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Is it time to panic?

Posted: 22 Sep 2008     Print Version  Bookmark and Share

Keywords:IC profits  money market  semiconductor industry 

As I write this, the Dow Jones Industrial Average is down by 800 points since Monday's opening—a roughly 6 per cent decline in two days. If that doesn't scare you, consider that the index has dropped a stunning 25 per cent in the last year. Things are even worse in other markets. Russia halted trading after the market fell by 10 per cent in a single hour. The Chinese market has lost 2/3 of its value. Still not worried? In parts of the US, home prices are down 34 per cent from last year. Major banks and insurers are failing. A major money market fund has frozen all accounts as it suffers huge losses. Need I go on?

OK, but how does this affect you? Sure, your retirement account may be hurting, and your house may be worth less, but does this impact your job? In a word, yes. The semiconductor industry is heavily dependent on consumer spending. Those consumers are losing their jobs and lowering their spending. If consumers are spending less on iPhones and HDTVs, that means less money for your employer. (And this is not just my personal perspective—industry stalwarts like Nokia are warning of lower sales.) That's never a good thing, but many semiconductor companies were already facing tough times. iSuppli just released a report showing that semiconductor profit margins have plummeted in recent years:

Quarterly Semiconductor Industry Operating Margins

"Semiconductor profitability has eroded steadily since mid 2004, with quarterly net profits having fallen into the single-digit range in 2008, down from the 17 per cent to 19 per cent range in 2004," said Derek Lidow, president and chief executive officer of iSuppli. "The semiconductor 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." (Emphasis mine.)

There is a good chance that the industry is about to face a serious downturn in an environment where profits are already low. I hate to be a prophet of doom, but this might be a good time to update your resume.

-Kenton Williston
EE Times





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