Q4 numbers show light at the end of the tunnel

Around this time in 2008, I posted to this blog an entry that questioned why Wall Street hadn’t taken off its rose-colored glasses and reacted more appropriately to Q4 2007 results, instead driving some tech stocks up and down like yo-yos. While the three comments posted to that blog entry are in line with the thoughts presented, I’ll never forget a call I received from an active EDN reader at the time of post. This reader objected to the post, accusing me of having an overly pessimistic view of the industry and saying that there would be no major economic fallout from a US recession that would impact the global tech market.

I say that I’ll never forget that call not because of the reader’s disagreement with the post (nor the very colorful language he used to comment on the post, by the way) but because I couldn’t believe anyone, at least anyone with the intelligence I associate with the usual EDN reader, would argue at that time that the economy was beginning to show warning signs.

The last two foreclosure- and layoff-ridden years have unfortunately proven the post’s line of thought to be true and the reader’s argumental position to be false. Believe me, I wish it was the other way around. 

Now I find myself reporting once again on Q4 numbers. And unlike in January 2008, the turbulence of 2009 has knocked the rose-colored glasses off of most eyes. Caution has replaced arrogance – not in all cases, but in many – and basic business principles like supply and demand are returning to positions of control, at least in the world of semiconductors. Indeed, as painful as it has been, the reductions in manufacturing in 2008/2009 brought inventories down. That, coupled with excellent management of inventories by distributors, has helped guide us through the darkness of this recession, opposed to our clumsy re-emergence from the 2000/2001 tech bubble burst marked by bloated excess inventory. As one member of EDN’s Electronics Design Network LinkedIn group commented in reaction to our “Semiconductor inventories in good shape, key to 2010 recovery” news story last week, “That silicon excess lasted for years after that crash. Hopefully we learned something there.”

I believe we – tech, not necessarily Wall Street – did learn something. I’ve reviewed several Q4 reports from semiconductor players in the last few weeks. Many still show declines in revenue and profit with R&D as well as investment out of line, while others are proving that there is light at the end of this tunnel. Intel, with its double-digit revenue gains that bested estimates and comments on a recovered PC market; AMD, with its December quarter return to profit as it continues its fabless moves and re-emerges from what I in October 2008 described as “survival mode;” and this week TI, with its growing analog business and focus on investing wisely through great asset deals with struggling companies and a US-based 300-mm fab (thankfully, with added jobs) each showed that Q4 began a recovery at the bellwethers.

Now, that light at the end of the tunnel is still far off. Unemployment rates are still frighteningly high, impacting consumer spending on electronics, and the US chip industry, itself, is expected to see jobs decrease by more than 33% by 2018. But there is a recovery in sight and that’s what I am choosing to focus on as we continue through Q1 — Not the past two years and the path of destructed careers and businesses left behind it, but the idea that, as Avnet CEO Roy Vallee said in a December interview with EDN “innovation must go on.”

What are your thoughts? Are we beginning to emerge from the darkness or have I donned the rose-colored glasses this time around? Will innovation go on, despite the challenges that lay in our way? Voice your opinions in the comments section below.