The Wave That Won't Lift All Boats

In previous upturns, it was said by many that the sheer magnitude of funds available, the market size and the speed of recovery meant that, to a great extent, all companies benefited. Certainly in the Internet boom years of 1999-2000, the enormous waves, even high tides, were lifting all boats. But this upturn, like the downturn that it followed, has its distinct differences. And not just the ones that usually come to mind. Like the fact that the semiconductor market is now much more consumer-based and less PC-dependent. ICs don't have only one killer application but numerous little ones. Device performance is not just about scaling anymore — new materials, design changes and three-dimensional architectures are becoming necessary. Moore's Law is still alive and kicking, but device performance issues associated with extreme scaling require new approaches to produce yielding, high-reliability devices.

Despite these well known and widely discussed technical and business changes, there are other aspects of this recovery that are perhaps more significant and a little less noticeable. Industry leaders are devising various approaches to the standard business plan that are separating them from their competitors and may propel some companies forward, while others lag behind as they follow old rules. Some visionary firms, despite the miserable three years of downturn and an uncertain duration of the return to more profitable days, are taking unprecedented risk. They are accelerating their businesses forward with strategies that maybe were not required in the past but must be tried now. As one SEMICON West exhibitor aptly relayed to me, some people are moving forward and seeing opportunity at many turns, while others are "frozen."

These almost diametrically opposed responses to the recent downturn should maybe come as no surprise given the painful layoffs the industry experienced and won't soon forget. Staff reductions of 30-50% were not all that uncommon. We heard about "reducing the deadweight" in the beginning of the downturn. As it progressed, restructuring at companies became necessary, but people talked about streamlining and how middle managers just were not needed anymore. But for about 12 months, maybe more, before the downturn ended and the recovery began, it was all "cutting into the bone" and lots of good talent was lost, particularly on the equipment side. I have heard many stories of people who have left the semiconductor industry, simply seeking a more stable environment and one more suited in which to raise a family.

But if we return to the leaders — and there will, of course, be companies that prosper going forward — they always accepted high levels of risk and were not afraid to change business models when it became necessary. These companies clearly pulled ahead of their respective competitors using aggressive strategies. Samsung in DRAM. TSMC in foundry. Nokia in cell phones. Sony in gaming consoles.

Ours is a very different market now. The technical challenges are not getting easier. Everybody is well aware of that. But it is the business challenges — choosing the right companies to partner with, having the best relationships with customers and suppliers, being able to innovate on the business side, and exploring new ways of reaching the same or better results — that may separate the best from the rest. In today's environment, which is more competitive than it's ever been, has thinner margins on all the products, greater expectations of all suppliers, fast lead times and little room for error, the wave of this upturn just isn't going to lift all the boats. It simply can't. And perhaps some would argue that it shouldn't.

I recall a conversation with Brad Mattson around the time of the industry's last recovery. Looking over the attendees and exhibitors of SEMICON West, he said, "These guys better stop walking around looking at the floor. This market's going to boom again and if they aren't ready, they will miss it completely."