Bust May Be Around the Corner

Staff Reporter -- Electronic News, 5/24/2006

The semiconductor industry may be headed for another giant bust, according to a new report from Advanced Forecasting.

The analysis firm said that worldwide integrated circuit (IC) revenues have reached $16.7 billion per month by the end of March, an increase of 92 percent since the bottom of the previous recession in 2001 as compared to 2000’s peak of $16.1 billion per month, which marked a 24 percent growth since the previous cycle’s bottom in 1998.  That peak, Advanced Forecasters said, was followed by a 46 percent decline. 

“We’re concerned with the future state of the industry as we’re now starting to see an accumulation of indicators that in previous cycles led to an over-heated situation and were followed by steep corrections,” said Rosa Luis, director of marketing and sales for the firm, in a statement. “Indicators include capacity constraints causing shortages, lead times lengthening [Vishay], companies placing their customers on allocation [TSMC], the announcement of major capacity investments, and strong increases of bookings of semiconductor equipment.”

The euphoric feeling that engulfs an industry during a boom can overshadow the ability to understand and appropriately react to a change in direction, according to Advanced Forecasters.

“Since your clients are likely to unintentionally mislead you at the next peak, management must employ information and analyses that are independent of their customers to reduce the risk of mistaking the next peak as just a temporary blip,” said Moshe Handelsman, president of Advanced Forecasting, in a statement.

“While industry players are much more vigilant today than in past cycles, failure to identify the next peak and act on it on time can be extremely detrimental to the bottom line,” he said.  Handelsman suggested that analysis of one’s own company data and the information inherent in it often provides earlier warnings of impending trouble.