Now what: a renewed growth strategy for the semiconductor industry

It seems most people are missing the point, except for Mr. Casini. I think what Ron is saying is that for the industry to start growing again, it is going to have to start doing things differently and looking for different markets, not looking for a handout until things get back to the way they were. They aren't coming back, so let's move on. Casini is right that the industry has matured and needs to adopt more efficient business practices, but it also has to change its manufacturing infrastructure. In test alone, the industry still uses technology that was appropriate for synchronous designs, but but not asynchronous. Electronics for the consumer has rarely identified needs for that consumer and met them. Rather they design a product and tell the consumer to adapt. The industry has to change how it markets products and that means listening to the end customer. Moreover, the financing engine --venture capital -- has to change. The recent report on how hard it has been for VCs to raise new funds was attributed to the bad economy, but I've talked to several LPs who are frustrated that the funds are not being invested. One major fund raised over $400 million last year and has only invested $80, and none of them in a lead investment. VCs need to look for technologies that will enhance the profitability of semiconductor manufacturing and but the fabless world back on it's feet. Finally, to Ron's point, they need to find other markets. I've heard people in the industry say over and over that "there are only 10 companies we really care about and we know who to talk to." Well, guess what, those 10 companies are 5 and the people you knew are looking for jobs. It's time to find something else. It's not coming back.

Ron, What your options for recovery point to is the fact that the semiconductor industry has reached a mature stage. And like other industries that have also reached this stage, the semiconductor industry must now look for new ways to operate as a mature industry. As a 26 year veteran, the writing is on the wall and we must embrace maturity rather than try and rationalize that it is not true. The number one job for semiconductor companies now must be improving business processes so that they can dynamically manage and re-direct their capital, labor, and technology investments at a ?fine-grain? level in order to react faster to market changes while maintaining the optimal product and service mixes that keep the company profitable. The waste in development efforts that was tolerated when the industry was in a growth stage is no longer affordable and must be eliminated. The visibility and control necessary to manage detailed levels of process management effectively goes way beyond CRMs and ?tiger? teams. New techniques must be implemented that can quantitatively measure the impact of any investment in any project at any time and link it directly to the forecasted revenue impact on a product or service. Only then will managers be able to eliminate suboptimal investments, navigate successfully through rapidly changing market dynamics, and remain profitable. Phil Casini Managing Partner Advance Tech Marketing

The semiconductor industry is now in the same kind of business as the steel industry. Profitable (in the long run) but no where near as profitable as it was when the microprocessor was new. Steel went through the same thing when steel making went from a hand process to the Bessemer (and other mass) processes. As Desert Rat says: Those days are gone, gone, and gone. Let me say as some one who got into microprocessors in 1975 - it was a lot of fun while it lasted.

Also, Ron. Add another stat (reported here in the recent past). About 75% of all semis sold worldwide go to just 100 OEM customers. The semi industry is sitting on the POINT of the market triangle, not the base. That makes the semi industry VERY unstable....and totally dependent upon what those 100 OEMs do (prosper or decline). The remaining 25% of demand cannot bail-out the industry in tough times. All this macro information says I have a problem with your renewed growth strategy. It does NOT fit the macro trend. Selling 21st century technology products to people who live in the 9th century will be a difficult, if not impossible, task.

A point made by another blogger in this website a few days ago addressed the eventual consequence of 5% per year growth over 25 years. Third world (BRIC, or Brazil, Russia, India, China) growth rates are often in double digits, so it only takes about 8 to 10 years for productivity to double. Since this has been going on since the early 1990's, productivity for the large majority of citizens in 'third world' countries is now about 4X what it was prior to the Internet.
Some of this is a direct result of progressively declining electronics costs, either from emerging communications and computer access, or from jobs associated with semiconductor fabrication or product assembly, or from the follow-on results, such as medical diagnosis. India call centers are partly the result of changed government policies, but also because of the pracicality of large scale telecommunication trunks.
Electronics economic opportunity exists in a symbiotic relationship with things like Li-ion battery technology and the materials improvements that lead to wind turbines and water filtration. Some 'third world' island with limited resources gets wind turbines, which power water purification equipment, which improves the health of the people living there, who can use computers to significantly upgrade their education. They may not see much need for cars or telephones or TVs, and may remain content to live off subsistence farming. They 'possess' the electronic elements of these systems collectively.
The United States has been getting more and more of the feel of a third world country: decaying infrastructure, power outages, water quality problems, bankrupt governments, and government maladministration. Utility type electronics: solar panels, UV water purification systems, residential scale power controllers, and wireless communications may turn out to be as easy a solution as would occur in Kenya or Laos. At some point the distinction between 'third world' and 'first world' may become difficult to quantify.

About 70% of the US GDP comes from consumer spending. About 60% of all semiconductors shipped worldwide go into consumer products. The US is the largest consumer market in the world (at this and previous points). And, our US consumers are tapped-out....worried about their jobs, retirement, pension and social security promises, being upside-down in their home mortgages, the cost of college for their kids, healthcare, etc. So, It's time to hand-out credit cards to all the third-world inhabitants so they can buy those faddish trashy consumer electronic products and default on their loans? Sounds exactly like what we did in the US for the past 10 years, and you see where that got us. Predictions in this online pub say that more than 50% of the present semi companies will go belly-up in the next few years. Infineon looks like they are going private soon (like NPX and Freescale already did...because there is little interest in buying semi stocks). Go Google "government spending as a percent of GDP by country" and look at the list. Scandinavia is over 60%. Most of Europe is near 50%....and those are somewhat historical numbers....that don't reflect the recent surge in govt spending around the world to prop-up their economies. So, I don't see a lot of positive things happening to bring the semi industry into Nirvana for many many years. And when things do get better, it will never be like it was. Those days are gone, gone, and gone. The most promising market for semis for the next 4-5 years is probably the Military. That says something...

This is a nicely written article with a good beginning and end. However, there are unsubstantiated and un-quantified statements in the mid-section, let alone the promotion of a myth regarding economy. For instance, the issue of stimulus spending and whether it is working -- or even could be working -- by now is an entire discussion unto its own. And while I support where the article eventually goes -- finding new markets for the IC industry -- to state that the market place alone is accomplishing this kind of evolution and it is "... working in... China, without huge government subsidies" is completely off the mark. There is precious little in the China telecom market that happens without huge government subsidies. These two points -- a knock on stimulus spending and China's telecom market -- are paradoxical. China is able to do what its doing (in the market) precisely because of its own "stimulus" spending (coupled with unfair trade practices and predatory competition with the Chinese government choosing sides). The U.S. has to realize that a) free market enterprise has always been some economists? theory that has never been attained anywhere at any time, b) the U.S. became the world's leading economy by navigating through the individual trade-offs between targeted government spending and free enterprise, thus immediately shooting down the idea that great economies cannot be built on spending by government and industry -- *both*, and c) the U.S. had better understand the current rules of the global game -- with the new players on the field ? that absolutely favor the economy where government and business both spend and invest in industry.