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Then and now: The recession effect on design services

Posted: 04 Jan 2010     Print Version  Bookmark and Share

Keywords:design services  recession  semiconductor industy 

Pawar: IC companies are giving positive signs 2010 and next few months will signal if optimism actually results in increase in expenditure for the coming budget cycles.

Clearly in late 2008 and early 2009, semiconductor industry suffered a massive and sudden contraction with the world economy going deeper into recession with higher levels of uncertainty and anxieties. Since design services industry come way down in the food chain, the full impact of this downturn on the immediate business for design services companies was noticed only in 1H 09.

New opportunities completely dried up and the existing customers and projects looked for cutbacks. Many semiconductor companies asked design service vendors to take much lower remunerations for their work and there were instances in which service companies took 30-50 per cent cuts for their services to keep a particular customer or to not lose a project to a competitor. This was clearly the toughest period since the downturn of 2001 for design services companies. Perhaps the most spectacular example of this was the sale of Chipidea by MIPS to Synopsis in May, 2009 for mere 15 per cent of what it paid 18 months ago to acquire Chipidea.

Bouncing back?
Fortunately the contraction seems to be a short one. Since Q3 and particularly in Q4 of 2009, there is lot more customer interest and modest increase in revenue. The growth in customer inquiries and interest has yet to reach a point where services sector can claim that the good times are here. Semiconductor companies are certainly giving positive signs for year 2010 and next few months will signal if the increased optimism actually results in the increase in expenditure for the coming budget cycles.

The well-managed services companies ended year 2009 with revenues flat at best compared to 2008 where as the others saw substantial reduction in revenue and even more dramatic decreases in profitability.

Sankalp's projections
Sankalp's projection is modest growth in revenue but at decreased profits in FY 2009 compared to FY 2008. Almost all customers made much bigger cuts in their outsourcing needs. Part of the reason for decreased profits in last six months is due to increased expenses during that time despite the tough economic situation. Sankalp forecasts a much better 2010 compared to 2009 and is therefore looking to increase its workforce as well as invest in broadening its offerings and competencies.

Sankalp Semiconductor is an analogue/mixed-signal/RF semiconductor service provider that provides services to semiconductor companies.

- Vivek Pawar
  CEO, Sankalp Semiconductor Pvt. Ltd

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