The global semiconductor industry may take longer time to turnaround from its latest trough as chipmakers carry on their capacity expansions despite unresolved inventory problems, Merrill Lynch analysts said yesterday.
During the last industrial downturn, semiconductor firms sharply slashed their capital spending to reduce supplies and enjoyed a strong recovery afterwards, said Brett Hodess, a managing director of Merrill Lynch.
"Right now, they are not cutting spending ? We think we may have a very weak recovery this time because we still have a lot of stock," Hodess said on the sideline of Merrill Lynch's annual tech forum in Taipei.
Some 55 percent of semiconductor companies covered by Merill Lynch have reduced their capital spending to just 2 percent to save costs and drive market demand for better-performing products by moving to advanced technologies, Hodess said. That was a stark contrast to the general expectation of a sharp fall, he said.
To the surprise of investors, Taiwan Semiconductor Manufacturing Co (
Nonstop capacity expansion among the industry probably will deepen the lingering inventory problem later on, Hodess warned.
Some foundry companies kept their inventory at an up-to-65 days level last quarter, which was still above the 55-day level during the last trough, said Dan Hyler, a Merrill Lynch semiconductor analyst.
The high inventories have caused prices to drop and reduced factory utilization among foundry companies, he said.
TSMC and United Microelectronics Corp (
A pickup is expected to arrive after the digestion of chip stocks comes to an end. But that could still be several quarters away.
Joseph Osha, another Merrill Lynch analyst, thinks the process could continue to the year's end.
A supply glut also affected computer memory-chip suppliers and the problem appears to have worsened as Merrill Lynch has downgraded its rating on most memory chipmakers -- including the world's No.2 memory chip supplier, Micron Technology Inc.
Micron vice president Kipp Bedard said yesterday that supply would almost meet demand this year, citing slower increase in supply due to the slow transition to advanced technologies and stable new investment.
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