subject: The Current Earnings Season Is Coming [print this page] With the current earnings season coming to a close, the outlook for the next round includes the probability of further weakness. The semiconductor equipment industry will lead the downward trend and be a substantial drag on the overall economy as well.
The next ten days will see the release of the last few straggling high-tech earnings reports for the end of 2000-beginning of 2001 period. This week's reports from Applied Materials, Dell and Hewlett-Packard should contain few surprises, as company guidance and analysts' expectations have been revised steadily downward.
Next week, two of the largest electronics wholesalers, Arrow Electronics and Ingram Micro, will provide an indication of the severity of the inventory bulge in the components and hardware industries.
Looking forward, PC spending will continue to slump, particularly in the consumer market. No substantial new releases are in the pipeline to start a fire under consumer demand. With job creation decelerating, the saturated business market will remain stagnant as well.
The one bright spot will continue to be internal database and network infrastructure projects; boosting both diversified hardware and software suppliers. This positive contributor may be enough to offset the constraint form the PC manufacturing slowdown on the overall economy, but not the steep downturn ongoing in semiconductors.
The expectation of near-30% gains in semiconductor sales prompted a boom in equipment sales to semiconductor manufacturers, providing the primary growth driver for industrial investment in the second and third quarters of 2000. With U. 8 demand for high-tech goods decelerating, the actual global annual growth in semiconductor sales is now expected to stabilize in the low to mid-20s after the initial inventory bulge is worked off. So a slowdown in equipment spending will also ensue.
Globally, capital spending on chip plants reached nearly $ 60 billion in 2000, up two thirds from the previous year. U. S. manufacturers have a market share of just over 50%, and their share of equipment spending is likely higher given their specialization in more advanced products.
Thus, out of the $ 5 billion increase in domestic industrial equipment spending in each of the first three quarters, $ 3 to $ 4 billion was generated by the semiconductor industry.
Both prices and overall demand began to slide by October. Global chip sales decelerated further in December, the fourth consecutive monthly slowdown. Year-over-year growth has now dropped 30 percentage points since August, to 22. Late 1999 is tough comparison period; however, since dollar volume sales were inflated above trend due to price spikes following the October 1999 Taiwanese earthquake.
Nonetheless, a clear slowing trend has been established. Consensus expectations are for stabilization in the mid-20 % range.
The impact on U. 8.manufacturer has been dampened by their reduced reliance on commodity-type memory chips. Still, the fourth quarter on average was still down.
Numerous global chipmakers are reporting cutbacks in expansion plans for the current year. As East Asian manufacturers have been the most aggressive in expanding capacity, cutbacks will be sharpest there. Most recently, the Taiwan Semiconductor Manufacturing Corporation announced that capital spending plans for 2001 have been curtailed by one-third.
