While made-to-order chipmakers stand to benefit as their chipmaking customers farm out more production and curtail expansion plans, the industry's strongest proponents have turned less optimistic in recent months.
"A lot of CEOs of technology companies are being very conservative about 2003," said Morris Chang, chairman of Taiwan Semiconductor, the world's No. 1 supplier of made-to-order chips.
Chartered Semiconductor, the world's third-largest supplier of made-to-order chips, has been using less than half the capacity at its five plants in Singapore since the second quarter of 2001.
Chartered's shares have declined by about 82 percent in the past year, falling to S$0.71 on Friday.
"We won't see earnings growth for the next three to four months," said Simon Chao, who helps manage US$20 million in equities at President Investment Trust Corp in Taiwan.
Still, investors say growth for the chip industry may come from consumer electronics, which accounted for 16 percent of world chip sales in 2001 and may contribute a larger portion following the introduction of new gadgets such as portable music players and hand-held computers with a larger appetite for memory chips.
"The consumer segment is what's driving growth," Manoj Nadkarni, editor of newsletter ChipInvestor.com wrote in a letter to subscribers. ``Cell phones are getting fancier -- you have color screens and camera phones -- all of which require more memory."
Sanyo predicts 80 percent of new mobile phones in Japan will have built-in cameras this year. The percentage outside Japan, where camera-equipped mobile phones are just now reaching the market, will probably rise to 20 percent, the company says.
Other devices such as flash-memory chips, digital signal processors, CCDs and graphics chips include video-game consoles, digital still cameras and newly introduced hand-held terminals used to view movies and television shows.
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