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Why has the semicon equipment bubble really burst? – I

October 26, 2010 5 comments

Yesterday or early today, I’d mentioned about receiving an interesting report from The Information Network — where it said that the global semiconductor equipment industry bubble has burst!

It made interesting use of an analogy around “The Emperor’s New Clothes,”  a short tale by Hans Christian Andersen and the global semiconductor industry. So, I got in touch with Dr. Robert N. Castellano, president of The Information Network, New Tripoli, USA, to find out more.

Just why did the bubble burst?
I started by asking him why The Information Network has been pointedly indicating that the semicon equipment bubble has burst?

He said: “If we take a look at the SEMI book-to-bill ratio, bookings were down from $1,837 million in July and $1,816 million in August to $1,616 million in September. Keep in mind that these are three-month moving averages. so that September’s numbers were proped  up by stronger July and August bookings.

“Additional data come from our proprietary leading indicators (PLI) that we have developed obver the past 15 years. They point to changes and inflections in the economies of the world and correlate with inflections in semiconductor equipment revenues several months out. We plot SEMI’s announced billings (revenue) instead of bookings, which are anticipatory. Our PLI has been trending downward for the past three months, signalling an inflection in equipment revenues. We will see this happen this quarter.”

Pitfalls of two years of growth combined into one!
The report has also indicated that year 2010 is the same as 2000 — where two years of growth were combined into one. What are the pitfalls from such a development?

Dr. Castellano added that in 2000, equipment revenues skyrocketed, followed by a severe downturn in the following year. In a typical cycle, we see about three years of growth. But not so in 2000. The reason for the large growth was inaccurate market forecasts, when some ‘analysts’ kept hyping shortages in certain ICs, particularly DRAMs. This led IC manufacturers to purchase more equipment and build more fabs to meet the anticipated growth.

Little did they realize that the Dell Computers of the world were also reading the same ‘erroneous’ forecasts and purchasing twice the number of ICs they needed for fear of shortages.

The IC companies, not realizing the customers were double dipping, thought that the phenomenon was real and kept expanding. In 2001, IC manufacturers were left with about $10 billion in excess inventory. The year 2000 coincided with Y2K. Later that year, the Internet bubble also burst. So, growth came from anticipated applications, rather than real demand. Read more…

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