"We just had a 80%-plus growth year in 2000 and you have to pay the price for that," lamented Brad Mattson, founder and chief executive officer of Mattson Technology Inc. "The 'right' and historical growth rate is closer to 20%, and last year was 60% too high. Now, 2001 looks like a negative 40% year--some say minus 35%... Therefore the industry could under invest again.

"So we had our best year, followed by the worst year ever in history," he added, contrasting 2001 with 2000. Mattson and many of its counterparts at other fab tool suppliers now worry about keeping up with a potential sharp upturn, when business turns up.

Executives at Applied Materials Inc., the world's largest supplier of semiconductor productions systems, told analysts this week that the company is trying to do everything is can to avoid layoffs because it knows how hard it was to respond to the 1999-2000 recovery cycle following the prolonged downturn in the late 1990s. Applied and other major equipment vendors fell far behind in delivering new systems to chip makers and only later in 2000 did leadtimes on some tools fall back to normal levels--just in time for the current downturn.

Applied is desperately aiming to avoid "the hire-and-fire" cycle, said Joseph R. Bronson, executive vice president and chief financial officer at Applied. But he told analysts and the press on Monday that uncertain conditions and the likelihood of a "second phase" in the slowdown in capital spending will make it difficult to say if salary cuts, reduced work schedules, and other cost-cutting moves will be enough in the second half of 2001.

On Monday, Bronson said he was beginning to worry about the low profitability of semiconductor companies and their ability--as well as willingness--to continue investment plans in 300-mm fabs. He quickly added that so far there have been no major setbacks to the overall 300-mm movement and most projects remain on track (see July 16 story).

"We don't see a significant change in the rate of overall order patterns," said Applied Materials' CFO. "Planning is a very difficult issue. Last year we only missed the forecast by about 100%, and we will probably miss it by 100% this year," he said, referring to the unexpected boom in 2000 followed by the equally unexpected bust this year.

"It has become a very difficult thing to predict. In the near-term, particularly 2002, we will pretty much deal with it the forecast in six-month increments until we see a change in the general economy," Bronson added.

Most executives at Semicon West were throwing their hands up in disgust and uncertainty over the near-term future. Very few executives said they were willing to predict market conditions for 2002 because they still don't know how 2001 will end. The hopes for a significant uptick in business during the final months of 2001 are slipping away, but a bounce back is still possible, according to some managers.

However, most are asking for the summer off--in forecasting.

"There is no capacity being added for 8-inch fabs at all anywhere except for China," said Arthur W. Zafiropoulo, chairman and CEO at Ultratech Stepper Inc. "That is the only place adding capacity. If we take out SMIC Semiconductor Manufacturing International Corp. and Grace Semiconductor Manufacturing Corp. in China, and the numbers get worse," he said, referring to two aggressive startup foundries in the country.

"I think we have reached the bottom, but the business is going to bump along for a while and we won't have any visibility until I think October or November," Zafiropoulo said. "I think we will have to wait until September or October to see what will happen."

But the business of forecasting cannot stand still, and analysts as well as the Semiconductor Equipment and Materials International (SEMI) industry group--which sponsors the Semicon West trade show--this week issued new downgraded forecasts for suppliers.

SEMI's new midyear consensus forecast, based on a survey of its worldwide members, now shows a 35% decline in revenues for semiconductor equipment in 2001 at $31 billion compared to $47.7 billion in 2000. The forecast, released on Monday, also shows a slow, but steady recovery in the next three years with semiconductor capital equipment spending reaching $42.4 billion by 2003--still 11% below last year's $47.7 billion total (see table below).

Most executives said they believe forecasts will probably drop again from most market researchers before the end of the year, based on still weaker conditions in the third quarter. Where they end up, who knows. Stay tuned.

SEMI's New Forecast Shows Steady Recovery After 2001

Segment	2000	2001	2002	2003	2004
Chip equipment	$48 billion	$31 billion (-35%)	$35 billion (+12%)	$42 billion (+22%)	$53 billion (+26.2%)
Materials	$28 billion	$26 billion (-7.1%)	$28 billion (+7.7)	$32 billion (+12.5%)	$35 billion (+9.4%)
Services	$18 billion	$20 billion (-11.1%)	$22 billion (+10)	$23 billion (+4.5%)	$24 billion (+4.3%)
Total	$94 billion	$77 billion (-18.1%)	$85 billion (+10.4%)	$97 billion (+14.1%)	$112 billion (+13.4%)
Source: SEMI Midyear Consensus Forecast July 2001