, which will drive down chip prices in those markets; and the shift to system-on-a-chip products by almost every chip manufacturer , which will eventually lead to more price pressures. In addition, Karls said a recovery in the semiconductor equipment market isn't imminent, since chip makers are expected to spend most of their capital budgets on process improvements, rather than on new fabs and equipment. Karls singled out the SIA's forecast in particular for criticism. At a recent SIA awards dinner, at which the association presented its forecasts for next year, Karls said he asked one industry executive when the projected increases would be seen. The executive said the growth expectations were based on projected increased in the last three to four months of 1999. “Their whole increase is a hockey stick, and we see no reason for the hockey stick,” said Karls. One reason ICE's outlook is grim is the continued pressure on PC prices that will put price pressure on all PC chip makers, including those making microprocessors and memories. PC makers are training consumers to expect low prices, and that practice will continue, Karl said, so MPU makers will continue to feel pressure to reduce prices. Memory prices won't fare much better, he said. Prices will remain under pressure even if there is a nominal increase in memory prices, he said. Even a 10 cent or 20 cent increase in unit prices will trigger memory makers worldwide to turn on fabs that were taken off-line a few months ago to curb the overcapacity situation, Karls said. And a shift to higher capacity memory devices won't assuage the price crunch, because such chips are forced to come down the price curve quickly to compete in the low-priced PC market. So although consumers get more memory in a system once such devices are adopted, the total value of the memory in a PC stays the same, he said. Karls also noted that there is a reduced net amount of silicon in PCs, mostly as a result of chipmakers' efforts to consolidate functions onto a single chip. As the focus on “system-on-a-chip” continues, it will continue to exert downward pressure on chip prices. Karls noted that many chipmakers in search of higher revenues and profits have targeted markets other than the PC, specifically communications and embedded applications. With so much fab capacity aimed at the same markets, Karls believes the price pressures evident in the PC market will occur in the communications and embedded segments. Adding to the price pressure is the efforts of most leading chip makers toput as much intellectual property as possible on one chip, and to price it low, Karls said.