Down, Down, Down
Layoffs and stock prices were the big news for technology companies over the past couple weeks, and even in places where there weren’t layoffs there were cautious or negative predictions of things to come.
The economic news hit all sectors of the semiconductor industry, from the equipment to make the chips to the tools to design them, and it is affecting all geographies. On the capital equipment and manufacturing area, Applied Materials, KLA-Tencor both announced staffing cuts as a means of slashing SG&A expenses and boosting profitability. Applied Materials will cut 12% of its workforce, or 1,800 employees, while KLA will cut 900 positions.
In lock step with those cuts, Chartered Semiconductor warned of possible staffing reductions in its quarterly earnings last month. The company has not issued any other statements, but sources say the axe is already falling inside the company. Given the fact that Chartered is one-leg of the three-legs of the Common Platform, along with Samsung and IBM, this is probably the best sign yet of how many chips are being produced. Chartered had two consecutive losses in the past two quarters, but the loss in Q3, $13.6 million, is almost double the Q2 loss of $7.1 million.
On the design side, Cadence Design Systems cut 625 jobs, although it’s hard to tell whether that’s a result of internal bookkeeping or a slowdown in the EDA tools world. The changes at the top of the company and a restatement make it hard to figure out exactly what is happening inside of Cadence, something that likely will take several quarters to sort out.
Other EDA companies showed some pain, but not at that level. “The current economic outlook has delayed the typical contract renewal pattern we had been seeing,” said Mentor Graphics CEO Wally Rhines. “Customers are now more typically waiting until the quarter of contract expiration to renew. One of the consequences of this pattern is that we see greater strength going into fiscal 2010.”
The remaining EDA giant, Synopsys, does not report results until next month.
On the chipmaker side, AMD will cut about 500 jobs. It’s impossible to say whether this is the result of a soft market or Intel’s relentless competition. Intel revised its fourth-quarter outlook down to $9 billion in sales from a projected $10.1 billion, blaming lower-than-expected demand in all geographies and aggressive inventory reduction.
Most companies wish they had Intel’s outlook. National Semiconductor revised its outlook downward and said it will lay off 330 employees.
It will take a couple quarters to figure out exactly what trends are under way in the industry. It’s clear there is a downturn, but not all segments will be affected equally and not all are happening for the same reason. Some companies tend to react quickly to cut costs, while others already made deep cuts making it hard to draw blanket comparisons.
On a global basis, all geographies are dealing with the same issues of tight credit and cautious consumers, which is reflected in the bailout packages by all major economies and falling stock and housing prices in many places. China, which has greatly outpaced the semicondutor industry for years with double-digit growth is expected to show increases of only 6.7 percent in semiconductor sales revenue this year, according to iSuppli. That amounts to $81.7 billion, up from $76.6 billion in 2007.
China’s fabless business is expected to show 12.3 percent growth, driven by wireless and consumer electronics, the research firm said.
For years, top executives in semiconductors have been wary of a global downturn because of the increasing globalization of semiconductors. In the past, one market typically was strong while others were weak. This is the first time all major markets have shrunk at the same time. The silver lining: Design starts usually increase in a downturn.
–Ed Sperling
