The year 1985 was one of the worst in the relatively short histories for the computer and semiconductor industries.
Forecasts for 1986 are cautiously optimistic that growth curves will improve–but many analysts warn that it probably will be late in the year before either industry can be categorized as healthy.
Analysts also say it is unlikely that either computer or semiconductor companies will ever again bask in the glorious growth of the past, when 50 to 70 percent growth rates were not uncommon.
In 1985, the U.S. computer industry generally showed meager growth in terms of dollars, although sales spurted in December. The nation`s
semiconductor industry fared even worse, posting significant revenue declines. The dollar value of worldwide computer systems shipped by U.S.-based manufacturers increased by only 4.7 percent in 1985, according to estimates by International Data Corp. (IDC) in its ”Computer Industry Review and Forecast, 1980-1989.”
That doesn`t compare too favorably with a healthy increase of 28.3 percent in 1984. The group is predicting that 1986 will be better, with growth of about 15 percent.
”The 1986 rebound will most likely be the highest growth figure we will see for the rest of the decade,” said Donald Bellomy, editor of the Review and Forecast.
Among the different categories of computers, PCs (personal computers)
were the star performers, despite all the major and minor catastrophes that beset individual companies in that industry segment during the long year.
It is only in comparison to the meteoric growth of PCs in previous years that 1985 can be categorized as ”bad.” In fact, from September through November, orders from computer retailers were up 8 percent from the like period in 1984, for a total of $1.29 billion, said IMS America Ltd., a market researcher.
According to Bellomy, the PC segment showed growth of just under 20 percent, a significant factor now that PC sales account for almost 35 percent of worldwide computer shipments in terms of dollars.
Nonetheless, the gloomy annual reports for many PC companies reflect the fact that many manufacturers were expecting another year like 1984, if not better. In that golden year of micro-computers, the value of shipments increased 58.3 percent from the preceding year.
The growth of the personal computer market does have a downside: Unit shipments of PCs in 1985 were up only 3.3 percent worldwide but were down 5 percent in the U.S., according to the IDC analysis.
However, he forecasts that the PC segment will continue to be the fastest growing part of the industry, with a 16.3 percent compound annual growth rate for shipment value from 1984 through 1989.
For large scale mainframe computers, 1985 was a slow year, and the dollar value of shipments will be 15.5 percent below 1984, Review and Forecast estimates. Most of the stagnation in the mainframe market can be explained away easily, as customers waited for IBM`s new Sierra model to hit the market, which it did in the fourth quarter.
Its enthusiastic reception leads industry seers to predict a heady growth rate of almost 35 percent for this segment in 1986.
Most mini-computer companies suffered a difficult year, and the category itself is under increasing pressure, as supermicros seem to be gaining popularity with small-systems customers, and superminis have become the norm for medium-scale systems, Bellomy said.
In the semiconductor market, where analysts and company officials have talked about it ”bumping along the bottom” for a full year now, a modest upturn could be in bloom. At least, they say, the worst seems to be over.
Estimates by James L. Barlage, an analyst with Smith Barney, Harris Upham & Co. show that the U.S. semiconductor industry experienced a 20 percent revenue decline in 1985. He is predicting modest growth of 10 percent for 1986.
He sees the likelihood of significant company losses in 1985, and says that 1986 is likely to bring breakeven results at best.
Industry players are almost superstitious about touting the end of the slump, after confidently predicting its end so many times during its 15-month duration.
Charles Sporck, president and chief executive officer of National Semiconductor Corp., pointed to modest improvements in orders in the company`s 12-week long fiscal second quarter, ended Dec. 15, which resulted in a backlog increase for the first time since fiscal 1984.
However, he hastened to say that until such growth is prolonged, the company`s finances will continue to be pressured. At the same time, the company announced a $34.8 million loss for the period, and a decline in revenues from a year earlier.
Most of the muted optimism in the semiconductor industry is tied to the steady climb of the book-to-bill ratio, an industry barometer that measures the ratio of new orders to current shipments. The ratio climbed to 0.82 in October and 0.90 in November (both numbers are preliminary), the highest levels for 1985. The closely watched ratio fell below 1 in September, 1984, and since than hasn`t reached that level–in which new orders and current shipments are in balance.
Some analysts say the growth in the book-to-bill ratio, which was expected to lag again in December–traditionally a slow period for the industry–could be attributed in part to the current low level of shipments.
However, many observers point to the gradual orders increase and recent modest order activity by original equipment manufacturers as an indication that the mountains of excess inventory that have been haunting the industry are finally nearing depletion.
It is generally assumed that 1985 has been the worst year in the industry`s history. Smith Barney`s Barlage agreed, but said that 1975 was nearly as bad, and by some measures worse.
Revenue drops were virtually identical in the two years of decline, but unit sales fell off much more sharply in 1975. He explained that pricing pressures caused by Japanese competition in 1985 resulted in lower prices and revenues.
”However, considering the writeoffs and plant closure costs, together with the weaker pricing, industry profits (or lack thereof) were much worse in 1985 than in 1975,” he said.
”The comeback won`t be as fast in 1986 as it was in 1976, either” he predicted. ”Capital spending is likely to remain quite sluggish in 1986.”
