Holiday Blahs
Carl Johnson, INFRASTRUCTURE -- Semiconductor International, 1/1/2001
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Domestic UPS shipments are, no doubt, "anecdotal evidence." In our neck of the woods, one does not have to look too far to see that PC companies and chipmakers are lowering their revenue projections. In last month's article, I provided a link to a chart depicting the relationship between real GDP growth and semiconductor shipments. Clearly, we are on the downslope and this weak period is not going to end overnight.
Perhaps another round of demand will be stimulated by interest rate cuts, although I suspect we need more than that to really get things going. I have mentioned the drivers for the next leg of the capital equipment cycle several times. They are still in place. The current economic weakness may push these transitions further out on the calendar, but they will eventually take hold.
A lot is being written about the efficiencies chipmakers are realizing from business-to-business marketplaces and outsourcing. I firmly believe this is only the first round of investment and two to three years from now we will really see the benefits of doing business via the Internet. No, I am not talking about e-commerce shopping sites and news-only delivery services. I am talking about the message I heard from device manufacturers during the International Trade Partners Conference in November. Unfortunately, the collaboration needed between chipmakers and equipment companies to develop systems that really make sense is going to take time to put in place.
My biggest concern right now is the drivers for the end markets. It will take time to put the infrastructure in place to stimulate end-market growth. Demand in the PC market is a real problem, as is the spending slowdown in the telecommunications sector. The design and introduction of products with new and more intuitive features is absolutely essential to support another surge in demand. Give us a reason to upgrade and we will buy!
From an investment perspective, I continue to see long-term investment opportunities for those willing to exercise patience. A focus on the companies that are providing productivity improvements to the manufacturing process should prove rewarding. I also feel as though companies involved in the design process - CAE companies and photomask manufacturers - are in a good position to weather any storms.
While most of the recent rallies have been short-lived, it seems like stocks in the semiconductor and semiconductor equipment sector are groping for price bottoms. If you have been following the sector for any length of time, you know that Wall Street is generally ahead of the curve in terms of predicting turning points. One would think the deep decline has pretty much priced in the weakness we are seeing today. Now that business weakness is blatantly clear, I suspect we will start to see value players venture into the stocks. Shortly after that, we should begin to hear analyst chatter about the next upturn. Again, this is not going to happen overnight. Hopefully, that upturn is not too far out on the calendar.
