Betting on the Year 2001

 

Jonathan Cassell -- Electronic News, 1/1/2001

In 2001 competing in the microelectronics and related industries will be like playing in a high-stakes poker game. Unlike the first nine months of 2000, where extraordinary growth guaranteed that almost everyone was a winner, in 2001 companies will need a combination of skill and luck to walk home with the jackpot.

Those whose hands consist of good cards-such as DSPs, processor intellectual property (IP) and copper electrochemical deposition tools-and who have bet heavily on the hot markets for wireless and wired communications, will be the big winners. Those with bad hands will miss out on the big money.

After running the table through most of 2000, it seemed that semiconductors hit a losing streak at the end of 2000, at least as far as Wall Street was concerned. The once high-rolling business-to-business (B2B) industry hit the skids. High-stakes chip players from Intel Corp. to Xilinx Inc. issued earnings warnings. Capital equipment companies were dealt a blow as order growth showed some signs of slowing.

Because of all this, a jumpy Wall Street took technology stocks to the cleaners. But did Wall Street really call the tech sector's bluff? Or does the semiconductor industry still have a few aces up its sleeve?

Most players believe that companies in the microelectronics and related industries still hold winning hands, with growth expected to continue at least through 2002.

Semiconductor manufacturing capacity remains tight and most chipmakers have not scaled back their plans to add manufacturing in 2001. This is good news for the capital equipment industry, which is looking forward to another growth year in 2001, although analysts are divided on whether it will be strong or weak growth.

And while things have cooled somewhat for the distribution business compared to the red-hot 2000, the industry is looking forward to 20 percent growth in 2000.

EDA companies may be holding the best hand of all. Having moved their customers to time-based subscription models, the big EDA players will lead the industry to anticipated growth of 20 percent in 2001, the best year for the business in some time.

The outlook for semiconductor IP continues to be bright, with the number of transactions involving the licensing of third-party IP to double in 2001.

B2B companies now face a smaller field of competitors and greater clarity in their business models. They should enjoy a surge in business as their customers increasingly turn toward efficiency and cost-cutting.

The losers in 2001 will be those companies betting on the wrong markets. With PCs no longer the driver of the industry, not every MPU and MPU vendor will see the good times roll in 2001.

So despite the gloom on Wall Street, the microelectronics industry just has to maintain a poker face, keep working on a straight flush and it may walk away from the table at the end of 2001 with all the chips.

-Jonathan Cassell