"Bungee Jump" Economic Decline and Rebound

From the SEMI Europe President
SEMI Global Update—Europe Edition

“Bungee Jump” Economic Decline and Rebound

By Heinz Kundert

At the SEMI Industry Strategy Symposium (ISS) Europe event held in Dublin on February 7-9, Malcolm Penn from Future Horizons, stood up to give his perspective on the industry. What a difficult and challenging year it has been, and I wondered if Penn would inspire us.

Starting off with a short look back, Penn said that during the “decade of the doldrums” – the period after the “dot-com” bubble burst in 2000 – the compound annual growth rate for IC sales was 0.8 %. This poor performance has led many, said Penn, to see the chip industry as adrift, carried from profitability by the lowering tides of ASPs as chip demand has peaked.

But then Penn looked at the fundamentals of the industry. Commenting on the “big picture,” Penn saw the recent economic decline and rebound not as a “V” or “W” or “Nike swoosh,” but as a “bungee jump” that would lead the industry higher before.

“There are still two years of under-investment to work through the system,” said Penn. In Q4 2009, ASPs were up 5.3% over last year, new applications are reaching the market, and all this will add up to his projection of 22% growth in IC chip sales for 2010 – with single-digit growth “clearly out of the question.” It is even reasonable, said Penn, that the IC industry could see 30% growth in 2010.

By now, the audience was clearly paying attention. Penn continued, “The global economy is recovering, we’re starting the recovery with IC shortages, ASPs have already stopped falling, inventory levels are at an all-time low, capacity is tight and spending is weak. This is ‘the perfect calm,’ and we now have the prospect of two years of strong growth. Remember that 2003 and 2004 grew 18% and 28%.”

Penn continued with a few cautions. He noted that the “culture of greed” in the financial community is now more entrenched than ever, and government largess in the form of stimulus has merely papered over some cracks and created others. This theme plays out each day in the industry, and Penn cautioned the ISS audience not to “dance to the tune” of the financial wizards. The typical Wall Street “guidance” of becoming specialized, he said, increases risk. Going “fab-lite” loses your competitive differentiators. A strategy of mergers and acquisitions doesn’t lead to success. Narrowly focusing R&D limits tomorrow’s opportunities, and culling the product line restricts market access.

Penn concluded his session by suggesting that rather than following this short-sighted approach, long-term growth through a steady approach and a well-balanced business model would be better. He also strongly encouraged the European leaders at the conference to define Europe’s micro- and nano-technology policies, offering the closing point that “Europe has the world’s best R&D, and the world’s worst industrial policy.”

March 3, 2010