Is the chip industry rushing into over-capacity again?

Timothy Arcuri, a top chip analyst at Citigroup Investment Research raises a warning in a research note "Maybe Different This Time (But We Doubt It)."

*       The chip industry has added more mfg capacity in each of past 3 yrs than any yr in history except C2000. Assuming WFE spend +5-10% in C2007 (on track, barring pushouts), this means 4 of top 5 capacity-add yrs occurred since '03.
*       Memory fundamentals have been weakening, yet equipment stocks/tool orders have barely reacted. DRAM prices down ~20% past 4 wks (+ Elpida guiding CQ1 price -20% Q/Q) and Toshiba (which has raised capex past 3 yrs) is considering delay of a new NAND fab (Fab 5, according to Nikkei News).
For complete note please use the following link: https://www.citigroupgeo.com/pdf/SBD96680.pdf

Investors are bullish that the launch of Microsoft Vista operating system will drive new PC sales and memory chips because it won't run on most PCs/notebooks.

But will businesses and consumers upgrade?

Here is Computerworld: * Users Not Rushing on Vista, Office 2007
http://cwflyris.computerworld.com/t/1226967/429922/49017/2/

Intel and IBM recently revealed their 45nm process, which means they can pack lots more chips onto each silicon wafer. Within a year Intel will have three 300mm fabs cranking out 45nm chips. Just one 300nm fab can produce a flood of chips.

More chips equals lower prices means lower priced PCs means higher sales of computer products. But it means tough times for chipmakers that can't compete at 45nm with 300mm fabs at $3bn a piece.

Mr Arcuri's headline "Maybe Different This Time (But We Doubt It)" refers to the cyclical mess that the chip industry *always* gets itself into: too much manufacturing capacity is built which produces a glut of chips and prices collapse. This boom and bust cycle happens about every four years and each time the industry says it will be different this time.

What ails the chip industry is good for everyone else. Cheap chips mean new applications. That's how we got chips in toasters :-)