Surplus raising chip market crash alarms

Surplus raising chip market crash alarms

Chip prices could be set to crash despite bullish predictions from the Semiconductor Equipment and Materials Institute (SEMI).

In its mid-year forecast, SEMI predicted annual sales of semiconductor manufacturing equipment worldwide would increase by 63 per cent to $US36.2 billion compared to $US22.2 billion in 2003. The Chinese and Taiwanese markets are expected to see the strongest overall increases, with growth rates of 152 per cent and 140 per cent respectively.

But many financial and research organisations are worried that the chipmakers are about to be forced to throttle back on production following the discovery that worldwide surplus chip stocks were at $US827 million by the end of June compared to just $US12 million three months earlier.

This could mean a reduction in chip prices in the third quarter as manufacturers attempted to bring inventories back to normal levels, Meta Group vice-president, Steve Kleynhans, said.

“In the short term, there is likely to be some downward pricing action on certain types of chips — in particular we expect Intel to be more aggressive with pricing,” Kleynhans said. “Everybody will have to watch this one closely.”

US investment bank, Merrill Lynch, recently issued a warning after the SEMI announcement saying that chipmaker stock prices could decline.

Merrill Lynch claims OEMs will reduce spending through the rest of the year and downgraded the investment ratings of selected semiconductor manufacturers.

With $US17.32 million worth of chips being sold worldwide in May alone — the largest growth on 2003 seen in the Asia-Pacific region where sales grew 54.2 per cent — demand from OEMs and manufacturers could slow locally if advancements in end-user technology cannot keep pace with chip evolution.

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