France in the downturn: diversity in the face of adversity

06/01/2001

While the chipmaking and equipment industries face a downturn, European companies are betting on their marketplace diversity to aid them in weathering the storm. Numbers reflect what analysts are speculating: Europe is rich with niche companies that are surviving the downturn by keeping on top of the in-demand markets.

"The Europeans are hoping they can ride it out, and they will to a certain extent, because they are in the hot products and the hot sectors," said Joe D'Elia, head of the semiconductor group at Gartner Dataquest. "These sectors will go down, but not as much as the industry as a whole. We expect the European market to drop approximately half as much as the industry as a whole, so they will still stay ahead of the game, but their market will go down."

European firms enjoyed the worldwide boom in 2000, and the companies — particularly those in France — expect that they will be less affected than most by the doldrums now settled over much of the globe.

SITELESC (the French Semiconductor and Electronic Tubes Association) reported exceptional growth in France for 2000. "We have seen over 72% growth in 2000 compared to Europe overall (32%) and worldwide (36%)," said GÞrard Ollivier, general manager of SITELESC. "While there has been a slowdown during the first trimester of 2001, SITELESC members remain optimistic for the second half of 2001."

For smaller French "start-up" companies, many of which posted more than 100% growth, much will depend on whether their customers and end-users are primarily European or from other parts of the world. Qualiflow, based in Montpellier, France, reported 130% revenue increases in 2000, from both the semiconductor and fiber optic markets, giving it some insulation from the effects of the current downturn. Michel Landon, director of Finance and Strategy at Qualiflow, said, "We are fairly confident that we will achieve our forecast $19.3 million in revenue for 2001, with more activity in the fourth quarter, particularly for 300mm."

Recif, a manufacturer of robots for wafer manipulation and identification, has reported 108% revenue growth year-on-year for 2000, but anticipates 30% growth for 2001.

Jipelec, a French company specialized in furnaces and thin-film deposition, reported a revenue increase of 150% in 2000 compared to the previous year. Franck Laporte, president of the executive board, said, "Our strategy is to produce niche products and to form partnerships that will both ensure our growth, and will help to protect us from market fluctuations in the short- and mid-term. The forecasts for Europe show that equipment orders and deliveries will be at best delayed. The end of 2000 was particularly active for Jipelec, and while 2001 started more slowly, we still expect to see approximately 80% growth for the year."

Equipment suppliers, no matter how specialized or focused on hot markets, are still affected by cuts in capital expenditures by the large fabs. Many European fabs have said that is where they will make the first slices.

STMicroelectronics, for example, has reduced capital expenditure plans for 2001 from $2.5 billion to $1.9 billion. While this may not stop actual infrastructure plans, equipment suppliers have found that many orders have been delayed or cancelled.

FrÞdÞric della Faille, VP of sales at Alcatel Vacuum Technology, said that some European strategies have become clearer recently. "We've regularly seen overbooking, which includes 'ghost orders' that vanish in a downturn. Now we are starting to get smaller, confirmed projects, with many of them planned for later this year."

Equipment suppliers have therefore seen more limited investments that basically fall into three categories of upgrades to existing fabs: allowing a broader product range, optimizing capacity, and increasing yields. The used equipment market has also increased, retrofitting being particularly suitable for current conditions. For this reason, Alcatel Vacuum is developing modules for the end-user to improve performance of specific equipment that can be used for both 200mm and 300mm installations.

Taking into account adjustments made on both the supply and demand sides, signs still appear positive, not only for smaller niche firms, but for several of Europe's giants, as well.

One of the best examples of prosperity in the last year, and of respectable performance this year, is chipmaker STMicroelectronics, with its impressive growth in 2000 and the recent announcement that its first quarter results are still expected to show a double-digit increase over last year's first quarter.

Philips, one of the largest semiconductor manufacturers in Europe, has stated that its chip unit profit will be 10% lower in the first quarter of 2001, even through it will still be 7% higher than in the same quarter of 2000. After almost tripling its business in France during 2000, primarily in the mobile telephone and smart card sectors, the company expects 10% overall growth in 2001 and an increased market share for smart cards.

—Katherine Tyrka, European Correspondent