Continued Boom-Bust Cycles Seem Inevitable

Peter Singer, Editor-in-Chief -- Semiconductor International, 1/1/1999

As we head into 1999, there's a big wave on the horizon.
  Let's hope we can get a good ride for a few years.

A few years ago, the conventional wisdom was that the semiconductor industry was 'maturing,' and the wild roller coaster ride ­ 40% growth for a few years, followed by negative or flat growth for a few years ­ was over. Growth would be sure and steady, slightly under 20%.

Today, coming out of what was possibly the worst downturn in the industry's history, yesterday's conventional wisdom seems like wishful thinking. Although demand for semiconductors is growing at a fairly constant rate, the semiconductor industry cannot seem to manage the delicate balance of fab capacity, device pricing, the cost of new fabs and the timing of technology introductions. The hoopla over 300 mm, the introduction of which now seems postponed by as much as five years, is a case in point.

In this last downturn, much of the blame was placed on the financial crisis in Asia, which, of course, was impossible to predict and well out of the control of anyone in the semiconductor industry. But many believe that, even if there was no Asian crisis, we would still be in a downturn due to a significant worldwide fab overcapacity, as evidenced by the glut of DRAMs and subsequent dramatic decline in DRAM pricing.

The good news is that, according to nine different industry forecasters and analysts who we invited to participate in this month's forecast (see 'Economic Forecast: Slowly Turning Upward'), the downturn is about over. George Burns of Strategic Marketing Associates, for example, said that 'new fab construction this year will increase by as much as 20% over 1998.' Sue Billat of BancBoston Robertson Stephens said: 'We expect to see a technology driven bookings recovery in 1999 followed by capacity purchases in 2000.'

On the other hand, continued 'boom and bust' cycles seem inevitable. In fact, Frank Dickson of Cahners In-Stat Group said that business is going to peak in the year 2000, but 'there will still be double digit growth in 2001 and 2002.' He said the only way to lessen the impact of boom-bust cycles is through deliberate planning, and as the players get bigger, you will see more deliberate planning. 'You are still going to have boom-bust cycles though; it just cannot be helped,' Dickson said.

A friend of mine once likened working in the semiconductor industry to surfing. Much of the time is spent scanning the horizon, waiting for the next big wave, trying to be in the best position to get a good, long ride. When that wave finally comes, it's total exhilaration, as you and everyone around you are swept upward and propelled forward.

As we head into 1999, there's a big wave on the horizon. Let's hope we can get a good ride for a few years. Somewhere around 2003, we'll probably crash on the beach. Somewhat dazed, we'll stand up, brush off the sand, wonder what happened, and then head back out once more to catch another of the endless waves.