In spite of the job cuts, Applied Materials may have one saving grace: its photovoltaic manufacturing gear. Analysts say high oil costs have made solar cells an affordable energy alternative. So, regardless of looming job cuts, Applied Materials may benefit from future growth.
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 The unveiling of a major cost-reduction plan at the world’s No. 1 seller of semiconductor manufacturing equipment is the latest signal that nervous chipmakers are scaling back their expansion plans for 2008.Applied Materials — which produces the equipment, software and services required for the fabrication of semiconductor chips, flat panels and solar photovoltaic cells — said it intends to reduce its global workforce by 7 percent through a combination of job elimination and attrition. The company also said it will spend $20 million to implement the cutbacks.”We are focused on improving operational efficiencies and the cost structure of our businesses, as well as enhancing our ability to pursue growth opportunities,” Applied Materials CEO Mike Splinter said. The cost-cutting move is expected to result in annual savings of $150 million in comparison with 2007 spending levels, Splinter added.A Bleak Assessment Splinter tried to place the new cost cuts within the broader context of moves that Applied Materials initiated last year. “To better serve our customers, last summer we reorganized our semiconductor equipment business into a single Silicon Systems Group, and we have achieved synergies across this organization as a result,” he said.But investors were unaware of the need for further measures until company executives spoke with analysts last November. “We see the first part of fiscal 2008 as challenging, particularly in the silicon business,” Splinter said during the company’s last earnings call. “It is a dynamic environment, and cautious signals from customers reflect their uncertainty.”Splinter’s bleak assessment was confirmed last month when the SEMI trade association noted that orders for new semiconductor equipment had plummeted to levels last seen in late 2005.”Semiconductor manufacturers have added a tremendous amount of 300-mm capacity over the past year,” explained SEMI CEO Stanley Meyers. “This, combined with the overall booking trends, indicates that investments will slow in the near term, which is consistent with concerns about the economy as a whole.” A Long-Overdue Correction Gartner Vice President Klaus Rinnen predicts that worldwide spending on semiconductor equipment during 2008 will decline by 9 percent from last year’s total. Adding to the downside is the “more cautious spending mood, with concerns about a U.S. economic recession rising,” Rinnen explained. Gartner researchers also foresee across-the-board negative spending in all major chipmaking equipment segments this year.The one industry bright spot pertains to sales of the equipment for making NAND flash memory chips, which are used in smartphones, music players and other mass-market devices.Rinnen sees growth ahead for sales of NAND chip-production equipment. However, the upswell in orders for NAND machines and related equipment will not offset a long-overdue correction in producing DRAM chips used in PCs and notebooks, Rinnen noted, and spending on DRAM-making equipment will contract.Even worse, the world’s top NAND-chip producers currently find themselves in an oversupply situation that analysts say will not be rectified until the third quarter of this year. Even then, much will depend on whether or not the United States has slipped into a recession, analysts cautioned.In spite of the job cuts, Applied Materials may have one saving grace: its photovoltaic manufacturing gear. Analysts say high oil costs have made solar cells an affordable energy alternative. So, regardless of looming job cuts, Applied Materials may benefit from future growth. |
