See Shasta; I am referring to a 6 month old Reuters article, and comments made during the recent NVLS mid-Q update regarding the intent to explore cost-cutting options. I found and pasted the article below (see next-to-last paragraph), but I'm still looking for the analyst comment that renewed the cost cutting and layoff connection.
CHIP GEAR INDUSTRY SEEN BRACING FOR LAYOFFS
BY DANIEL SORID
REUTERS
SAN FRANCISCO — The $22-billion industry that supplies production equipment to chip makers appears to be bracing for layoffs as it heads into a long winter of slumping business, according to analysts.
Analysts who have been briefed on cost-cutting preparations say the first round of layoffs could be announced as early as Wednesday, when Novellus Systems (NVLS) reports quarterly results.
"We think they will be under pressure to reduce costs, and headcount reduction will probably be one of those," said Mark FitzGerald, an analyst with Banc of America Securities, speaking of Novellus. "I would bet on that."
Novellus declined to comment on any plans for layoffs.
Merrill Lynch analyst Brett Hodess said hiring freezes were already in effect at major equipment suppliers, although he declined to specify which ones. "There's talk about the potential for layoffs, but not that they've actually been formally decided."
The very notion of layoffs flies in the face of the industry's projections that there is at least one more year left of strong growth in the current up-cycle, which followed the worst downturn on record in 2001 and 2002. In July, the trade group Semiconductor Equipment and Materials International forecast 63% sales growth this year and 24% growth next year.
But now analysts are betting not on the magnitude of growth, but on how far orders for new equipment will fall in the fourth quarter. Novellus, the first major chip equipment supplier to report quarterly earnings, is expected by many analysts to forecast a fall in fourth-quarter orders of as much as 10%.
The prime reason for the change, said Hodess, is a "double whammy" of chip inventories and larger-than-expected production capacity growth. As a result, chip makers' factory utilization rates — a measure of how close chip factories are to capacity — could fall 10% to 12% in the next few quarters.
"When that occurs the semiconductor companies put on the brakes in terms of capital spending" on chip-making tools, Hodess said.
Bill Ong, an analyst with American Technology Research, said his own checks with industry officials suggest that two large suppliers of chip-making tools will announce work force reductions by the end of October, averaging about 10% each. He declined to name the two companies where he expects cuts.
Applied Materials, the world's largest supplier of chip-making gear, has kept its work force flat during the upturn of the last year-and-a-half in an attempt to avoid painful layoffs.
Between 2001 and 2003, the Santa Clara, California-based company slashed 5,000 jobs from its work force of 17,000. Chief Executive Michael Splinter, who is now reorganizing his management team to make more streamlined decision-making, has pledged not to repeat that mistake.
A call to a spokesman for Applied Materials was not immediately returned.
Novellus, on the other hand, has taken a more aggressive stance, pledging in July to slowly grow its staff levels even if it meant layoffs down the road.
"When you grow, it would be foolish not to hire and not take advantage of growth just because there may be pain in the future," CEO Richard Hill said in July.
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