EDITOR'S PAGE

Keep your eyes on 17

The Monterey Peninsula has its renowned 17-Mile Drive, Bill McClean has his 17% indicator. The drive features some of the planet's most spectacular scenery, while the IC Insights headman's average growth rate number represents his statistical "zero" over which semiconductor manufacturers see growth and under which they could suffer a softening or downright downturn. Both of the 17's share a common feature—if you don't keep your eyes on the road and stay to the right side of the center line, the results could be disastrous.

McClean was one of several speakers at SEMI's annual Industry Strategy Symposium (ISS) in early January. The treacherous weather conditions in wet, windy Pebble Beach were somewhat symptomatic of the 2001 market forecasts offered up for both the chipmaker and equipment and materials segments. A boffo 2000 saw nearly every sector of the collective semiconductor marketplace grow at a white-hot pace. VLSI Research's Dan Hutcheson and Dataquest's Klaus Rinnen said the tool side grew 85–90%, while McClean pegged chip company growth at 35%. After a year in which the flood tide carried even the leakiest dhow, the new year brings reason for caution and, to some, outright concern. The continuing disconnect between the chip sector's two contrasting economic yardsticks—company and industry fundamentals vs. Wall Street performance—played on many of the attendees' minds, with some managers and execs perturbed at how their companies could see record orders and revenues while losing massive chunks of market cap valuation as the tech sector weathered a barrage of body blows during much of 2000.

As for the 2001 predictions, Rinnen put the probability of a "hard landing" for the overall market at better than 50%, especially if the overall economic slowdown turns into a full-on recession. Despite this negative scenario, he forecast 11% growth for the wafer equipment segment, which contrasted with Hutcheson's no-growth prediction—a half-percent increase in tool sector revenues in 2001. The VLSI viceroy hedged his prognosticational bets with "operational flexibility," a statistical variable that ranges widely from a low-end negative growth projection of –25% to a +30% upside for the tool business in 2001. McClean believes the chipmakers will see 7% growth in 2001, although he too sees a fairly high probability of a hard landing, pointing out that "the industry has an abysmal record of soft landings." He also got off one of the symposium's best lines, noting that the equipment people "party harder but the hangover's worse" when it comes to the benderlike nature of capital expenditure cycles.

On the materials front, this year's ISS marked the end of one era and the beginning of another. Long-time materials maven Dan Rose gave a humorous, anecdote-filled farewell speech at the wine-tasting dinner, reminiscing about the early cocktail-fueled days of the industry and lamenting the decline of such social graces as a proper lunch. Taking over the materials reporting and forecasting reins is Elizabeth Schumann, SEMI's director of industry research and statistics. She noted that there's been an 11% compound annual growth rate in the sector over the past 15 years, with only two down years —1985 and 1998. Her 2001 wafer fab materials forecast—which factors in such sectors as wafers, photomasks, resists and their ancillary products, wet chemicals, and gases—posits a 15% hike in revenues from 2000 levels. Japan should continue to lead the regional pack in silicon consumption for the foreseeable future, while the market for new materials such as CMP slurries, copper-plating solutions, and low-k dielectrics is expected to grow rapidly to $1.1 billion by 2002.

Other ISS lowlights and highlights were ex-Motorola chip honcho Hector Ruiz's blatant infomercial for his new company, AMD (call it the anti-keynote); JDS Uniphase exec Tony Muller's enlightening talk about the optoelectronics realm (make way for the Law of Photonics and dense wavelength division multiplexors); Wacker Siltronic president/CEO Jim Ellis's sobering talk on the role of the silicon wafer supplier (a business where you seem to be damned if you do—and if you don't); and an interesting but rather stratospheric discussion on next-generation lithography (also notable for its lack of a maskmaker panelist and the charming ego of Intel's Paolo Gargini).

ISS found few industry leaders ready to pop the panic button but many wary of the prosperity bubble bursting rather than floating gently back to level 17.

Tom Cheyney
Editor

tom.cheyney@cancom.com

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