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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Paul V. who wrote (29974)	5/7/1999 3:48:00 PM
From: Duker	Read Replies (1) \| Respond to of 70976

Sales may gain 18% in 1999 after three years of no growth Turnaround looks stronger By J. Robert Lineback With first-quarter sales running slightly ahead of most forecasts and no major problems in sight, chip managers and analysts are now declaring - with a lot more confidence - that a bona fide recovery is underway at last. About the only cloud on the horizon is April's sudden drop in 64-megabit DRAM prices, a development that caused more than a few analysts to pause before hiking their global forecasts. But they ended up downplaying the dip, believing that DRAM prices had risen artificially high at the start of the year. Most 1999 forecasts now call for a 12-to-18% rise in global chip sales. This turnaround would follow three years of no growth for chip makers. "People are dropping the word 'cautiously' and they are now simply optimistic about the outlook," comments Bruce Entin, vice president of marketing at LSI Logic Corp. in Milpitas, Calif. "We're in the early stages of a full-fledged recovery after [the last slump] bottomed in the summer of 1998. From here on," he says, "people are expecting to [go] full throttle [for] the next year or so." The main factor behind the boost in industry confidence was the unexpected jump in chip demand for wireless cellular phones. "We were looking for a slowdown in digital mobile [growth] to around 25-27% this year," says Jean-Philippe Dauvin, vice president and chief economist at STMicroelectronics, "but we've [just] heard from a leading handset maker in Europe that the growth will be above 40% this year." Based on that surprising market growth prediction, plus an Asian recovery and continued strong consumer confidence in North America and Europe, the Paris-based Dauvin has doubled his 1999 forecast for chip revenue growth from 7% to 15%. "We are now confident that 1999 will put the industry back on a growth path," adds Dauvin, who also is the current chairman of the World Semiconductor Trade Statistics (WSTS) organization. "The much-watched supply-and-demand crossover point has been passed," Dauvin believes, referring to an end to the excess fab capacity that glutted chip markets and drove down industry revenues by about 9% to $125.6 billion in 1998. "At the end of this year, I'm sure we will conclude that the crossover occurred earlier than expected, at the end of March." Dauvin isn't alone. Other industry observers are gaining far more confidence in the recovery after seeing first-quarter results of chip makers and the growing demand for new end products. "The computer industry still looks good and the overall drivers in communications equipment, such as the cellular phone, are very strong," says analyst Bill McClean, president of IC Insight Inc. The Scottsdale, Ariz.-based market researcher officially is still calling for 12% revenue growth, but admits that his forecast is conservative and does not factor in "wild cards," such as the positive impact on chip orders that some people forecast due to the Year 2000 software bug. "This Y2K factor - positive or negative - won't be felt by the industry until later this year, perhaps from September on," McClean predicts. His only major concern is the pricing on DRAMs and x86 microprocessors - industry segments that are under pressure because of the market-share battles raging between major competing suppliers. "The second quarter will be the 'market share' quarter," says the veteran DRAM observer. "Micron, Samsung, and Hyundai/LG are jockeying for position in the belief that a boom period is just ahead," he points out. "Based on this and Intel's attempts to take market share [away from Advanced Micro Devices Inc.] in low-cost processors, the second-quarter numbers might not be as good as we hope." But DRAM sales are still due for a big increase for the year, according to most forecasters, even with 64-Mbit DRAM prices getting close to $7 after hitting nearly $11 a piece earlier in the first quarter. IC Insight's McClean is forecasting a 25% increase in DRAM revenues this year to about $17.5 billion. But, he adds, it could go higher than that to around $18-to-20 billion if unit demand picks up and prices firm up in the second half of 1999. Another factor that could dampen the overall growth of the IC business is the industry's inability to add capacity once chip makers are ready to expand. "The bust cycle was so deep that production equipment suppliers have pared back to the bone," points out G. Daniel Hutcheson, president of VLSI Research Inc. in San Jose. "They cannot respond quickly [to orders] at this point. In fact we are hearing about semiconductor companies complaining about the service and training of service people because suppliers are operating with short staffs." It will be difficult for any chip maker to add new wafer capacity quickly because of the depressed equipment segment, according to STMicroelectronics' Dauvin. "It will take 20 months before a new fab is in full-volume production," he adds, "and that won't now happen until 2001."