Dont toss in the chips yet
- Andy Giegerich
- Portland Tribune - News
• Oregon's semiconductor industry gets set for a badly needed lift in the coming year
The semiconductor industry, a mainstay of Oregon's economy, could use a bit of good news.
And Ñ at last Ñ there is some. Market observers across the board say 2003 will be better than the last two historically miserable years.
But it's all relative. And it comes after the precipitous declines in revenue, stomach-turning freefalls in earnings and suffocatingly high inventory levels that punctuated 2001 and 2002.
The revenue increases projected for 2003 Ñ from 4 percent at the low end to 26 percent at the bullish end Ñ won't come close to making up the industry's recent losses.
Still, experts say, several factors bode well for semiconductor manufacturers and, eventually, for investors.
Those predicting a brighter 2003 include Rick Cresan, president of consultant Meridian Technology Group of Portland, who estimates growth of between 4 percent and 6 percent.
Tom Starnes, chief analyst for microcomponents and semiconductors for Gartner Dataquest of San Jose, Calif., believes that the industry's sales this year will exceed last year's by 12 percent.
At the most optimistic end of the scale, Phoenix-based Semico Research Corp. projects that the market will grow by 26 percent.
Mike McConnell, an analyst with Portland's Pacific Crest Securities, notes that the estimates shake out along investment lines. Those with a big stake in the industry, such as Semico, occupy the high end; brokers like Goldman Sachs, which estimates 4 percent growth, occupy the cautious end.
'There's still definite Wall Street caution,' said McConnell, who believes that the figures will fall in the range of 5 percent to 10 percent. 'The industry is notoriously bullish.'
For his part, Gartner's Starnes warned that increased revenues certainly don't translate into a better bottom line.
'We still think the industry will be in an overcapacity situation for much of the year,' Starnes said. 'So, no one will have much opportunity to make great sums of profit. But it'll still be a better year than last year, which was pretty darn flat.'
Semiconductor Equipment and Materials International Inc., a trade group based in San Jose, predicts that its members' sales will grow by about 15 percent, to $21.7 billion. It bases the forecast on surveys of its members, who produce the equipment that the semiconductor industry needs to make chips.
That's cheering until one notes that equipment makers suffered a 32 percent decline in sales last year, to nearly $19 billion from $28 billion in 2001. And, in 2001, their sales had dropped by 41 percent from the previous year's total.
It could take until 2005 before industry revenues get back to anywhere near 2001 levels, said Dan Tracy, director of industry research and statistics for Semiconductor Equipment.
Tracy's group also measures market performance by studying book-to-bill ratios, which compare the amount of monthly orders received to the amount of monthly products billed. In November, the group projected a 0.79 book-to-bill ratio, meaning that 79 cents of new semiconductor equipment orders were received for every $1 billed for the month.
Anything below a ratio of 1.0 is troublesome, but, in a small victory for manufacturers, the figure has actually stayed flat since August.
The semiconductor market could benefit from two pieces of good news in 2003.
For starters, at least one researcher believes that the information technology market, which makes up between 3 percent and 4 percent of the gross national product, could increase by as much as 4 percent in the coming year.
Chief executive officers 'have kept a tight grip on spending and are only beginning to open the cash drawer for capital expenditures,' noted Peter Kastner, chief research officer for the Boston-based researcher The Aberdeen Group.
Intel obviously is hoping that the normal three-year personal computer buying cycle begins to get back on track, he said.
Those same Intel folks could see sales soar when Microsoft Corp. discontinues its support for its Windows 98 and Windows NT operating systems, added Pacific Crest's McConnell.
He estimates that about 300 million users Ñ 65 percent of them in businesses Ñ will need to update their systems by July.
'This'll spring some reaccelerating of corporate spending leading into the second half of this year,' McConnell predicted.