Analyst: Start thinking about “end of the party” for chip industry

May 23, 2006 – Several industry metrics are now at levels that preceded downturns in previous cycles, suggesting a similar recession could be in the near future for the semiconductor industry, according to a new report from Advanced Forecasting.

Worldwide IC revenues have risen 92% since the bottom of the previous cycle in 2001, similar to the 94% growth seen in 2000 as compared with the 1998 trough. Before that, a cyclical bottom in 1992 was followed by a 200% growth run-up into 1996. In both previous cases, the next year saw substantial contraction in the industry — a 26% decline in 1997, and a 46% slump after the 2000 peak.

“We’re now starting to see an accumulation of indicators that in previous cycles lead to an overheated situation and were followed by steep corrections,” said Rosa Luis, director of marketing and sales for Advanced Forecasting. Such indicators include capacity constraints causing shortages, lengthening lead times, companies placing customers on allocation (as TSMC reportedly has begun doing), major capacity investment announcements, and increasing orders for semiconductor manufacturing equipment.

Earlier this month, Advanced Forecasting predicted a similar slowdown is coming later this year for the semiconductor equipment industry. ales of etch equipment are expected to increase by nearly a third from the beginning of 2006 to the second half of the year, leading to a plateau in 3Q and a potential decline in 4Q, mirroring a similar decline in 2001 as well as weakness seen in 2H04 that followed a similarly strong period, according to the firm.

Is the chip cycle about to repeat itself?

Cycle, Begin cycle minimum, Peak*, Peak growth, Peak fab util. rate, End cycle bottom*, End cycle growth, Duration

1992-1996: $3.80, $11.67, +207%, 96.9%, $8.68, -26%, 4 yrs
1998-2001: $8.30, $16.10, +94%, 97.1%, $8.86, -46%, 2 yrs
Current: $8.68, $16.70, +92%, 92.6%, ?, ?, 5+ yrs

* US$B/month


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