Intel chief doesn't see telecom chips rebounding yet

Demand for microchips in the communications sector will take far longer to recover than that for use in personal computers, the head of the world's largest chipmaker said during a high-tech forum in Taipei yesterday.

"I'm afraid the communications industry will be sick for the next six or 12 months," Intel CEO Craig Barrett said. "The computer area will come out of recession faster than the communications area."

This news could not come at a worse time for United Microelectronics Corp (聯電), Taiwan's second-largest semiconductor foundry, which makes chips based on customer designs. Analysts say the majority of UMC's customers are companies that provide chips to the telecommunications industry for use in mobile phones, routers and base-station equipment.

"UMC [has said] that second-quarter sales will be down 35 percent quarter on quarter ... sectors such as telecoms, where UMC has greater exposure, are hurting now," said one analyst who requested anonymity for fear of souring his relationship with the company.

The analyst pointed out that UMC's top competitor, Taiwan Semiconductor Manufacturing Co (台積電), makes more chips for use in the personal computer market, a sector which is seeing better growth than telecommunications. TSMC reported a slim profit of US$8.9 million for the second quarter, while UMC is expected to announce a steep operating loss at its second quarter investors' conference today.

Barrett blamed marketing hype for the sinking market for telecoms equipment. Companies promoting the capabilities and speed of third-generation mobile Internet systems and mobile phones -- as well as over-investment in fiber-optic networks globally -- caused the industry's woes, he said.

Worldwide, just 5 percent to 10 percent of all installed fiber-optic cable bandwidth is used today, according to Barrett. In addition to this great under-utilization, there will be less mobile phones sold this year than last, adding to the struggle chipmakers face to increase sales.

Barrett called the slumping telecoms sector the primary cause for a 20 percent to 25 percent drop in the entire market for semiconductors this year.

The bright spot for the chip industry continues to be its mainstay, personal computers. Barrett believes computer sales will increase later this year during the start of the new school year and the holiday season.

New technology, like his firm's Pentium 4 microprocessors, should also boost sales, he said, pointing out that currently China leads the world in purchases of Intel's fastest Pentium 4 chips.

Chinese firms such as the Legend Group (聯想集團), China's top computer manufacturer, have been very aggressive in buying Pentium 4 chips and building low-cost computer systems for the local market, he said.

The Intel CEO emphasized that Pentium 4 sales in China were going to consumers, not to manufacturers that would put them into computers for re-export to the world market.

Also See Story: Intel CEO tells Taiwan to focus efforts on R&D