Anatomy Of A Disaster

With the US Federal Reserve raising interest rates, and with more raises expected, Penn pointed out that “of 13 Fed tightenings, ten led to recessions and the only three that didn’t were because the Fed reversed the policy quickly.“

“Inflation kills the economy and reduces demand,” said Penn, “we are building capacity when the global economy is diving.”

”There’s a huge inflationary problem and huge cost of living problems which are going to kill demand – either would kill demand but both together will kill it quicker,” said Penn.

Penn thought that the present splurge on capex will not be cut back until the market collapses. “The companies’ capex forecasts won’t be met,” said Penn “if they are met, we’re really in trouble.”

Penn thought that the long lead times on equipment were a good thing because, if they were shorter it would only make things worse. “ Empty shells are not a problem,” he said, “they only become a problem when they’re full of equipment which is not being used.”

The enthusiasm of governments for having chip capacity in their regions is wrongheaded, suggested Penn. “No customers have asked for US-made or EU-made chips, it’s governments who are saying this is necessary,” said Penn “the situation is ridiculous.”

Asked what he thought about Morris Chang’s recent remark that the cost of American fab would never be as low as the cost of Asian fabs, Penn responded with Mandy Rice-Davies’ quip: “He would say that wouldn’t he?“ adding, “I have the highest respect for Morris, clearly US fabs need to be subsidised. Morris was always adamant about keeping TSMC’s fabs in Taiwan, but politics pushed it into building in the US.”

Penn‘s advice to the industry in the impending downturn was: “Paranoid is good. Keep a cool head. Keep a clear focus. In a boom be prepared for the market to turn tomorrow; in a slowdown prepare for it to turn today. Keep the froth, noise and hype in perspective.“