While accustomed to the boom-and-bust nature of their industry, companies making the semiconductor chips that run computers, mobile phones, digital cameras and even cars are finding themselves in the middle of a collapse in sales that resembles total chaos.
With sales of most manufactured goods plunging, demand for chips is evaporating. In January, chip sales plummeted by almost a third from the previous year, to $US15.3billion ($A23.9billion), according to the Semiconductor Industry Association.
Intel's chief sales and marketing officer, Sean M. Maloney, said, ''This is the worst recession the semiconductor industry has seen since its inception.''
Consumers have benefited. Smartphones and the cheap laptops known as netbooks are getting more powerful while dropping in price. And the prices for the memory chips used to store information in iPods, digital cameras and cable set-top boxes are plummeting as companies making the products grapple with factory overcapacity.
Major chip makers like Intel, Advanced Micro Devices and Nvidia have felt the sting of businesses and consumers curtailing their spending on computers. Last month, Hewlett-Packard, the world's largest PC maker, reported a 19 per cent drop in computer sales, while Dell, the second-largest PC maker, posted a 27 per cent decline in desktop sales.
Last week, research firm Gartner predicted computer shipments would dive by 12 per cent in 2009 to 257 million units the steepest decline ever.
In the memory chip industry, conditions have turned cataclysmic. In the past couple of years production swelled as companies chased rising interest in consumer gadgets. The result was a vast oversupply of memory chips, which led to plummeting prices. Memory prices fell 60 percent last year and could fall 40 percent this year, according to Jim Handy, director of chip research firm Objective Analysis.
Now memory makers like Spansion and Micron Technology must also deal with falling demand for the consumer devices that use their products.
Analyst at research firm iSuppli Dale Ford said the chip industry was in ''unprecedented territory''.
Burdened with ageing chip factories, Micron announced in October it would lay off nearly 3000 people, 15 per cent of its work force. In February, it said it would eliminate up to 2000 additional jobs. Qimonda, a German memory maker, began insolvency proceedings in January.
And last week, Spansion, the largest maker of a type of memory popular in mobile phones, cars and set-top boxes, filed for bankruptcy protection after having already cut 3000 jobs, or 35 per cent of its work force. The company has said it was open to acquisition proposals.
Spansion executive vice-president Thomas Eby conceded memory chip makers had built too many factories, which led to declining prices. With the complexity and cost of building chips continuing to rise, current market conditions could accelerate a trend toward consolidation while making it less likely start-ups will challenge the incumbents, industry observers say. And credit problems will probably result in some companies disappearing, Ford said.
New York Times
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