We know demand soft conditions for many market sectors are persisting resulting in tightened strategic/defensive plans. Companies along the semiconductor and electronics value chains are protecting their positions in the present, difficult economic climate (see this recent economic and growth strategy report by McKinsey & Co.).
With fab and equipment investments well into the US billions, and demand softness continuing, there has been a steady decline in semiconductor equipment spending, as underscored by the most recent SEMI book-to-bill data here (see also this recent MarketWatch Commentary post).
Another development affecting the semi value chain is the ongoing consolidation and market share shifts (see this article from ElectroIQ on consolidation in the cellular chip market). As demand continues to be soft, retreating companies leave behind less competitive markets with high barriers of entry for new players or even new offerings from existing players. One telling example of this strategic problem is the case of Sony-Ericsson, as highlighted in this recent interview in The Wall Street Journal. When even some of the larger and well-known companies in the mobile space are having to fight to stay in the game, we are reminded of how challenging market conditions have become.
As the various supply chains realign and begin to face increasingly tight component supply issues due to capacity constraints alongside of high utilization levels, there is also the question of revenue and growth. Recent data from Intel and SIA confirm that August semiconductor sales gained on a month-over-month and year-over-year basis, thanks to slight recovery in the PC market (see this report on Intel from ElectronicsFeed; and this recent report on August global semiconductor sales from SIA).
One trend that had persisted in the EMS space was that high margins and high growth were, curiously, mutually exclusive. As the recent issue of Manufacturing Market Insider (MMI) shows, EMS companies are feeling more pressure to win business as demand softens. However, rather than sacrificing margins, the largest EMS companies' strategies now focus on increasing business at above average growth while protecting higher margins. Examples of these EMS strategies lately have involved directed business segment moves into non-traditional and high-growth sectors, such as the strategies being implemented by Jabil Circuit and Flextronics, to name two examples (cf. the recent MMI issue, Vol. 21: 9, p.7).
The take-away from these points is that there are significant and deeply embedded changes occurring in the semiconductor and electronics industry presently that will affect not only present manufacturing, hence supply, situations but will also continue to impact future pricing and supply for the entire value chain. Furthermore, the strategies being implemented by leading companies underscore the important role that strategic and targeted diversification across sectors to reap growth without sacrificing margins means intensifying competition that will also dramatically change the face of our value chains. These are challenging times, but growth and revenue are not elusive, not to those whose strategies are focused and are aware of the changes and opportunities for high-margin growth.