Advanced Micro to Lay Off 1,000 of Its U.S. Workers : Rivals’ Gloomy Profit Forecasts Also Point to Chip Slowdown
Evidence mounted Thursday that the semiconductor industry is undergoing a sharp slowdown as chip maker Advanced Micro Devices announced plans to lay off 1,000 U.S. workers and two other large domestic manufacturers projected disappointing sales.
One of those other chip makers, National Semiconductor Corp., said it expects to report a significant operating loss for its quarter ending Nov. 27. In addition, Jerry Junkins, chairman of Dallas-based Texas Instruments, another large semiconductor maker, told industry analysts in New York that he expects growth to slow in the worldwide semiconductor industry next year.
The announcements from the three companies came just a day after the Semiconductor Industry Assn. said a leading barometer of the industry’s health--the book-to-bill ratio--fell in October to the lowest level since 1986.
Although signs of the slowdown have gathered momentum for the past three months, many analysts are maintaining that the decline is a “temporary correction” in the latest chip-buying spree and does not signal a recession as severe as the one that hit the semiconductor industry in 1984 and 1985.
Buyers Sitting Tight
“It’s paying the piper for two very bullish years,” said Millard H. Phelps, an analyst with Hambrecht & Quist, a San Francisco brokerage firm. “We are not heading toward the free fall of 1985.
Still, analysts acknowledge that a slowdown has been triggered by an easing up of orders from personal computer manufacturers, which generally have enjoyed two years of very strong growth fueled by several new products that excited corporate buyers. Without a similar round of technology breakthroughs expected soon, one analyst said, corporate buyers are sitting tight and waiting.
“Signs are mounting the industry is in a transition from prosperity to tightness,” said Rothschild Inc. analyst Christopher Kirby.
The layoffs at Advanced Micro Devices, reducing its overall work force by about 10%, are scheduled for the first week of January and are expected to hit hardest at the company’s corporate headquarters in Sunnyvale, Calif., and at satellite manufacturing plants in nearby Santa Clara, as well as San Antonio and Houston. In September, the company announced that it was laying off 1,400 manufacturing workers in the Far East.
“We are taking immediate action to reduce costs to a level appropriate for anticipated sales levels,” Chairman W. J. Sanders said in a prepared statement. The company said it foresees little improvement in its business in the immediate future.
National Semiconductor of Santa Clara said it expects to lose money this quarter, its fiscal second quarter, largely because of a sharp decline in orders. The company said the loss could exceed $10 million.
In the first quarter of its current fiscal year, National Semiconductor reported a net loss of $30.5 million, which included a one-time pretax restructuring charge of $16.6 million.
Meanwhile, Texas Instruments Chairman Junkins told analysts that the 30% growth rate in chip sales cannot be maintained and that he expects a slowdown.
“I think that’s an unsustainable rate, and we are headed for some slowdown,” Junkins said.
However, Junkins said any future downturn will be nothing like what the semiconductor industry experienced in 1985, when the market for computer chips suffered from oversupply. Foreign companies contributed to the glut, he said, by dumping chips in the U.S. market.
THE DECLINE IN CHIP ORDERS--The book-to-bill ratio for U.S. semiconductors from November, 1987, to October, 1988. The ratio compares orders to shipments. October’s book-to-bill ratio of 0.92 means that for every $100 of semiconductors shipped by U.S. manufacturers, $92 in new orders were received.
