Chip industry forgetting lessons from the past

Some industry figures fear the industry has learned little from the 2008 slump

The chip industry is already forgetting the lessons from the past slump in demand, according to executives at Semicon West 2010 in San Francisco.

Demand is currently strong, but several senior managers expressed concerns at an executive roundtable that the industry had not learned from past experience.

"My fear is that we're going to unlearn the lessons of the downturn," said Rich Wallace, chief executive of KLA-Tencor.

"The challenge needs to be how to meet demands without overheating the market. I suspect the industry has got better at working leaner, but old habits creep in."

Bernard Meyerson, IBM's vice president of innovation, likened the situation to an engineer slamming his hand in a door and doing it again with the other hand to gather additional data.

Chip manufacturers are highly sensitive to demand, but the industry's tendency to oversupply in pursuit of market share could cause long-term problems.

Stephen Newberry, president of Lam Research, was also somewhat pessimistic about the industry's maturity.

"Everything is different, and everything will stay the same," he said, pointing out that there were 16 major DRAM manufacturers in 2000 but less than half that number now, and that access to capital for startups is much more difficult.

"The good thing for the industry was that less players could search for demand, but as we go forward it's only a matter of time before we oversupply demand," he said.

There is hope, however. Memory manufacturers got together and cut supply in 2007 to prevent the market being oversupplied, but were caught out by the world recession.

"[Manufacturers] scaled down investment to get a soft landing in 2008, but the economy fell off a cliff and demand fell beyond all expectations," said Newberry.

Keith Barnes, president of Verigy, commented that the industry still had not learned the lessons from the 1980s downturn, i.e. that when the economy dives IT planning has to take this into account.

"A lot of companies need to look at the macroeconomics. If there's another Asian crisis we have to be able to respond," he said.

"In 2008 things were starting to turn, but we were in denial. That period in 2009 when it fell off the cliff came as a surprise to some people in the industry."

The bulk of industry spending is on 40-45nm manufacture, but there is considerable movement to smaller transistor sizes.

Thomas Sonderman, vice president of manufacturing systems and technology at Global Foundries, suggested that the next "crux point" for the industry will be at the 28nm level.

"The battleground is going to be at 28nm with our competition," he said. "We are focusing on low-power handheld devices there."