The semiconductor industry has been among the hardest hit by the slowdown in global economic growth ...
The semiconductor industry has been among the hardest hit by the slowdown in global economic growth over the past year, with companies plagued by overcapacity, pricing pressures and lack of demand for their products.
For most semiconductor manufacturers, the third quarter of this year was particularly grim, with many companies experiencing a sharp reduction in sales and revenues.
But is this picture about to change? Clearly, as far as equity markets are concerned, the impressive performance of semiconductor manufacturers of late suggests the outlook for the industry is brighter.
There are several reasons for this: firstly, the cyclical nature of the global semiconductor market makes it extremely sensitive to economic growth. With economists predicting a rebound in global economic growth during 2002, semiconductor manufacturers are expected to be among the first to benefit. The supply-demand chain is becoming increasingly positive and if economic growth picks up as anticipated, corporate spending on information technology is likely to increase.
Although many analysts believe the industry may now have troughed, we are not yet convinced the turnaround will be as great as current share price levels indicate. For the industry as a whole, seasonal demand and the prospect of an upturn in economic activity next year are underpinning demand for computer and chip-dependent products, and should result in a more attractive operating environment in 2002.
Simon Melluish is head of US equities at Gartmore
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