Year-end look at the semiconductor industry

About the best thing people in the semiconductor industry can say about 2009 is, “Thank goodness that’s over!” 2010 looks to be a stronger year for microchip sales as the recession fades and people start buying more consumer electronics and (maybe) automobiles and other big-ticket items.

The year started ominously with the global recession and the credit crisis extending from 2008 into 2009. People around the world stopped buying most electronics, as they needed money for more pressing expenditures, such as gasoline, groceries, and house payments or rent. The chip business felt their pain, and chip makers added thousands of former employees to the ranks of the unemployed.

Smartphones were one sector that defied the downturn. The rollout of the iPhone 3GS at mid-year set off another wave of manic buying for the latest Apple toy. The App Store kept accumulating more and more applications from third-party developers, as everyone and their brother (including Hoover’s!) HAD to be on the iPhone. The iPhone started to get some serious competition, particularly in smartphones based on Google‘s Android mobile device operating system, such as Motorola‘s heavily promoted Droid and the myTouch 3G (made by HTC and sold in the States by T-Mobile USA).

The semiconductor industry recovery was led by, of all things, the memory device market, which started seeing firmer, higher pricing last summer. The renaissance in memory started to spread to other chips, and soon industry forecasters were seeing better times in 2010 after a harsh year.

The Semiconductor Industry Association (SIA) last month reported 2009 is expected to post a decline of nearly 12% from 2008, to about $220 billion — a bigger drop than the group predicted a year earlier. (December’s sales aren’t quite in the books, so those figures may be revised.) The SIA predicts worldwide industry sales will grow 10% in 2010, to $242 billion, and another 8% in 2011, to around $262 billion.

PCs and wireless phones now account for approximately 60% of demand for semiconductors, and those products are expected to drive increased sales in the new year. Apple and Google already have scheduled highly anticipated press conferences in January — Apple to introduce a widely rumored tablet computer and Google to unveil its own phone design using Android.

Advanced Micro Devices continued to make news in 2009 — first by spinning off its manufacturing operations into a new company called GLOBALFOUNDRIES and more recently reaching a legal truce with Intel. Money it received from both deals went to reduce corporate debt, but the company continued to lose money during 2009. Intel got AMD off of its back, but it’s got other expensive worries — a huge fine by the European Commission; an antitrust lawsuit by Andrew Cuomo, the ambitious attorney general of New York State; and a long-brewing antitrust case brought by the Federal Trade Commission, which accuses the world’s biggest chip maker of not only monopolizing the processor market but also trying to unfairly dominate the market for graphics chipsets. NVIDIA, which went into the red in its last fiscal year for the first time in years, nervously awaits the outcome of that case.

Consolidation continued apace in the semiconductor industry, as the small fry combined in their attempts to keep up with the giants. Broadcom made an unsuccessful bid to take over Emulex, the most recent unsolicited offer to fail. Activist hedge funds swooped in on the weakest chip companies. ZiLOG, having previously repelled two unsolicited bids and laid off one-third of its workforce, finally capitulated to a friendly offer from IXYS.

What’s next for 2010? At this point, industry executives would be happy for a year of steady, unspectacular growth.

~Photo courtesy of Apple Inc.