Keeping ahead of the curve
04/01/2000
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Long ago in my Navy days, our task force would maintain radio silence during fleet operations while following a random zig-zag course. This would ensure that if we were spotted, the enemy would be confused by our maneuvers and pass on the wrong data on our heading.
Sometimes it seems that the executives making the decisions within the semiconductor industry observe the ups and downs of the marketplace and conclude that it is following some kind of unpredictable zig-zag pattern like the old Navy. How else can we interpret the fact that the industry often seems to be zigging when markets are zagging?
When the slowdown hit in 1996, some fab construction plans had to be abandoned even as the buildings were going up. At least one finished fab with hundreds of millions in new equipment had to be shut down as well. Toolmakers had been encouraged to develop 300mm platforms after statements by some chipmakers that they would be operating 300mm fabs in the 1998-99 time frame. The only one built was in Dresden, Germany, based more on a huge subsidy than on market conditions at the time.
Now that the needle has swung upward again, many parts of the industry find themselves woefully short of desperately needed fab capacity. Dell complained that it lost millions in orders because it could not get the needed chips, and other PC vendors have similar complaints. While there seem to be enough DRAMs now, sales are being hindered by processor shortages. There are reports that a major foundry could not fill 60% of its orders. Gallium arsenide chipmakers are scrambling to put up new fabs to meet burgeoning demand for chips for wireless equipment. Tool vendors are hearing demands that they cut weeks or even months off already tight delivery schedules. Order books for advanced steppers are getting filled for a year or two ahead. Applied Materials reports orders for nearly $2.4 billion in new tools, and the shift to copper, and to 300mm wafers, hasn't even caught on yet across the industry!
One reason that the demand has boomed so quickly is that the tough times forced prices down so much that whole new large customer segments were developed. If personal computers cost $2500 or more, they were bought selectively by professionals for home use, and by corporations for higher level employees. Now that there are good PCs for $1000 or less, many less-affluent users are buying them, particularly for internet access. Ford Motor has decided that it will be a stronger company if it puts up the money for EVERY employee worldwide to have his/her own computer, and the company will even help pay for internet connections. In spite of the rapid rise of the telecommunications sector, the PC market still is the largest user of semiconductors, and its appetite continues to grow rapidly.
Now, however, with burgeoning demand and much tighter capacity, chip prices are rising again.
Will that burst the bubble in the next few months? Some industry market researchers are predicting another slowdown in 2001 or 2002. Others are expecting the current up-cycle to last much longer, with the shift to 300mm wafers helping to keep chip costs going down. This would help keep existing end-markets growing while also fostering new markets, for web-linked devices and wireless internet access, for example. One maverick analyst says, however, that his computer model shows a huge drop coming quite soon.
Who's right? When will the market zig? When will it zag?
As we put a finger to the wind, it is wise to look at the whole economy as well as the projections within our own industry. If total economies slow down, as happened with the Asian flu crisis, semiconductor markets will follow. Steady growth without overheating is the key. If that continues, a longer cycle seems possible. If the brakes are applied too hard, a slowdown spiral could result, and the shorter-term downturn becomes more likely. Our industry does not operate in a vacuum; we need to link projections to the total economic scene to get the best picture.
We need a view from a satellite, not just from an airplane.
Robert Haavind
Editor-in-Chief
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