Stormy Weather For ChipmakersStormy Weather For Chipmakers

When it rains, it pours. A drizzle of bad news soon turned into a deluge for the semiconductor industry Wednesday.

First, Toshiba Corp., Japan's biggest chipmaker, citing weakened demand and a soft market, said it would cut back production of chips, halting operations at two plants for several weeks this summer. Hours later, Infineon Technologies AG, the second-largest chipmaker in Europe, warned of a greater than expected loss in the third quarter, predicted another loss in the fourth, and forecast a 20% drop in global chip sales for the year. Infineon blames the problems on excess inventories and slumping sales of mobile phones.

But the bad news didn't end there. Next up was Intel CEO Craig Barrett, who said that his company would consider cutting capital expenditures next year if the market doesn't recover soon. Intel, the world's largest chipmaker, has so far been one of the most upbeat on the state of the industry, and Barrett says he still expects an uptick in the second half of the year. "We'll watch what goes on in the next three to six months," Barrett told the Reuters news service. And all this comes on the heels of Tuesday's troubles, when Merrill Lynch cut estimates on Advanced Micro Devices Inc., and Lehman Brothers did the same for Intel and AMD. (Read "Analysts: Worst Not Over For Chipmakers AMD And Intel at information.com/story/IWK20010620S0001.)

Can there possibly be any more bad news? "It's hard to imagine things getting worse," says Morningstar analyst Jeremy Lopez. He doesn't expect a recovery any time soon. "We could hit bottom and stay there for a while, because there's a lot of inventory which still has to be absorbed." Lopez says the industry has just got to weather through the rough end of the technology business cycle. "The dust has to settle and it has to repeat itself," he says. "Who knows when that's going to happen."