Round II: U, V, W or Canoe

A friend sent me a note this past week saying, "I am surprised we have not heard more about the shape of this recovery from the sell-side analyst community. Is it going to be a U, V, W or canoe?" Earlier this year I debated that very question. I am in the camp that expects a W shaped recovery for the chip industry. This is close to a canoe shape in that total levels, as measured by global semiconductor and semiconductor equipment sales, will probably not move up and down in any significant manner. The feature of the W, which is similar to the canoe, is that there will be pockets of weakness and strength in specific industry categories. W is another way of saying we’ll be hopping over the canoe seats, from the back to the front - hopefully moving toward another, stronger growth period. All the debate about when the next cycle will occur has caused a bifurcation in the ranks of those providing industry outlooks. There are those that are outright bearish, anticipating that business has changed forever and that stock prices will visit new lows. There are those that bullish, expecting the inventory burn to eventually push factory utilization rates higher. I didn't attend ISS (Industry Strategy Symposium) this year but some have told me that the really bearish believe that chip and chip equipment industry companies are incapable of finding their own shadows. I don't believe this is the case. That said, I am not going to argue that the chip industry has been in a major transition during the last four years. The rest of this piece, along with all the industry data charts, is available for subscribers here: http://www.infras.com/infra/letters/infras040508.pdf