Believing the chip industry is in a period of retrenchment, investment banker Adams, Harkness & Hill said it is predicting flat revenues -- at best -- for suppliers of semiconductor production equipment until the end of 1999.
In a new industry study, the Boston-based investment banker concluded that the industry is in a longer-than-expected downturn and most stocks of semiconductor capital equipment are valued too high to make good buys right now.
"Our outlook over the next 18 months is bearish," said the report's lead author, Frederick L. Wolf, semiconductor equipment analyst at Adams, Harkness & Hill.
Earlier this month, the Semiconductor Equipment and Materials International trade group said a recent survey of buyers in chip companies suggested purchases of production systems in 1998 could be 12 percent lower than last year's $27.6 billion. Industry analysts have recently lowered their forecasts for chip-equipment spending with most predicting no more than a 5 percent growth this year and several calling for a 10 percent decline.
The report by Adams, Harkness & Hill concludes that the Asian financial crisis and a glut in the world supply of dynamic RAM (DRAM) memory chips both will continue to discourage integrated circuit makers from making capital investments. The report says many chip makers are located in Asia, which accounted for more than half of semiconductor capital spending in 1997. Japanese chip makers, which accounted for fully 25 percent of the industry's capital spending last year, are unlikely to invest much in equipment before 2000 because of the economic uncertainty, according to the study.
"With DRAM prices still going down and the financial problems in the Far East, particularly Korea, I'm becoming less and less optimistic that the chip companies in the Far East will build new fabs," Wolf said.
Early last year, semiconductor manufacturers invested to upgrade their existing wafer fabs with 0.25-micron process technology, but the report concludes companies are not likely to spend as much on equipment over the next 18 months because of the glut of DRAM capacity and a "tenuous outlook for the foundry business in Taiwan."