Following the last downturn four years ago when US chipmakers ran up collective losses of $2,000m and laid off 25,000 employees, the semiconductor industry looks as if it could be heading into a new slump in 1990. American economists predict a recession will hit the US economy by late 1989, while industry experts believe the world semiconductor market is entering a period of transition, with little or no growth forecast for the coming year. The market should recover by 1991, however, with strong performance into the mid-1990s. The semiconductor equipment and materials markets are expected to perform well in 1989, with a slowdown anticipated beginning in 1990. These views were expressed at the 12th annual Information Services Seminar that ended in Newport Beach, California, last month. The three-day conference, which was sponsored by Semiconductor Equipment and Materials International, said that the worldwide semiconductor market performed well in 1988, posting a 34% gain in revenues, but that approximately 14% of this gain was generated by price increases, 1988 was a good year for US semiconductor manufacturers, however, posting gains of 21% over 1987. Pricing changes will continue to affect the industry this year, but downward trends, combined with a softer demand from end-user markets such as personal computers, will cause the industry to remain relatively flat during the next two years, with little or no growth expected in 1989 and only a 7% increase in 1990. Although the worldwide semiconductor industry is expected to recover by 1991, with an expansion of 16%, prospects still look grim for the US semiconductor industry because chip sales there are so closely tied to the manufacture of personal computers, which look set for a slowdown, while Japan and Europe are better positioned to withstand the slump because chip sales are more broadly spread across consumer electronics, automobiles and telecommunications. Experts at the conference were somewhat pessimistic about capital spending levels this year, which are expected to drop by as much as 20% in both the United States and Japan, as this will affect the semiconductor equipment industry, with front-end wafer fabrication equipment being the hardest hit. Job lossses at NatSemi, AMD However, most experts agreed that this decline should not translate into lower equipment revenues until at least 1990. Overall, the semiconductor equipment market wil gain 11.6% in 1989, with less than a 1% increase anticipated in 1990. The industry should reach $10,500m in sales in 1989 while semiconductor materials are forecast to reach $8m in 1989, with revenues split relatively evenly between fabrication materials and packaging. There are are already signs of a slowdown in the US chip market because the Semiconductor Industry Association’s book-to-bill ratio has been indicating that new orders have been below current shipments for the past four months. Some companies have been quick to respond to the signs of a downturn. For example, National Semiconductor Corp last month announced plans to cut 2,000 jobs, as Advanced Micro Devices Inc has made 2,400 people redundant and both companies have started to record financial losses. Even a market leader such as Intel Corp reported that fourth quarter earnings dipped as supply caught up with demand for its 80386 microprocessor. In the long run, the bigger, well-established companies have little to worry about, but smaller companies, who are already experiencing losses, may well find it difficult to survive.
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