That was the year that was, in semiconductors

by Jeff Dorsch, December 28th, 2007, 6:36 am

If anything has prepared semiconductor manufacturers for the market challenges of 2008, it was the year just past.

To paraphrase Dickens, 2007 was the best of times for some chip makers and the worst of times for others. Wireless communications was a double-edged sword, as market forces whipsawed the handset makers. It was a good year if you were a supplier to Nokia and a bad year if Motorola was your biggest customer. Suppliers of DRAMs and NAND flash memory devices got price beat-downs throughout 2007, and some NAND flash vendors got subpoenas on pricing practices from antitrust regulators in Canada and the US.

Advanced Micro Devices had an annus horribilis maximus. The company lost hard-fought market share to Intel during 2007, posted a net loss of $1.6B for the first nine months of the year, laid off 430 employees to cut costs, trimmed its 2007 capital spending budget by 20%, and missed deliveries of its quad-core “Barcelona” processors due to a design glitch. It also said it would take a big charge against earnings writing off goodwill from its $5.4B acquisition of ATI Technologies in 2006. By the end of the year, AMD CEO Hector Ruiz was giving interviews saying that no, he was not going to quit in 2008 – meaning the board will likely force him to resign in 2008. Unless things turn around dramatically. And they could.

Sony and Toshiba had outstanding increases in semiconductor sales for 2007 (up 57% and 24%, respectively), mostly related to increased sales for the PlayStation 3 game console, according to the iSuppli market research firm. Hynix Semiconductor put together an excellent year, too, with a 22% boost; freed from its non-compete agreement with spinoff MagnaChip Semiconductor, Hynix will be expanding into new chip markets in 2008, starting with CMOS image sensors. QUALCOMM, despite its legal travails with Broadcom and Nokia, increased chip sales by 24% in 2007, iSuppli estimated.

For all the pains and gains, M&A activity in the industry was brisk throughout the year. LSI Logic swallowed Agere Systems and changed its name to LSI Corporation. Deals pending at the end of 2007 include ON Semiconductor’s purchase of AMIS Holdings (AMI Semiconductor) and STMicroelectronics’ acquisition of Genesis Microchip. Intel and ST delayed the spinoff of their long-awaited flash memory JV, Numonyx, into the New Year.

2008 will continue to show how consumer electronics drives the semiconductor industry. For all the chatter about the Apple iPhone – Is it or isn’t it a smart phone? Is it really the “god phone” people want? – the iPhone galvanized the wireless handset market in 2007. Nintendo’s Wii console showed how gaming isn’t just for kids and overgrown adolescents. The semiconductor industry stands with its finger in the wind, waiting to see where the breezes will blow in 2008.