Demand for personal computers, which account for up to 30 percent of made-to-order chip orders, may fall further. Hewlett-Packard Co last month said PC sales in the third quarter ending in July will be unchanged to 5 percent lower than in the year-earlier period.
Much depends on whether the market is lifted by Intel Corp's latest version of its Pentium 4 processor, which may encourage buyers to upgrade to speedier computer models later this year.
When demand does pick up chip foundries may be among the first to benefit as their customers seek to keep a lid on costs.
Chip manufacturers are agonizing over when to build plants which will use 12-inch silicon wafers. Most plants now use 8-inch wafers.
Chipmakers calculate the upgrade will save up to 40 percent in the cost of manufacturing because they can cut more chips from the wafer. The savings come at a high cost, though. A new production line using 12-inch wafers can cost as much as US$3 billion, more than double the cost of existing plants.
TSMC and UMC have said they intend to be among the first in the industry-wide shift, forcing many of the smaller makers and some equipment makers to give up their chip businesses in favor of buying from dedicated producers.
"No one is doubting that the foundry model is here to stay," said Keon Han, a technology analysts at Bear Stearns Asia, in Hong Kong.
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