Mood dampened at annual SEMI gala

Electronic News, Sept 30, 1996 by Judy Erkanat

Santa Clara, Calif.--At Semiconductor Equipment & Materials International's 23rd annual awards dinner last week, the mood was definitely dampened from last year's event, when the industry was still riding high on the DRAM crest, with no trough in sight.

The heavily attended SEMI event drew almost 1,000 representatives of semiconductor companies and their suppliers, who were addressed by Richard Whittington, a respected industry-watcher with past affiliations semiconductor industry analysis for Kidder Peabody, and, most recently, SoundView Financial Group; and Gerhard Parker, executive VP of Intel and VP/GM of its Technology & Manufacturing group.

Mr. Whittington gave his views on the annual semiconductor equipment business outlook, calling the recent increase of semiconductor stock prices a prelude to renewed prosperity for the industry.

"I believe we will look back upon these last 12 months as the necessary pause that refreshed Silicon Valley in the technology bull market of the 1990s," said Mr. Whittington.

He blamed the business cycle downturn and a temporary market surplus for the gradual 50 percent decline of the Philadelphia Stock Exchange semiconductor share price index from September, 1995, to July, 1996. As with previous semiconductor cycles, said Mr. Whittington, industry investors were taking a breather as market growth decelerated from the frantic pace of 1992 to 1995.

Defending his positive view by citing recent stock price increases and a reignited market demand, Mr. Whittington included Intel's recent announcement that its third-quarter earnings were to be higher than originally forecast.

"As the stocks attest, Wall Street is again astir with bullish sentiment," said the analyst. "Even with the rally of the past two weeks, chip stocks remain deeply depressed from their 12-month highs and have massively underperformed both technology and the broad market. They show definite indications of having seen their lows and are primed to move up on any positive news, which they are now starting to receive."

Nader Pakdaman, a Dataquest senior industry analyst, disagreed. "It is not true that the entire market will turn around just because DRAM prices are solidifying," said Mr. Pakdaman. "Things are going to get better and the market will grow, but we have to accept cyclicality. It has to do with capacity, which becomes more efficient, turning undercapacity into overcapacity overnight without additional equipment."

Mr. Pakdaman saw major capital spending from top chip suppliers not too low, but said margins were down, reflecting lowered capital spending.

"The recovery will be at different rates throughout the industry, with DRAM suppliers the last to recover," he predicted. "We are seeing necessary investment in technology, like 95 percent of TI's capital investment in DSP, which will take time to realize in the marketplace."

Mr. Parker's talk centered on the interdependence of the PC and semiconductor industries. No earthshaking news here, with the ideas of growing the market, improving equipment productivity, providing availability in all segments, and driving advanced technology and application, followed by an admonition from the Intel executive not to panic. The reward of this upward trend is seen as Mr. Parker as a $500 billion industry, a figure for which he gave no time frame.

"I think SEMI lucked out and got positive speakers," said Dan Hutcheson, president of VLSI Research, Inc. "The general tenor of the audience was downbeat, but I liked what Gerry Parker said regarding short-term PCs driving everything. It's a cyclical industry and we will continue to overshoot and undershoot, but we're really not going out of business."

Mr. Hutcheson said the industry is in for another spate of DRAM problems in the first quarter of 1997, when DRAM fabs ramp up. "The continued interest in Asia in over-investing will create problems over next year," he said. "The Koreans will own the DRAM market in a big way, second only to the Taiwanese."

Prior to the talks at the SEMI dinner, six industry leaders were honored with SEMI awards for technological contributions to the industry. The SEMI Lifetime Achievement Award was presented to Kenneth Levy, chairman, CEO and a founder of KLA Instruments, in recognition of his leadership in the semiconductor equipment industry for more than 25 years. Besides building 20-year-old KLA into one of the industry's largest global corporations, Mr. Levy was cited by retiring SEMI president William H. Reed as a major architect of strong international relationships between U.S. equipment manufacturers and their customers and counterparts around the world.

Richard Brewer, founder and president of Advanced Chemical Systems International (ACSI), was this year's recipient of the SEMI award for North America in the materials category. Mr. Brewer was recognized for his major role in commercialization of the first IC in 1964, when he worked at Texas Instruments. The award was presented by Stanley T. Myers, SEMI's new president, who said, "The commercial impact of Brewer's contribution was to take the semiconductor industry from a chip density of about 2,000 transistors per square-inch in 1963 to 5.5 million transistors in 1995."