He then compared the integrated device manufacturers12 with the foundries.13 The IDMs traditionally invest about 23 percent of sales to maintain a 17 percent compound annual growth rate (CAGR). Capital investment for the industry as a whole was then well above that range, which he attributed to heavy spending on new plants by the foundry groups—a trend that he said would soon come “back into balance.”

Another “piece of good news” that might bring the industry back into balance in the relatively near term is the book-to-bill ratio for equipment, as opposed to that for semiconductors. Although the ratio had been unfavorable (below unity) since February 2001, it had more recently been moving steadily closer to unity.

Capacity utilization rates, at an average of about 72 percent, were unfavorable and not showing improvement. However, he said, if the companies were broken down into IDMs and foundries, the rates for IDMs were 82 to 84 percent, whereas the foundries were between 30 and 40 percent and had not yet stabilized.

Prices and Inventory

A point that had been discussed late in the morning session concerned functionality and price, measured by the chip price/performance index. This index comprehends not just microprocessors and memory, but a broad spectrum of products. The index is moving at a rate slightly below what Moore’s Law would “require,” which seemed to reflect the excess manufacturing capacity and the resulting price pressures. However, Mr. Scalise said that prices were beginning to return to the 30-percent-per-year rate of decline of recent years. He turned then to excess inventory, which at the beginning of 2001 was at about $15 billion worth of product. That amount had been reduced by nearly half during the year, while demand had grown—“a combination that bodes well for the outlook from here.”

A Turn in the Cycle?

One piece of justification for that optimism was that consumption had begun to exceed shipments for the first time since about April 2001, which was beginning to bring down the inventory in the channel. In the view of the SIA, that meant that the September quarter would be the last down quarter of the current semiconductor cycle, and that the December quarter would be the first growth quarter of the next cycle. As a consequence of September 11, he said, the Septem-


The IDMs, which include IBM, Intel, and Texas Instruments, are companies that integrate multiple functions, including research, design, and manufacture, in one company.


“Foundries,” such as Taiwan Semiconductor Manufacturing Co. and United Microelectronics Co., focus almost exclusively on manufacturing for IDMs and “fabless” customers that lack manufacturing facilities.

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