Slowdown predicted for microchip business

Things have rarely been better for the semiconductor business, but it could all end in a few months, warns an analyst

A Silicon Valley analyst firm has warned that a serious downturn could hit the microprocessor market in the next six months.

Advanced Forecasting (AFI), which issues quantitative projections for the semiconductor and related industries, warned Tuesday that the slowdown could hit in early 2001, following slower growth for the rest of this year.

"We are referring to a significant slowdown affecting most of the segments in the IC [Integrated Circuits] Industry, much broader than the slowdown we warned about and actually experienced when the DRAM segment deteriorated [late last year]," said AFI president Dr Moshe Handelsman, in a statement.

Already the industry appears to be displaying early signs that growth is peaking out, according to AFI.

Worldwide equipment sales levelled off in May and June of this year at around April's level of $4.75bn per month, AFI points out. Related markets such as PC sales have also slowed. "Today we see signs similar to what we experience before downturns," stated David Crume, AFI's director of marketing and sales.

AFI said it is advising its clients to watch for signs of double bookings, and inflated sales forecasts from component vendors and OEMs. Double bookings are when a company books to order more components than it needs in order to ensure timely delivery.

The market for semiconductors, such as the microchips that drive PCs, PDAs and mobile phones, as well as the memory modules for storing data on such devices, is currently seeing such strong demand that many component manufacturers are struggling to keep up.

Unlike AFI, most industry analysts see the boom continuing into 2002 or 2003 as businesses and consumers keep spending money on work tools and gadgets. "We have said our expectation for Q3 is up on Q2, which indicates we see continued growth in the PC marketplace," said a senior spokesman for chip maker Intel.

He noted that Intel is investing heavily in new production capacity for its PC and networking chips, to help make up for the persistent supply problems the company has suffered since late last year. "We're focused on long-term commitments in manufacturing investments, which supports our feeling [the market] is going to continue to grow," the spokesman said.

See Chips Central for daily hardware news, including an interactive timeline of AMD and Intel's upcoming product launches.

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