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Applied Materials sees failures in chip gear sector

Applied Materials Inc's chief executive said on Tuesday there will be more failures in the semiconductor equipment sector in future as the number of customers declines.

Slammed by sluggish demand and high development costs, chipmakers are joining hands to survive, but that is not happening among their equipment suppliers, Mike Splinter told a group of reporters on Tuesday.

Acquisitions in the chip gear sector are “very difficult” to conduct, Splinter said. “That leaves very few avenues to give consolidation, other than ... companies failing.”

Technological differences often hinder chip equipment makers from joining together even when the biggest are flush with cash.

Combining technologies takes precious time while rivals move forward, and scrapping one firm's technological base means overhauling equipment and high restructuring costs.

Orders for semiconductor equipment are emerging from near record lows, as chip makers replenish their inventory. Chip sales inched up 6% in April from March.

But the orders are still a fraction of levels from a year ago, while the world's No.2 PC maker Dell Inc said last week there was not enough momentum in the PC market to call a bottom yet.

Chip makers are still thinking twice about investing big sums to make smaller, more powerful chips, as they deal with ongoing losses that are eroding their capital and that drove Spansion to file for Chapter 11 bankruptcy protection and Qimonda into insolvency.

“The semiconductor equipment industry cannot support the necessary level of R&D without some amount of consolidation,” Splinter said. “Today there is too much repetition, too much waste in the industry.”

Applied Materials competes with No.2 chip equipment maker Tokyo Electron of Japan.

Sliding prices and a weak demand outlook have forced chipmakers to team up to cut mounting development and equipment costs.

PC memory makers Nanya Tech, Micron and Taiwan's Inotera are joining hands as are Taiwan Memory Co and Japan's Elpida Memory Inc.

Intel Corp, Samsung Electronics Co Ltd and Toshiba Corp are jointly developing advanced chips, while Japanese microcontroller makers NEC Electronics and Renesas Technology are in talks to merge. (Reuters)