Restructuring: A prelude to growth

Nick Konidaris, President & CEO, ESI, Portland, OR USA

A traditional downturn in the semiconductor industry can be characterized as a supply and demand issue where the supply is growing faster than the demand. Because the demand for semiconductor memory continues to grow at a steady rate, the downturn that started last year was a healthy type of downturn requiring an adjustment of inventory, while balancing supply and demand. This past summer, however, in parallel with the memory downturn, problems with the financial infrastructure arose and evolved into a credit meltdown. This dangerous combination has the potential to prolong the semiconductor down cycle due to its effect on consumers worldwide. It will be the rise in global consumer spending that brings us out of this turbulent economic storm.

The rise of consumer spending notwithstanding, the semiconductor industry is characterized by innovation and fierce competition. It is also filled with management that has taken risks to advance technology and outperform its competitors. I think that these characteristics are going to drive the industry to forge ahead and continue on its race with Moore’s Law. For the first half of 2009, I believe the industry will begin taking small steps toward growth that won’t be realized until the second half of the year.

Some of this growth will be the result of industry restructuring. Companies with a strong cash position can become even stronger, while those without a strong balance sheet will get weaker. As a result, companies will need to be even more clever in searching for additional opportunities to leverage their core competencies, and many will consider strategic mergers and acquisitions as a growth path. By combining complementary technologies, these restructured companies will be strategically positioned to provide unrivaled competitive advantages and expand on its customer base. I believe we will see more companies choosing this option to prepare for growth in the upturn.


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