Chips Fall Where They May

By eweek  |  Posted 2001-03-12

Seven semiconductor companies recently lowered revenue forecasts, providing a clear sign that the downturn in the economy has spread to every nook of the technology industry.

Semiconductors are the guts and brains of cell phones, handheld devices, personal computers, servers and the equipment that powers cross-country networks. The lowered forecasts came from companies that produce chips for gear across the spectrum, from the tiniest devices to the largest piece of Internet equipment.

"Theyre all independent, yet theyre all in the tank at the same time," said Nathan Brookwood, principal analyst at Insight 64, a Saratoga, Calif., research and consulting organization.

For a long time, every time personal computer sales caught a cold, semiconductor companies suffered pneumonia, because their fortunes were tied so closely to that largest market sector. As more chip companies emerged to make integrated circuits for an explosion of new uses, the semiconductor industry hoped to be less prone to boom-or-bust spells.

But almost all the revenue forecasts are negative, even as Wall Street boosts share prices of chip stocks, thinking they cant fall much farther.

Some forecasts say semiconductor companies might rebound by the end of the second quarter. But Brookwood believes so many components are gathering warehouse dust that the slowdown might linger until the end of the year. PC sales are soft and "even routers and switches and Internet plumbing is under pressure. Carriers are saying, Lets step on the brakes until we know whats going on. Its hard to say who is slowing down the most," he said.

Steve Cullen, director of semiconductor research at Cahners In-Stat, said chipmakers will feel the chill longer than systems makers will. Equipment vendors didnt see the slowdown coming, so they ordered more components from the chip makers than they could put in their systems and sell.

Worldwide sales of semiconductors were at $16.9 billion in January, which was 14 percent more than those of the previous January, but 6 percent less than those of December 2000, according to the Semiconductor Industry Association.

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