So sayeth the head of the World Semiconductor Council.

The head of the World Semiconductor Council warned yesterday that recent aggressive capacity cuts in the D-Ram memory chip sector were likely to result in a severe shortage by the end of the year that could disrupt shipments of computers and other electronics.

The global D-Ram sector faced its biggest crisis in its 16 years of existence last year as industry over-expansion coincided with a drop in demand for computers.

But Frank Huang, chairman of the World Semiconductor Council and also of Powerchip, one of the biggest Taiwan D-Ram makers, said the industry would begin to recover by the second half of this year, and downstream producers of PCs and other electronic products would face "a shortage bigger than I have ever seen in the past 16 years . . . this will affect global PC shipments".

Last year's crisis, reflected in the price of D-Ram falling by more than half to below cost for most producers by the end of the year, led to a store of 1bn unsold D-Ram chips and nearly $10bn in total losses by the industry.

This prompted the biggest manufacturers, mainly in South Korea and Taiwan, to cut production. Others, such as Germany's Qimonda, fell into bankruptcy.

Nearly half of world production had been cut since the beginning of the year, said Mr Huang. This means that by June, the 1bn stockpiled chips will all be sold and by the end of the year there will be a global shortage of 2bn chips, equivalent to the D-Ram needed for 100m computers.

"It has been a difficult time but we can finally see spring coming," said Mr Huang.

Part of the reason for the impending shortage, he said, was that most D-Ram companies were facing financial difficulties and would find it hard to revive production quickly. The other reason was that "wolf has been cried too many times [on a market recovery]. Everyone is too cautious," he said.

I am very, very long semiconductor and semiconductor equipment companies.  They are, by far, my largest industry exposure.  I own a basket of 17 names, including four I have mentioned as net cash plays.

I began building a position in the chips too early, scaled back a bit, started adding more, and have been buying heavily over the past several months.

I have tended to do best buying companies in industries that have been bombed out.   Valuations are extremely low in the semis and some names in my basket could be 5-10 baggers. 

Because of extremely low valuations, I care not what happens in the near-term. I am looking 2-4 years out, not 2-4 weeks or 2-4 months.  So I sit and wait.