Forecaster warns of possible industry downturn

Forecaster warns of possible industry downturn
CUPERTINO, Calif. — It's premature to pop corks and celebrate the 1999 chip recovery, according to Advanced Forecasting Inc., an industry research firm that's maintaining "cautious pessimism" in its outlook until next month.

The forecasting company today warned that double-booking of products could come back to bite chip suppliers and capital equipment houses by tricking them into believing that a long, strong recovery is underway. "We are maintaining cautious pessimism because our quantitative models are indicating that things may not be as rosy as many think," said Moshe Handelsman, president of Advanced Forecasting Inc. (AFI), based here. AFI is now warning clients that the industry may be on the verge of yet another downturn.

"Our quantitative models continue to provide indications that are contrary to what most semiconductor industry analysts are calling for in the short-term future," said Handelsman. He said that November's measurements of the key economic factors behind AFI's forecasting model will be crucial as to whether or not his company issues a special alert to clients.

"The present upturn looks strong because it is being compared to the deep recession of 1998," Handelsman said. "Some of the good feeling attributable to the mushrooming backlog may be unfounded if that backlog is based on double bookings." Handelsman noted that overbookings is both a symptom and a cause of the IC industry's inability to forecast demand for products. He said buyers often overbook because there are no penalties for cancellations.

Advanced Forecasting Inc. bases its forecasts on detecting what it calls industry turning points. "We have called 90 percent of the IC industry turning points since 1986 — and withoutretroactive modifications of our forecasts," said Patrick Driscoll, vice president of sales and marketing at AFI. "It appears there is a good chance we may be informing our clients of another turn.

"One major IC vendor told us recently that they receive forecasts from some of their customers that are wrong by as much as 200 percent," Driscoll said. "That is nothing short of horrible and yet not uncommon."

Handelsman said a forecast of an absolute annual growth rate can by itself be misleading. "If, as part of the overall growth there is an unanticipated downturn, then the annual growth rate is meaningless," he said. Handelsman said he believes too many IC industry forecasts are wrong because they are based on opinions.

"We are maintaining cautious pessimism because our quantitative models are indicating that things may not be as rosy as many think," he said.