Semiconductor Industry Poised For Comeback After Dismal 1996, Chip Makers Expect Better Times This Year

For the semiconductor industry, 1996 was the year to forget.

Overproduction of memory chips led to plunging prices. A slowdown in personal computer sales helped push down orders. Those factors sent many chip companies’ shares falling.

In the last few months of 1996, though, the industry’s fortunes appeared to be on the rebound. The Semiconductor Industry Association’s key indicator, the ratio of orders to sales, posted healthy results in November and December.

Several analysts expect the market for new consumer-electronics devices that use cutting-edge logic chips, such as digital wireless telephones and still-video cameras, to boom later this year.

“It’s looking like it will be a happy new year for the industry,” said David Wu, an analyst with ABN.AMRO Chicago Corp. in New York.

One industry standout last year was microprocessor giant Intel Corp., which reported that its profits in the fourth quarter surged to $2.13 a share from 98 cents a year earlier.

Much of Intel’s growth was the result of strong demand for its processors from both outside the United States and from corporations switching to systems that run on the chip-maker’s newest product, the Pentium Pro.

Both those trends are expected to continue over the next several years, analysts said. Intel makes 58 percent of its sales outside North and South America.

“We’re heavily pushing new users in developing economies,” Craig Barrett, Intel’s chief operating officer, said in an interview. “These markets used to be seen as dumping grounds for technologies that couldn’t be sold in the United States or Europe. … Now, a lot more are interested in leading-edge technology, and that’s been very good to Intel.”

Intel also hopes a new version of the Pentium that increases the performance of multimedia software will keep driving sales in the consumer market.

At the same time, Intel and other semiconductor makers are warily watching the growth of the personal computer industry, which consumes about 40 percent of all chips produced each year, according to several analysts’ estimates. The worldwide PC industry has grown by more than 20 percent for each of the last five years, but that rate is expected to drop to about 15 percent this year, analysts said.

High-end chip-makers are expected to have a reasonably good year, especially in the second half, analysts say. Among those are the manufacturers of “systems on a chip,” sophisticated logic devices that include a processor and memory on the same wafer. These devices are expected to be the brains of new consumerelectronics devices such as digital video discs and digital wireless phones.

Growth estimates for the semiconductor sector vary from the SIA’s 7-percent prediction to a 15-percent forecast by Jonathan J. Joseph, an analyst at Montgomery Securities.

For memory-chip makers, 1997 is not expected to bring immediate relief, said Ashok Kumar, an analyst at Southcoast Capital Corp. in Austin, Texas.

Memory chips, specifically dynamic random-access memory, or DRAM chips, make up about 20 percent of the total microchip market.