HALF MOON BAY, USA: The recession offers an opportunity for the semiconductor industry to make difficult decisions that will pay off long term, including restructuring and diversification, according to speakers on the second day of SEMI ISS 2009.

Klaus Rinnen, managing vice president at research firm Gartner, said recessions force the industry to “do things that are really hard.” He predicted that the current downturn would lead to necessary restructuring in the memory sector.

After declining 4.4 percent in 2008, semiconductor device sales are expected to fall a further 16 percent this year, according to the Gartner forecast. Semiconductor equipment spending was down 30 percent in 2008 and is forecasted to fall a further 32 percent this year.

Rinnen believes the capital equipment industry could lose from $8 to $12 billion in R&D over the next four years as a result of the macroeconomic climate, adding that it would come at a time “when we need [R&D] more.” He said “fear and cash preservation” would prevail in the first half of 2009. “If it’s mission critical or cheap it will sell, otherwise no,” Rinnen said.

Tom St. Dennis, general manager of the Silicon Systems Group at Applied Materials, said the industry cannot simply cut costs and expect to weather this downturn. “Saving our way to prosperity will not work,” he said, adding that a lot of cost has already been squeezed out in areas such as COGS and R&D.

Instead, St. Dennis argued that the industry must restructure. “In most industry segments of the market there will be a maximum of two suppliers, often just one major supplier,” he said. Suppliers also need to become multi-product companies and diversify into different markets, he explained. An example was Applied’s move into equipment for solar cell manufacturing.

St. Dennis also said the recession would provide an opportunity for companies to “look in the mirror” and make changes that would have been difficult to make during good times.

Risto Puhakka, president of VLSI Research, presented his firm’s outlook. The overall electronics sector is expected to decline 1.8 percent in 2009 after growing 2.2 percent to $1,597 billion last year. The IC market will decline 10 percent this year, on top of a 2.7 percent decline in 2008. IC and related manufacturing equipment is expected to see a 26 percent decline in 2009 to $42 billion, according to VLSI.

Puhakka said a diversification strategy would help semiconductor equipment makers ride the bumpy silicon cycles. For example, the combined nano-manufacturing equipment market, which includes optical disk, MEMS, data storage, PV, FPD and semiconductor, has the potential to be worth $100 billion by 2012, according to Puhakka. “This gives quite a bit of room to play for suppliers,” he noted.

Bill McClean, president of IC Insights, pointed out that recessions are partly driven by psychology, with people putting off decisions to buy things. “The consumer is frozen, they don’t want to buy,” he said. “These global recessions are pent up demand. We’ll find a bottom in the next couple of quarters and then we’ll grow from there.”

McClean also noted that a semiconductor boom has followed every global recession that has occurred in the last 30 years. “Not good growth, but a boom,” he added. He expects at least double digit growth in 2010, and for 2011 “we could see some pretty good numbers.”

Source: SEMI, USA