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EL SEGUNDO, CA – Facing dwindling profits, fewer opportunities to expand by taking market share from competitors and a shrinking roster of star performers, the semiconductor industry has entered a period of lowered expectations and diminishing options, forcing chip suppliers to rethink basic strategies for success, says iSuppli Corp.
“Semiconductor profitability has eroded steadily since mid 2004, with quarterly net profits in the single-digit range in 2008, down from 17% to 19% in 2004,” said Derek Lidow, president and CEO of iSuppli. “The industry now is less profitable as a percentage of revenue than the notoriously low-margin PC business, something that hasn't occurred before, except during a short period of the severe market downturn in 2001.
“To a degree, conditions in the semiconductor industry have been impacted by short-term events, such as the market volatility in 2006, due to inventory write-offs and price wars in major product segments like DRAMs and microprocessors,” Lidow observed. “However, the long-term trend indicates the semiconductor industry – which historically has been good at capturing profits in the electronics value chain – seems to have lost its money-making touch.”
As profit has diminished, the industry has segmented itself into new groups, says Lidow. During the period from 2001 to 2004, semiconductor companies seemed to fall into three categories: a small group of firms whose growth outperformed the market; a middle-performing group consisting of most suppliers, and a set of low performers at the bottom, says iSuppli. The top caste of suppliers typically employed predatory business strategies that enabled them to take market share from weaker competitors. The lowest performers often served as the market-share prey for the predators and the middle-range of suppliers.
However, during the just-completed semiconductor business cycle from 2004 to 2007, the prey in the lowest caste of suppliers went extinct – and so did the success of predatory strategies, creating a larger group of middle-performing players, according to the research firm.
“The number of low performing companies decreased by so much that there now are only two major distributions in the industry: a few outstanding performers and the rest,” Lidow said. “The number of competitors achieving growth of more than 100% during the period of 2004 to 2007 declined to nine, down from 19 during the period of 2001 to 2004. This shows semiconductor companies can no longer break out of the pack by taking market share away from weaker rivals.”
So how can semiconductor companies break out of the current market dynamics to outperform the industry?
One proven strategy for success for semiconductor suppliers is to capture value from their customers by designing more of the total system with system-level chips built around proprietary IP, says iSuppli. Examples include Qualcomm, MediaTek and Linear Technology.
Another strategy is to milk established cash-cow products in the industry. Such cash-cow products typically are trailing-edge devices that have passed through their commodity stage, have fairly steady pricing and have a dwindling number of suppliers willing to devote their best people to designing and managing products that most semiconductor cowboys would find boring, says the firm. Sellers of such devices include Microchip, Diodes Inc., Microsemi and Rohm.
Finally, well-heeled semiconductor suppliers can use their resources to massively outspend their rivals in the areas of products and manufacturing, thus maintaining technical and scale dominances in competitive market segments. Companies employing such strategies include Samsung Electronics, Intel and Taiwan Semiconductor Manufacturing, according to iSuppli.
“In this day and age, semiconductor suppliers have the opportunity to outsource any or all of their operations to third-party sources that offer world-class work,” Lidow observed. “Those semiconductor companies that are unable to achieve top-quality and performance in all processes, either through outsourcing or by using internal resources, will be punished in the marketplace.”
Beyond the strategies described above, daring semiconductor managers have another option: building a scalable acquisition process that would allow a semiconductor company to grow by buying other companies or selected parts of companies.
“Semiconductor profitability has eroded steadily since mid 2004, with quarterly net profits in the single-digit range in 2008, down from 17% to 19% in 2004,” said Derek Lidow, president and CEO of iSuppli. “The industry now is less profitable as a percentage of revenue than the notoriously low-margin PC business, something that hasn't occurred before, except during a short period of the severe market downturn in 2001.
“To a degree, conditions in the semiconductor industry have been impacted by short-term events, such as the market volatility in 2006, due to inventory write-offs and price wars in major product segments like DRAMs and microprocessors,” Lidow observed. “However, the long-term trend indicates the semiconductor industry – which historically has been good at capturing profits in the electronics value chain – seems to have lost its money-making touch.”
As profit has diminished, the industry has segmented itself into new groups, says Lidow. During the period from 2001 to 2004, semiconductor companies seemed to fall into three categories: a small group of firms whose growth outperformed the market; a middle-performing group consisting of most suppliers, and a set of low performers at the bottom, says iSuppli. The top caste of suppliers typically employed predatory business strategies that enabled them to take market share from weaker competitors. The lowest performers often served as the market-share prey for the predators and the middle-range of suppliers.
However, during the just-completed semiconductor business cycle from 2004 to 2007, the prey in the lowest caste of suppliers went extinct – and so did the success of predatory strategies, creating a larger group of middle-performing players, according to the research firm.
“The number of low performing companies decreased by so much that there now are only two major distributions in the industry: a few outstanding performers and the rest,” Lidow said. “The number of competitors achieving growth of more than 100% during the period of 2004 to 2007 declined to nine, down from 19 during the period of 2001 to 2004. This shows semiconductor companies can no longer break out of the pack by taking market share away from weaker rivals.”
So how can semiconductor companies break out of the current market dynamics to outperform the industry?
One proven strategy for success for semiconductor suppliers is to capture value from their customers by designing more of the total system with system-level chips built around proprietary IP, says iSuppli. Examples include Qualcomm, MediaTek and Linear Technology.
Another strategy is to milk established cash-cow products in the industry. Such cash-cow products typically are trailing-edge devices that have passed through their commodity stage, have fairly steady pricing and have a dwindling number of suppliers willing to devote their best people to designing and managing products that most semiconductor cowboys would find boring, says the firm. Sellers of such devices include Microchip, Diodes Inc., Microsemi and Rohm.
