The chip industry appears to be recovering from its bust cycle and beginning to enter into its boom cycle - it's a repetitive cycle of around four years in length.

The Semiconductor Industry Association reports a 20 percent drop to $51.7 billion for the second quarter compared to $64.7 billion for the same quarter last year.

The results, however, showed a jump from the first quarter when the recession and low seasonal demand gripped the industry, which sold about $44.2 billion in chips.

Semiconductor sales rise, but down from last year

Foremski's Take: I've covered the semiconductor industry for more than 25 years and it's chief characteristic is that it follows four-year boom-and-bust cycles. Every four years the industry's top representatives talk about how this time this cycle will be different, that this time the boom-and-bust cycles of the past are gone.

They never are. The cycles might vary a little by a few months here and there, but they continue. This is in spite of the most modern supply-chain intelligence, this is despite ever greater transparency into demand cycles, this is despite the most modern forecasting systems.

Chip makers continue to invest in new manufacturing capabilities that provide efficiencies of scale so great that they end up flooding their own markets. They can't cut back on production because the chip fabs are sunk costs, they have to be operated at near maximum capacity or you start to lose even more money.

Fortunately, cheap chips leads to cheap electronic goods of many kinds and thus the demand returns. But can this cycle continue to go on forever? Surely we will reach a point where these monster chip fabs can crank out way more chips than we can soak up in terms of new gadgets and gizmos in any cycle?

Already, the chip industry produces way more transistors on a chip than the world produces printed characters through publishing, newspapers, xerox, personal printers, etc. Yet each transistor requires one the most advanced industrial manufacturing systems ever built by humans and takes about three months. We have an abundance of transistors on a chip.

The chip industry is a corollary for the greater manufacturing sector. Greater efficiencies in manufacturing capacity will lead to ever cheaper goods. They will lead to manufacturing capacities that far exceed our ability as an economy to pay for them all, and to use them all. If we haven't already reached this point, we will soon. What happens then?

Traditionally, productive capacities are destroyed in order to support the profitability of the rest, either through bankruptcies, or war. These methods create shortages out of abundance. Clearly, these are not good choices given the ecological, economic, and ethical pressures we face. Triple "e" will dictate a new type of society, imho.