Three well-known market watchers, speaking on a Silicon Valley panel Wednesday night, said the chip gear industry is headed for a downturn that could be steep.”I think we’re heading to the worst semiconductor equipment downturn — perhaps ever,” said James Covello, a Goldman Sachs analyst. “We’re starting to see the first signs of that.”
Actually, as my readers well know, the “first signs” that there would be a severe downturn were clearly visible a year ago. At the time, orders for semiconductor manufacturing equipment had grown faster than sales of semiconductors for three consecutive months. Those first few months were about making up for a year of under-investment in 2005. But as I predicted at the time, and as should be obvious from the history, semiconductor demand and semiconductor equipment demand are rarely at equilibrium.
I am working on an update to my semiconductor supply/demand model, including some refinements that will hopefully help better identify entry and exit points. It will obviously continue to be art as much as science, but one thing seems sure - waiting for the sell-siders to identify it is likely waiting too long. Applied Materials (AMAT) topped out in January 2006 - (coincidentally?) the first month that would indicate future oversupply. It still hasn’t broken above the January 2006 high. I’ll admit I might have missed the bottom last year - but to “forecast” the decline now seems particularly late unless last year’s rally was really just a head-fake.
We’ll know the answer to that soon enough.