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Thursday, September 07, 2006

Intel’s Cuts the First of Many

By William Trent, CFA of Stock Market Beat

Seems like only yesterday (what do you know - it was) that we last updated the semiconductor supply/demand situation. We noted the positive outlook from the Semiconductor Industry Association:

“Capital spending and capacity utilization continue to be in balance,” (SIA President George) Scalise noted. Capital spending in 2006 is expected to amount to approximately 22 percent of semiconductor sales, which is in line with anticipated technology requirements and anticipated sales growth. Capacity utilization edged up slightly in the second quarter of the year, from 89 percent to 91 percent, with leading-edge capacity at 97 percent.

That didn’t jibe with our data. And sure enough, Intel annouced it would cut its 2007 capital spending budget by $1 billion. This capex cut “avoidance” is exactly what we have been predicting for months.

Intel has had the most difficulties, and is the first to announce significant cuts (though as Paul Kedrosky points out, the job cuts don’t even reverse the number of recent hires.) But the whole industry has too much capacity. And until it gets filled, expect the manufacturers to “avoid” as much capex as they can.

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