Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

ChipWatch: Chip Industry Seems To Be Flickering Back To Life

Posted by Tom Foremski - September 4, 2009

By Matt Grimshaw, Editorial Director of the Semiconductor Technical Journal Future Fab International.

I've started to get a little teed off with the 'light at the end of the tunnel' speech. There seems to be a global consensus that the chip industry (and the world as a whole) is finally starting to do an impression of a Hero in a Hollywood blockbuster that's been close to death...first there's the close up of the inanimate body, then the flicker of life before some sort of choking/coughing that brings our saviour back to life.

The chip industry appears to be flickering in the manner mentioned above, but very, very slowly with all the speed of a tortoise walking through quicksand...each month now is showing gains over the preceding month leading one to believe that the much whispered recovery is underway and perhaps the nightmare of the last twelve months can be put behind us so that we can start to bandage our wounds, bury the dead and rehire some of the thousands of engineers that were laid off... But sometimes it's just hard to believe because there's still a massive cloud overhead and some of my industry contacts have all the confidence of a vertigo sufferer standing on the edge of a cliff.

However, doom or not the numbers generally don't lie, although the occasional bending of the truth is well recognised, and so the industry begins to turn laboriously towards an upswing. As is always the case in these sorts of times now begins the fight for the upswing and grabbing as big a slice of the cake/pie/cookie (or whatever your favoured analogy might be) in order to grow with the economy. This is highlighted by the latest chip maker rankings... it reads more like a music sales chart than chip maker rankings as, it's seeming to change with alarming frequency...

"Annnnd here's your top chip makers this quarter: In at number 10 gaining 3 places from Q1 it's Hynix; at number 9 dropping two places is our old friend SONY; holding station at number 8 is the mishmash of Mitsubishi & Hitachi - Renasas..." etc.

One of the biggest shockers in this upswing is the news that we have the smallest pool of the CapEx (Capital Expenditure) fight club in a decade. This club is reserved for those chip makers that are spending more than 1 billion dollars on equipment, and it reads like the usual suspects...except there's only three of them. It's Intel, Samsung, and TSMC. The largest microprocessor manufacturer, the largest producer of DRAM memory, and the biggest foundry player, are also the biggest spenders.

This has only one consequence in the industry, one that is reflected by society at large; a larger slice of the pie is being divided between fewer companies, or in other words more resources are controlled by fewer players.

The fear in this scenario is the same as in any consolidating marketplace: stagnation. It is by definition the role of small companies to innovate and grow in order to compete, but conversely it is the role of a larger company to dominate and slow progress (in relative terms, I know Intel et al spend ridiculous amounts on innovation) in order to control the marketplace.

As mentioned last week, we are in the final chapters of this particular play, within the next ten years or so new technologies will emerge and shake up the established order just as the transistor supplanted the vacuum tube in the past, and so the next phase of technological change will be upon us.


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