Semiconductor industry may have had its chips

Iain Thomson

As delegates from around the world meet at Semicon West 2009 there is more than a little fear in the air for the future of the industry.

Despite brave words on stage, the mood among those listening could scarcely be described as upbeat, and with good reason. The semiconductor industry has taken a hammering in the past 18 months, and there are fears of worse to come.

The official view is that the worst is over. This was Gartner's line, and Intel's promising financial results came at the right time to reassure some. But even Gartner's forecasts were tinged with warnings, advising companies to examine sales on a quarterly rather than annual basis.

This might sound like good news, but the Gartner report was also clear on another point: even as demand recovers it will not reach 2007 levels in the short or medium term. The analyst firm sees demand staying below 2007 levels until at least 2014 and, from the graphs it presented, it may take a few years beyond that.

Gartner also warned of a crisis in the memory market, and this was backed up by others. Mark Durcan, president of Micron Technology, said that shifting to 30nm is posing unique technical challenges, and that these would only get worse as process technology gets smaller still.

What made these views all the more concerning is the industry itself. Semiconductors is one of the oldest market segments in the high-tech industry. Fairchild Semiconductors was started in 1957, after all, and the Semicon show has more suits and white heads than you'd find at almost any other technology show.

Over the past 50 years the industry has seen huge changes in demand as economic tides have ebbed and flowed. That they are so concerned now, with some saying the industry is in a worse state than at any time in living memory, speaks volumes.

The industry is caught in a bind. The complexity of modern chips is driving up the cost of manufacturing, but the price of memory is not rising at the same rate. The industry's margins are lamentable, and the downturn has made a bad situation critical.

It is so dire, in fact, that some companies are talking about pooling their efforts in an attempt to cut costs. Getting these businessmen to work together is usually akin to herding cats, but it's already starting to happen.

"Every 18 months we have a mini recession, and every eight years a major recession," said Tien Wu, chief operating officer of Advanced Semiconductor Engineering. "We are always under pressure to bring costs down and deal with recession. Every so often a fire in Asia brings a temporary relief in pricing, but that's it."

The last comment was a reference to the Sumitomo factory explosion in 1993. The factory produced 60 per cent of the world's high-grade epoxy resin for chips, causing a huge spike in chip prices and making the business one of the most profitable in the IT industry.

Wu may have been joking, but there are plenty who remember the happier days of the industry. Those days won't be coming back any time soon.