The Great Recession that began in the fourth quarter of 2008, at the height of the holiday spending season, had an enormous effect on world economies in 2009. The bursting of the bubble housing market in the US resulted in the meltdown of financial institutions around the world.

Electronic Trend Publications (now New Venture Research) predicted 2009 to be a year in which the industry would dovetail a bit due to the normal cycles in the industry, but the depth of the downturn in world economies was certainly not predicted. ETP had predicted a downturn in 2001, also due to normal industry cycles, but again had not predicted the depth of its downward slide, as the bursting of the dot com industry had not been predicted, which also came about when a normal softening due to industry cycles was expected.

However, the semiconductor industry fared better than many industries this time around, with the industry pulling up in the second half. Why did the recovery in this industry come about so quickly in comparison to the downturn in 2001? The following table compares the two downturns:

First, what can be seen was that between the two downturns, the industry did come back, with both revenue and units considerably higher but lower ASPs in 2009 compared with 2001.

But the turnaround for the semiconductor industry came considerably faster in the 2008-09 downturn than in the 2000-01 downturn. Why?

Inventories were considerably higher in 2000 than in 2008. Prior to the downturn at the end of 2000 there had been a massive build-up of inventories of lesser-priced parts, to ensure that these lesser-priced parts didn’t slow down the assembly of completed printed circuit boards (PCB). These parts had to be burned or discarded due to obsolescence before new purchases would be made. Inventories have been leaner since, so there were no inventories to be burned in 2009 before new purchases of semiconductors would take place.

Consumer spending turned downward in 2009, as many people in all industries found themselves unemployed. Even for those who remained employed, job uncertainty kept wallets from freely opening.

To combat this, all leading world governments put forth stimulus packages to step up consumer spending. In the US, the Cash for Clunkers program turned up demand for automobiles, although spending in this area dropped off after the program ended. But it did get the money to start flowing again, and US consumer spending rose twice as fast as income in March of 2010¹.

While the downturn reduced spending on larger computer products, the invention and sale of smaller, less expensive computers such as netbooks and notebooks did well. Tablets such as e-readers and the iPad have become instant successes, due to their low price. Products under only a few hundred dollars seem to do well, even in a downturn.

Fluctuating oil prices and the value of the euro are “need to watch” items. The higher the price of oil results in higher prices for all goods that require transportation by a gasoline-driven machine, plus more money is spent at the pump. This results in less monies left over for other items, such as computers, televisions, and other luxury consumer items. The economies of Spain and Greece are threatening the stability of the euro, and Greece was recently bailed out by European partners. The net effects of these on global spending and economic health are yet to be seen.

Unemployment rates remain high, but with new inventions and new employment opportunities, more people will enter or re-enter the work force, boosting spending on products that undoubtedly will contain semiconductors. Indeed, semiconductors are prevalent in products sold around the world, touching the lives of even remote peoples on this planet. Even indigenous people living in rainforests now are being visited by people bringing them the Internet so that they can view the rest of the world and how they fit into the larger picture.

The explosion of products demanded in every day lives is actually quite impressive. One generation ago a home with a single television was the norm, and automobiles quite simple with engines with catalytic converters and a radio with both AM and FM stations a luxury. Today’s automobiles are laden with ICs, and incorporate creature comforts and safety features not heard of a generation ago.

Seems like nearly everyone carries around at least a cellphone with them at all times, and smart phones are growing faster in popularity than “dumb” phones. Nearly every home also has not only at least one television set, but a minimum of one PC as well, and likely one PC per family member! Digital cameras are quickly replacing film cameras, and to get the best in print quality of those pictures, an upgraded printer is necessary as well. Indeed, the demand for ICs (integrated circuits) has continued to climb upwards, despite the occasional downturn which always seems to give way to an upturn. With world economies continuing to gain steam, so will the IC industry continue to gain momentum, for an even brighter future in the years ahead.

1.The Wall Street Journal, May 3, 2010.

Sandra Winkler is an analyst at New Venture Research; This e-mail address is being protected from spambots. You need JavaScript enabled to view it .