SAN FRANCISCO -- The market for semiconductor equipment has weakened this year as cautious chipmakers have held off expanding, but the trend is expected to reverse as factory use improves during the coming months, according to a semiconductor equipment trade group.

"No one likes a downturn, but this is relatively mild," said Stanley Myers, chief executive of trade group Semiconductor Equipment & Materials International.

SEMI predicted on Monday that global equipment sales would drop 12% this year followed by growth of 8.1% in 2006. SEMI updated its industry outlook to kick off this year's Semicon West, an annual trade show held here.

The new forecast for 2005 represents a weakening from earlier predictions, but Myers said factory capacity utilization has likely bottomed out for the year and equipment orders have stabilized.

Equipment companies are still holding on tight, however, planning for more months of lackluster growth.


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is requesting employees from certain departments take two weeks of vacation at some point during the September quarter and

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will hold a two-week shutdown over Christmas and New Year's.

How the year ends up remains to be seen. Industry forecasts have proven extremely erratic and subject to revision.

"This has never been a static business," said George Scalise, president of chip trade group, Semiconductor Industry Association. "It never goes in a straight line up and to the right."

For instance, SEMI began 2004 by predicting growth of 39% for the approaching 12 months and 18% in 2005. By July 2004, those predictions had been retooled to reflect expected 2004 growth of 63% and growth of 24% for 2005. By December 2004, those expectations were again overhauled to reflect expected growth of 59% in 2004 and a contraction of 5.1% in 2005. Even that wasn't good enough, however, as actual growth in 2004 finished at 67%.

Other researchers also suffer from the same predictive ailments. In July 2004, Gartner predicted capital equipment growth for 2005 of 15% and a contraction of 18% in 2006. Last week, Gartner said capital equipment spending would decline 12% this year and contract only slightly in 2006.

At the heart of this is the unpredictability of the semiconductor cycle, which helps explain much of why investors have been unable to support the sector this year, when equipment stocks have underperformed their semiconductor and tech peers.

Executives say they are trying to spark revenue and earnings growth, no matter what point of the business cycle the industry may find itself in. Mergers are becoming more common, as are restructurings and turf poaching.

On Monday,

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in a $425 million stock-swap transaction. Brooks also announced it would miss its revenue targets for the current quarter.

Likewise, KLA-Tencor CEO Ken Schroeder said this year's results remain subject to the whims of customers. He cited some strengthening in foundries during the past few weeks as a possible indicator that all is not lost this year.

Still, his disclosure on Monday of KLA-Tencor's coming vacation plans indicate that a sharp snapback is largely not in the realm of possibilities. For investors, this is another cautionary note in an ongoing tune.