Downturn may be advantage

Downturn may be advantage

BY BING YEH President and Chief Executive Officer, Silicon Storage Technology Inc., Sunnyvale, Calif.

Even though this current downturn is the first demand-driven cycle that has occurred in this industry in more than 15 years, it is an inevitable part of the cyclical nature of the semiconductor industry. Successful companies plan for these cycles and continue to focus on their key business objectives. Therefore, the key to staying competitive during this latest downturn is to focus on longterm goals and not be sidetracked by short-term concerns.

For fabless companies such as SST, this downturn provides a good opportunity for securing additional foundry capacity. Although it might seem strange to expand capacity at a time when overall semiconductor demand is low, it is important to realize that it takes time to bring capacity online. Securing ample foundry capacity with deep-submicron geometries now will ensure that SST is well prepared for the next round of growth.

At SST, we think the current inventory correction will end during the second half of this year. When the down cycle ends, flash memory is poised to resume its pace of strong growth. High-volume applications in communications such as cellular phones, Bluetooth modules, global positioning systems and broadband Internet access devices will help drive the flash-memory market. