Updated from 12:30 p.m. EDT
semiconductor industry conference this week, one voice briefly spoke in somber tones: James Bagley, the chief executive of
, a Fremont, Calif.-based maker of semiconductor assembly systems, said shortages in raw materials could slow growth.
His caveats were shouted down as a chorus of analysts filed reports from the convention, but a weightier voice soon joined Bagley's. Robert Growney, the chief executive of
, a semiconductor industry powerhouse, said his company is "not ready to talk about what the industry numbers are for next year yet."
Still, "we're starting to forecast a little bit less growth than we've seen this year," he told analysts in a conference call Thursday morning. "We're in the stages right now of that discussion. We're going to be talking about that in future meetings, future calls."
For now, the procrastination seems to suit Wall Street better than the warnings. After a year and a half of torrid growth, the notoriously cyclical industry must eventually enter a downturn. But in this time of raving self-appraisal, analysts have been loath to predict its start.
Semiconductor Equipment and Materials International
, a trade association sponsoring the conference, which takes place in San Francisco July 10-12 and in San Jose July 12-14, said the equipment industry would grow as much as 37% this year, reaching $34.5 billion. The trade group polled 65 of its member companies.
And hopes for the chips themselves are nearly as ebullient. The
Semiconductor Industry Association
predicts that chip sales will grow 31% to $195 billion this year and 25% to $244 billion in 2001.
, the semiconductor arm of the research house
, expects sales to reach $222 billion this year.
The nicely dovetailed enthusiasm is unsurprising, if only because the separate businesses of assembling computer chips and of making equipment for that purpose are hopelessly interlocked. "It's kind of a chicken and egg situation," said Joseph Byrnes, senior analyst of Dataquest.
Wall Street's reaction to Bagley's comments showed brokerage house analysts are hesitant to interfere.
"Management of Lam Research expressed the view that component shortages could limit the growth in wafer fab equipment sales to 55% in 2001
compared to higher earlier estimates," wrote Edward C. White, analyst for
. "Among the items the company cited as being in short supply was aluminum."
But White added that equipment makers are prepared for supply problems and will likely still expand their capital spending by 76% over the 1999 level. And other analysts, including Robert Maire of
, reported from the conference that Bagley's comments could be safely ignored. They were "taken out of context," he wrote, and "blown way out of proportion."
Glen Yeung, analyst for
Salomon Smith Barney
, wrote that investors' reaction -- Lam's shares fell 1 5/8 to close at 35 5/8 Tuesday after the analyst meeting -- showed that Bagley's comments were "clearly misinterpreted by the press." Lam finished Thursday regular trading up 1/4, or 0.7%, at 36 1/4.
The statements "were simply meant to note that the demand for equipment was pushing the limits of the equipment company's ability to supply the market
usually a positive dilemma," Yeung wrote.
Other analysts did not dispute his point, though many have long maintained that supply has driven the 18-month surge in semiconductor stocks. The
Philadelphia Semiconductor Index
gained 602% from October 1998 to March 2000. The index was up 3% Thursday
Perhaps ironically, even a supply crunch on equipment makers could bear a silver lining, offering chipmakers potential salvation from one of few publicly forwarded negative predictions. Byrnes, the Dataquest analyst, said he expected a "supply side-driven downturn after the companies over-invest."
In other words, he said, chipmakers are bound to feel the swelling demand and spend too much on new factories, partly because semiconductor manufacturing equipment is added in large increments.
have already announced plans for new factories.
If a shortage of parts for assembly equipment develops, the companies will likely base their decisions on demand. Seeking to provide reassurance against a supply shortage, Maire, the Bear Stearns analyst, offered a scenario that would seemingly amplify Byrnes' over-investment thesis:
"Companies will go to extremes before they'll let the lack of a 25-cent part stop the shipment of a multimillion-dollar system," he wrote. "If we have to pay a buck to get that 25-cent part during a shortage, it's a small price to pay."
For the chipmakers, even Motorola's disappointing quarter -- the company
failed to meet many analysts' revenue expectations Wednesday, reaching earnings estimates by slashing sales, general and administrative expenses -- has failed to draw negative predictions from analysts.
In their conference call, Motorola officials predicted 30% growth for the remainder of the year, but lowered predictions for next year to 25% from the previously stated 25% to 30%.
"I don't want to read too much into it because it's early," said Ariane Mahler, analyst for
Dresdner Kleinwort Benson
. "But it's a bit of a slowdown."