Chipmakers Add Up The Calamities

Capacity glut, vanishing margins--and it's not over yet

Pity the chip industry. It has long been beset by boom-and-bust cycles every three or four years. Then Asian government policies made matters worse. Aiming to duplicate Japan's takeover of memory chips in the 1980s, first Korea and then Taiwan and Singapore hatched plans to build scads of new semiconductor plants as a matter of national prestige, with little regard for business realities. The result: a huge worldwide capacity glut, plummeting prices, and vanishing margins for everyone.

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