The world semiconductor industry is in one of its worst slumps ever. With sales sagging in all leading markets and most product categories, projections for growth are being slashed.
This week Intel, the dominant player in the international market which employs more than 4,000 people in Leixlip, Co Kildare, reflected this trend, reporting profits down by 29 per cent in the second quarter and warning that sales could be flat in the third quarter.
Instead of achieving forecast worldwide sales of about $200 billion by 2000, the chip industry may be hard pressed to get back to its 1997 sales rate of about $135 billion. Analysts are predicting a decline in 1998 sales of 2 to 10 per cent.
In particular, it is feeling the effects of economic woes and currency devaluations in south-east Asia as consumers in the region reduce their spending on products such as personal computers and cellular telephones. Sales of personal computers are also falling short of expectations in the US, where analysts are beginning to acknowledge the market may have flattened out, at least temporarily. PC companies, adjusting to slower market growth and instituting "build-to-order" schemes to cut costs, have found themselves with an oversupply of parts, putting a further dampener on chip demand.
The emergence of the "sub$1,000 PC" has also taken a bite out of semiconductor industry profits. These home PCs, now available from most leading manufacturers, use fewer and less expensive chips, providing narrower profit margins for component suppliers.
To cap it all, memory chip prices, which had already tumbled over the past two years, are continuing to nosedive as Asian producers flood world markets with low-priced products.
In May, the latest month for which data is available, worldwide chip sales stood at $9.99 billion, down 12.7 per cent from a year earlier, according to the Semiconductor Industry Association, a US industry trade group.
The biggest change was in Japan, where year-to-year sales fell 19.3 per cent. Sales in the Americas fell 17.9 per cent, while Asia-Pacific was off 7.6 per cent and Europe was down 2.5 per cent. When the semiconductor industry finally emerges from this slump, perhaps toward the end of this year or in the first half of 1999, analysts predict it is likely to have changed markedly.
In particular, Japanese and other Asian producers who have been forced to scale back investments in new plants and equipment, face the prospect of losing world market share. In an industry where having the latest production technology is critical to competitiveness, they risk losing out when demand increases.
In the US, the downturn is also forcing changes. Texas Instruments, once one of the largest chipmakers with a broad range of products, has withdrawn from the memory chip market and is focusing its efforts on the more promising market for "digital signal processors" for use in communications and multimedia products.
Motorola, another big US chipmaker, is consolidating its manufacturing operations and trimming its product lines. It too has quit the memory chip business.
Even Intel, the world's largest chipmaker, has been forced to adjust. Rather than developing a single line of microprocessors for use in all types of computers, it is now segmenting its product development efforts to address the increasingly diverse needs of different market segments.
