The utilization rate of the world’s microchip plants stayed below 90 percent for the second straight quarter in October-December, an industry group said on Wednesday. The utilization rate was 86.4 percent in the quarter, down from 88.5 percent in July-September and the lowest in seven quarters.
The thing is, the overcapacity is just starting. Orders for new equipment began growing at a faster rate than end demand more than a year ago, and the trend has not reversed. Much of that equipment still has not been installed, and the latest figures suggest things will get even worse.
The article itself hints that this might be the case, but appears afraid to pursue that line of thought to its logical conclusion:
The usage rate remains higher than in previous downturns, amid aggressive production by computer memory makers and ahead of Microsoft Corp.’s (NASDAQ:MSFT) launch of its new operating system Windows Vista last month.
The utilisation data was compiled by the Semiconductor International Capacity Statistics [SICAS] group, made up of about 40 major chip makers including Intel Corp. (NASDAQ:INTC), Samsung Electronics Co. Ltd. and Texas Instruments Inc. (NASDAQ:TXN).
Utilisation rates below 90 percent can discourage chip makers from building new factories, a negative development for suppliers of chip-making equipment like Applied Materials Inc. (NASDAQ:AMAT).
SICAS believes things will improve around mid-year. But we saw this week that leading semiconductor makers in both the memory and integrated circuit markets are unwilling to reduce their orders for new equipment, and saw from leading computer manufacturers and distributors that Vista is not providing as large a boost as was anticipated.
We are getting tired of beating this drum, but until the semi makers wise up and trim the pace of capacity growth, we have little choice. And the way things are going now, we might have to call auditions for a backup drummer. It looks like our arms are going to get sore before this is over.