Finally, well-heeled semiconductor suppliers can use their resources to massively outspend their rivals in the areas of products and manufacturing, thus maintaining technical and scale dominances in competitive market segments. Companies employing such strategies include Samsung Electronics, Intel and Taiwan Semiconductor Manufacturing, according to iSuppli.
“In this day and age, semiconductor suppliers have the opportunity to outsource any or all of their operations to third-party sources that offer world-class work,” Lidow observed. “Those semiconductor companies that are unable to achieve top-quality and performance in all processes, either through outsourcing or by using internal resources, will be punished in the marketplace.”
Beyond the strategies described above, daring semiconductor managers have another option: building a scalable acquisition process that would allow a semiconductor company to grow by buying other companies or selected parts of companies.
“Developing such a process would allow a company to achieve unprecedented scale and vast wealth,” Lidow said. “With semiconductor processing becoming increasingly commoditized, such an endeavor is becoming practical.”
WELLESLEY, MA — The global market for home theater
technologies and services will grow at a compound annual growth rate of 6.9%
through 2013, a new report says.
The market, worth $1.9 billion in 2006, is expected to reach $2.1 billion this year and $2.9 billion by 2013, BCC Research said.
JACKSON, MI – Sparton Corp. reported a net loss of $13 million on sales of $229.8 million for the fiscal year ended June 30. Sales were up 15%, but the net loss widened 68%. Operating losses declined from a $12.2 million loss in fiscal 2007 to a $6.9 million loss in 2008.
GLENVIEW, IL – Illinois Tool Works today reported operating revenues rose 10.1% for the three months ended Aug. 31, on the back of translation and acquisitions.
CHANDLER, AZ – Isola USA today filed orders against TUC and ITEQ, demanding the companies cease all acts that would infringe on the firm’s patents.
Isola filed a cease and desist against TUC, claming its TUC662 and TUC752 products violate China patent no. 123529 covering fillers for improved epoxy laminates.
Isola further claims ITEQ’s ITEQ 200DK violates China patent no. 142122.
In both cases, Isola also filed Injunctions in China’s IP court to prohibit the companies from manufacturing, using or exporting or importing the products.
“Isola has experienced significant growth in low DK materials over the last few years and we are initiating this legal action to protect our Intellectual property rights,” said Ray Sharpe, CEO of Isola Group.
Isola filed a cease and desist against TUC, claming its TUC662 and TUC752 products violate China patent no. 123529 covering fillers for improved epoxy laminates.
Isola further claims ITEQ’s ITEQ 200DK violates China patent no. 142122.
In both cases, Isola also filed Injunctions in China’s IP court to prohibit the companies from manufacturing, using or exporting or importing the products.
“Isola has experienced significant growth in low DK materials over the last few years and we are initiating this legal action to protect our Intellectual property rights,” said Ray Sharpe, CEO of Isola Group.
PALO ALTO, CA – Tech giant Hewlett-Packard said it would cut 24,600 jobs worldwide – about half in the U.S. – during the next three years, in response to its acquisition and integration of Electronic Data Systems.
The computer maker purchased the Texas-based business services outsourcer last month as part of a $13.9 billion deal .
The cuts will affect 7.5% of the combined workforce, and HP will record a charge of $1.7 billion in the fourth quarter fiscal 2008 as a result of the restructuring program.
Once completed, the program is expected to result in annual cost savings of approximately $1.8 billion, HP said.
LAKE FOREST, CA – Probe Manufacturing’s board has cut ties with chief executive Reza Zarif and named Barrett Evans interim CEO.
Zarif, who was on a month-to-month employment agreement, remains on the company’s board.
The company reported 2007 revenues fell 26% to $6.9 million, although the net profit was up 148% to $374,896.
Evans will receive a base salary of $175,000.
Zarif, who was on a month-to-month employment agreement, remains on the company’s board.
The company reported 2007 revenues fell 26% to $6.9 million, although the net profit was up 148% to $374,896.
Evans will receive a base salary of $175,000.
MALVERN, PA – Vishay Intertechnology has acquired a specialty capacitor (wet tantalum) product line from Kemet Corp. for $35.2 million and other consideration in the form of a three-year term loan of $15 million.
Sales of these products during Kemet’s fiscal-year ended March 31 were approximately $16 million, of which approximately $7 million represent former Arcotronics products (acquired last year by Kemet ) sold mostly outside of the US.
Worldwide sales during the quarter ended June 30, 2008 were $4.4 million.
Closing is scheduled to occur by the end of business today.
SAN FRANCISCO – Major IT OEMs gave cautious outlooks on the macro environment and overall IT spending at an analyst-sponsored conference last week.
SMYRNA, GA – Circuits Assembly will accept entries for its 2009 New Product Introduction Award for electronics assembly equipment, materials and software suppliers beginning Nov. 3.
RENTON, WA – Microscan will purchase Siemens' machine vision business for an unspecified amount. The deal is expected to close Sept. 19. Microscan said it would maintain the Nashua, NH, site of the Siemens' business, formerly Acuity CiMatrix, and retain the majority of the workforce.
CARLSBAD, CA – Asymtek has expanded its facility in Singapore to include a modern lab with a full range of dispensing and coating equipment.
The company is colocated in the facility with parent Nordson and fellow subsidiary EFD. Asymtek offers equipment service, product demonstrations and the latest technical data on dispensing at the site.
The company is colocated in the facility with parent Nordson and fellow subsidiary EFD. Asymtek offers equipment service, product demonstrations and the latest technical data on dispensing at the site.
