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Worst chip-equipment sales plunge ever

The Semiconductor Equipment and Materials International trade group says the chip-equipment market will show a 38 percent decline in 2001, the worst drop on record.

Call it "Down and out in Silicon Valley."

The semiconductor-equipment market will suffer a double-digit sales plunge in 2001--its worst decline ever--according to a trade group's new survey released Tuesday.

The Semiconductor Equipment and Materials International group said the semiconductor-equipment market will show a 38 percent decline in 2001, the worst drop on record. Oddly enough, though, 2001's $29.6 billion in equipment sales marks the second largest year on record.

Chipmaking-equipment orders actually rose in October, but that won't help the overall market, as deeper trends are at work. The overall decline for the year comes as the result of billions of dollars in capital expenditure reductions by most of the world's largest chipmakers, including such names as Taiwan Semiconductor Manufacturing Co. TSMC dramatically reduced its capital expenditure prediction for the year as early as February.

Because of the weak economy and sliding PC and communications- and networking-device sales, most chipmakers have seen falling revenues and an oversupply of capacity. As a result, chipmakers have slowed their build-out of new capacity in order to help bolster their bottom lines.

The bleak outlook shown by SEMI mirrors a recent forecast by the Semiconductor Industry Association, which predicted a 31 percent decline in chip sales for 2001 despite an improvement in month-to-month sales in October.

Next year won't be much better, either. SEMI predicts the market will be down slightly in 2002 to $28.7 billion. However, it forecasts healthy growth for 2003 and 2004, as the economy is expected to pick up. The market will increase by 29 percent to $37 billion in 2003 and by 23 percent to about $46 billion in 2004, according to SEMI.

"Following its best-ever year in 2000, the semiconductor-equipment industry will suffer its steepest annual decline in 2001 due to the weakened global economy, reduced end-user demand, oversupply of semiconductor devices and excess manufacturing capacity," said Stanley Myers, SEMI president and CEO, in a prepared statement. "While expectations are for the market to remain flat to slightly down in 2002, the majority of industry participants believe that this quarter marks the cyclic trough for equipment orders."

By region, SEMI predicts that 2002 equipment sales in North America will rebound by about 2 percent to $8.5 billion, while sales in Japan and Europe will decline by 13 percent and 4 percent, respectively, from 2001. Sales outside these areas, including China, will grow by 6 percent to $3.5 billion in 2002, SEMI said.

The data used to create the forecast came from 60 SEMI members in the U.S., Europe and Japan, representing about 80 percent of global semiconductor-equipment industry sales, the association said.