Comment Articles

When the chips are down...

Guy Kewney AnchorDesk

Published: 21 Jun 2001 16:43 BST

If you want to see the parallel situation, look back to 1985.

And yet, the news today couldn't sound a lot worse, with Gartner Group forecasting the worst ever year for memory chip makers. Also, several microelectronics companies who make components for the mobile phone business are staring at the collapse of their market.

But I feel the underlying problems are starting to look less worrying. Here's my logic: we've been here before, and the pattern is repeating itself.

First off, you may remember that over the last two years, this column has been warning of the hard times we're now experiencing. That was based on two underlying factors.

First, and most important, finance folk were hopelessly out of touch with reality in the technology world. They were living in a dream world where every high-tech startup might be "the next Microsoft" and where the astute investor might turn a few hundred dollars into several million by backing the right horse. And it got to the stage where every computer-related company was seeing its shares sell at prices which implied that you'd get four times as much money out of an investment in them, than in a blue-chip company like British Airways.

It was always certain that reality would catch up. And it has. Some say, we're still not at the bottom, but that's an argument for finance experts; we may well be.

Which brings me to the second indicator: the underlying trends in semiconductors. They usually foretell economic slowdowns, and they've been pointing clearly to the current doldrums.

But the collapse in memory markets is, I feel, not part of that.

What it is, is a symptom of the PC slowdown. And that's not caused by economic depression. It's caused by one of those quantum steps in the PC technology.

Last time we saw this sort of slowdown, was when the Pentium Pro was being born. The market wanted the Pentium II, and it wasn't ready; there was no need for the Pentium Pro except in a few, unimportant markets for specialist servers.