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Global Chip Industry Has Room to Improve

Not many industries are as consistently volatile as semiconductors. Year -in and year-out, working and investing in the chip industry has been akin to regularly climbing aboard a furiously fast roller-coaster ride.

During the past decade, semiconductors have suffered wild ups and downs in supply and demand. In the months leading up to the Sept. 11 terrorist attacks, chip inventories were overflowing because of widespread anticipation that demand would be strong. After the attacks, many chipmakers dramatically scaled back production. It was a tough time to survive. Predicting demand has been one of the industry's thorniest problems for decades. Chipmakers consistently build too much inventory, or not enough—often at the worst times.
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As in 2001, inventory concerns in 2008 topped the industry's agenda as signs emerged of an impending global recession. This time the industry—in quite a desperate state—was so cautious about not getting burned by excess inventory that it cut production quicker and more deeply than usual. Some companies cut output by as much as 50 percent. Overall capacity utilization fell to just 50 percent, well below historic averages of 80 percent. With good reason, companies were cutting back swiftly in anticipation of a recession they suspected could last years. There were signs globally that this would be the case not only in semiconductors but in the overall economy.

Slamming on the brakes turned out to be one of this industry's finest moves ever. Learning from past mistakes, chipmakers were able to reduce production and inventory costs. By slowing manufacturing they not only saved money, but set themselves up for an unexpectedly swift, if unforeseen, market turnaround. Direct Marketing Services Provider.

The semiconductor industry's worst nightmare, in which the market crashed and stayed at ocean-floor depths for several years, didn't happen. The market rebounded sooner and more strongly than in perhaps any previous cycle in the industry's history. Better-than-expected consumer demand returned by the second quarter of 2009. The market is now expected to grow during the next few years. The industry has traveled a long way in a short period of time.

Why did the market come back so fast? There are several reasons.

Economic stimulus from the U.S. and Chinese governments played a role. More money in the economy spurred consumer purchases. With the investment by China to sustain internal growth, small luxury items (laptops, media devices, and smartphones) continued to attain unexpected growth there, with a ripple effect in North America. Thanks in part to this "small luxury item" trend, the semiconductor industry experienced sustained growth in the communications and consumer-electronics end markets. Media Marketing Agency.

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