A few weeks ago, I took a three-day class offered by SEMI on process technology, and at every break about half the people in the class would run out and feed parking meters. They didn't want to pay the hotel garage rate of $8 per day. To save a few bucks they would run outside, push a few quarters down the throat of a meter, rush back. It's that kind of year, with capital-equipment spending down at least 17 percent, according to analyst Clark Fuhs, who tracks semiconductor-equipment spending at Dataquest.
Fuhs figures that 2000 will mark a turnaround in capital-equipment spending, mainly because today's depressed levels won't keep supply in balance with demand. By then, China will be buying more PCs, and the year-2000 problem will be behind us. Also, the South Koreans cut capital spending from $7.4 billion a couple of years ago to $2 billion this year. That will improve next year as Korean companies increase capital spending by 25 to 30 percent.
Since May, the trade account in South Korea has been back in the black, DRAM revenue seems to have hit bottom and more funding is available to the Korean chip makers, Fuhs said. By next year, they must spend on 0.18-micron capacity, or fall behind.
Intel also will move to 0.18-micron technology in a big way. Joe Grenier, in charge of Dataquest's semiconductor-device research, said by 2002 Intel wants to get one-third of its revenue from the server and workstation markets. Today, Intel has a market share of about 26 percent in that market, but that will rise to 60 percent by 2002, Dataquest estimates. So Intel will invest, despite a falling average selling price in the X86 marketplace overall.
Overall, Fuhs sees U.S. chip companies increasing capital investments in 1999, with an "upside possibility" that U.S. spending will rise by 13 to 15 percent. But the foundry industry has a capacity surplus of 30 to 35 percent, and that will cause Taiwan-based companies to cut back capital spending by 20 percent. Japanese companies won't be in good shape, either, increasing spending by only 6 to 8 percent, following a sharp 30 percent cutback this year.
Jim Farrell, a Motorolan with some years of perspective, said these kind of "really, really bad years" happen only occasionally: in 1974, 1985 and now this year. One encouraging thought is that companies can only not spend for so long before their competitiveness suffers. Intel has to spend, or watch IBM and Sun grab customers. The Koreans and Japanese must spend, or give up share to Micron.
But next year, we still feed the parking meters.
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