If you have been around the semiconductor industry long enough you will have seen numerous boom and bust years. Some of the lows have been due to recessions but a great deal more of them have been self-created by the industry. We seem to be in one of those years now.
The world in general, and some countries more than most, have been through a major downturn. It would be easy to attribute the start of the whole process as being the reckless lending on real estate in the US: loans of 125% of property appraisal simply made no sense to anybody but the immediate profiteers of those loans, often also made to people who would not have been able to back up their statements of income. That ridiculous period was compounded by the greed of Wall Street in putting all those lousy loans together as sellable assets; getting credit ratings put on them that were totally unjustified; selling the packages to investors whose greed didn’t look, or want to look, into the detail; but all the time insuring those packages for their own benefit when they knew they would ultimately fail.
We seem to be sitting on a turnaround world – at least to some degree – but the business models that existed before are not as clean today.
Take the PIGS of Europe… I thought my father had invented that acronym forty years ago but it now seems that the world understands it: Portugal, Italy, Greece, Spain. These four countries have a set of work ethics that are not understandable elsewhere in Europe. You can gripe (probably jealously) about the Germans taking six weeks vacation a year; you can wonder at Scandinavians working not one hour longer than legally required because the tax rate on any overtime is so outrageous; you can scratch your head about French farmers who seem to spend as much tractor time blocking roads as they do in plowing. But all these people produce ideas, products, live comfortable socialist-like lives, and pay their taxes…
Not so in the PIGS countries. Finding a public engineering employee moonlighting, for cash, in the afternoons is not a surprise on Via Salaria in Rome; paying no taxes on your dinner is the expectation in just about any city in these warmer Mediterranean climes. But, ultimately, the systems will collapse about their own citizens. They have now collapsed in Greece and while the EU may bail out that country in return for a change in work ethics they should not be surprised if such change is not forthcoming. And now that the financial – but hard to accept for the workers – cure is in place for Greece, why should the PI*S countries that are left expect anything less?
Going back to the office after a five hour siesta is not, I have personally found, the best way to a productive day, and I have on one occasion fired a complete construction crew when the start of the siesta just seemed to them an ideal time to end the working day completely.
Bailing out Wall Street banks and their insurance bête noir, AIG, may have saved the world from a dreadful financial crash – a probable depression, the experts have said – but it is difficult to relate that government action to our industry. Not so with the rescue of Detroit and the US based factories of the German and Japanese auto manufacturers. Cash relief for the companies aside, the programs in both North America and Europe for encouraging new vehicle purchases with significant allowances for traded-in “clunkers” brought a healthy peak in sales. But, long term, they have made the markets extremely uncertain.
We continue to see advertising for sweet deals on new vehicles to try and continue the sales momentum with low, or zero, down payments; with low, or zero, interest rates; with free accessories; with free maintenance. But the more dramatic certainty of sales from the clunkers programs has disappeared. That makes the forecasting of electronic parts in those vehicles a great deal more difficult than it has ever been.
Uncertainty always brings fear and that fear seems to be transcending other markets as well. We are seeing parts on allocation for the first time in a couple of years.
What does this manufacturing hesitancy do, overall? First, it reduces the likelihood that a designer will be allowed to select a part (by his buyers) that is not multiple-sourced. Second, it encourages new designs to be abandoned, or delayed. Third, it makes buyers acutely aware of the dangers involved in dealing with companies newly acquired by others (with both the uncertainty of people and parts in the mixture). Fourth, it allows for the sale of some rather shoddy parts in the market and keeps some companies going that should have fallen by the wayside in other circumstances.
In many ways this is déjà vu all over again. Why do we allow this to happen, to be afraid of leaping into growth? Is it because companies want to keep their heads down and out of sight of the Wall Street manipulators that have caused all these other problems? They might feel they have power over your stock price: but remember that it was they who needed bailing out, not you…
