Forecast Folly

In recent days, youve likely heard some outlook for the tech sector in 2001. Intel, Yahoo! and others projected a gloomy year, industry wonks have been reversing their forecasts and cyclical sectors such as semiconductors have gone from boom to bust.

The consensus view is that the tech sector will rebound in the second half of the year. But a lot of things have to go right — interest rate cuts, stronger demand, the right psychology — before a rebound. Meanwhile, executives and forecasters literally cant gauge demand six months in the future. Thats why those earnings conference calls are so murky — people are guessing.

Simply put, most tech forecasts should be used for entertainment purposes. This isnt good news for firms that peddle their research.

“The forecasting of future growth leaves much to be desired,” says Carl Johnson, president of Infrastructure, a semiconductor research firm. Johnson should know — hes been watching chip revenue forecasts for years. He even cooked up a neat slide (infras.com/ISS2001/ sld007.htm) that summarizes things.

“The semiconductor industry has two speeds: pedal to the metal, and complete halt,” Johnson says.

In a recent research note, J.P. Morgan Chase & Co. chip analyst Terry Ragsdale notes that there were wild swings for the chip revenue forecasts for 2001. “The market research community is falling all over itself lowering semiconductor forecasts for 2001,” he says. IC Insights, arguably the most accurate of the bunch, predicts 7 percent revenue growth for semiconductors in 2001, with downside risk. GartnerGroup Dataquest recently cut its 2001 revenue forecast from 27.5 percent in October to a range of 5 percent to 10 percent.

“Since forecasting overall semiconductor industry revenue growth is so treacherous and has so many moving parts, we generally confine ourselves to throwing potshots at others forecasts,” Ragsdale says. And chip forecasts are just the most obvious targets. Networking, online advertising and business-to-business forecasts are likely to be just as useless.

Taken together, these forecasters never had a chance. “You really cant go out much more than six months,” Johnson says. “Its not going to work.”