First, semis are inherently cyclical, so let's not get too queasy with valuation motion sickness. Contributing to the current volatility are capital intensity — which means that semiconductor pricing power moves back and forth between vendors and users — and the rapid rise of greater China as a high-efficiency supply chain, which changes the rules, especially for anything remotely commodity-like. This is creating new customers and new competitors at an unprecedented rate at each level of the food chain.
Wall Street analysts may appear to struggle a bit because it's inherently tough to anticipate the patterns of a business undergoing significant change — and the speculative nature of stock investing heightens the volatility.
We actually see fundamental demand, especially in consumer electronics, maintaining excellent momentum. Our confidence is bolstered by the fact that Tensilica sees design activity at its earliest architectural stages, thus we may be a good leading indicator of long-term electronics vendor confidence.
Since we win the overwhelming number of our sockets in cases where significant new design is occurring in high-volume potential markets, we see their long-term investments. Other semiconductor supply chain companies tend to see more of their business coming from incremental designs, which may be more closely tied to cyclical product upgrades.
— Chris Rowen, CEO, Tensilica Inc.
We are seeing the beginning of a power shift in the industry. It is not an economic downturn; it is a spreading of the money supply to new regions. Think about how many companies are involved in a given supply chain in our area. When dollars shift, the effect is felt from the giant to the mom-and-pop store.
Currently, no one region has enough of the supply to self-sustain through trickle-down economics; thus all regions appear on the edge. Short term, companies will fight to play in all regions, continuing the spreading of the supply.
We need to solve the time- and cost-of-development crisis. Getting more of the right cost-effective products to market on time is everything. That's what creates the shift in the money supply.
Today, the time and cost to field innovation on a large scale are out of control. But our industry can solve this, and I believe it will do so.
You just need to love big battles!
— Edward King, CEO, CPU Technology Inc.
In light of the mixed second-calender-quarter results from the electronics industry, the generally conservative guidance for the third and fourth calendar quarter and the SOXX [semiconductor] Index's dropping to August 2002 levels, your question regarding the potential for a "double-dip" recession is certainly on the minds of many. My opinion is that we are not headed for double dip but are suffering from a confluence of factors leading to a short-term correction. These factors include unbridled enthusiasm over the past three quarters coupled with solid growth in capacity and uncertainty about the consumer segment.
Distributors, OEMs and ODMs went on a buying jag starting in mid-2003 in anticipation of a spike in end-market demand. In parallel, a significant amount of new wafer capacity came online. In addition, we began to feel the positive impact on productivity from 300-mm wafers. Capacity came on board fast enough to preempt the surge in demand, leading to a drop in lead times.
With lead times short and inventories high, an inventory correction was inevitable.
Inventory buildup was especially prominent for chips targeted at the consumer and mobile-communication segments. Those two segments have become the bellwether for the industry that the PC market once was.
Although the correction appears complete, distributors, OEMs and ODMs can afford to be conservative in the coming quarters because lead times remain short.
I expect to see steady, healthy but not spectacular growth for the next 18 to 24 months. The consumer and mobile-communications markets will continue to lead the way, with the corporate market (comms infrastructure, enterprise software, etc.) trailing by 12 months as we to work through excess infrastructure buildup.
— Jim Douglas, President and CEO, ReShape Inc.
Consumer demand will drive fundamental growth in the support system for higher bandwidth, quality-of-service, security and quality-of-experience with ease-of-use attributes, as more technology is both embedded and interconnected. In particular, entertainment and edutainment will continue to thrive and adapt to the new technological capabilities, creating still more growth and new revenue outlooks for the companies of the future.
Power management is another area that will continue to expand, given global considerations. The larger concerns have been the least reactive to newer developments. These companies have curtailed spending, instead of investing in newer, innovative technology and usage models.
Current doom-and-gloom mongers are being driven by events external to the electronics industry, such as the continued threat of terrorism and persistent pressure on global energy supplies. China, with its increased energy demands, makes the future more uncertain and could overshadow the certain growth in electronics deployment.
— Chris Phillips, President and CEO, Leopard Logic Inc.
I think there is an extreme amount of unrest and concern — even consternation — in business leaders' minds over the price of oil; our military activities and their human and monetary cost, along with their short- and long-term prognoses; the upcoming U.S. presidential election; and the market itself — which is driven by a complex mix of factors beyond mere mortals' comprehension.
I think uncertainty leads to delays in virtually all business activities — new products, hiring, capital investments and so on — and this leads to a slowing of business. Another way of saying it is that, in many ways, we do this to ourselves.
I think the answer is to take the long view, which is that semiconductors add value to all our lives, across many dimensions. They just plain ain't goin' away!
— Tom Hart, CEO, QuickLogic Corp.
Since 2001, the industry has gone back to a much more realistic supply/demand situation. The industry has also spent the past three years transitioning from 8-inch to 12-inch fabs, which is a major technology jump.
IDMs continue to reduce in-house manufacturing, so the outsourcing trend is very important. At the end of the second quarter, IDM orders climbed to 30 percent of our revenue, compared with 22 percent for the same period a year ago. We believe this trend will continue to accelerate now that we're entering the era of the 12-inch fabs. These plants are simply becoming too costly for many IDMs to build. The balance sheet also takes quite a hit if they're not fully utilized. We were running at full capacity utilization for the last quarter.
There will be fluctuations in demand, but they won't be as severe as they've sometimes been in the past. So it seems strange that share price valuations are currently discounting a very sharp correction. We think that if there is a correction at all, it will be very mild. We foresee steady growth in the IC industry, complemented by the outsourcing trend.
— Jackson Hu, Chief Technologist, United Microelectronics Corp.
One question that I use a lot to gauge the health of the semis industry is, "What electronics toys have I bought recently?"
I bought an MP3 player and a personal CD player for my wife to use when she exercises. The MP3 player is never used, since the whole idea of converting and downloading files is a lot more work than playing a CD. I bought a digital-still-camera package for my mother-in-law, who still uses her old 35-mm point-and-shoot, since it is easier to get the prints done at the drugstore. I bought a digital camcorder to record our kids' early years and gave up trying to transfer the video to DVDs, since it seems to require a lot more horsepower than the 1.3-G processor in my machine. All of these new toys, while interesting, might not be ready for prime time with consumers. We seem to be missing pieces of infrastructure to enable a lot of the developed technology to be truly useful to the consumer.
On the other hand, I am spending money on things such as getting the house painted and a new roof. Maybe this time, the recovery is not being led by technology.
— Rick Orlando, CEO, Alta Analog Inc.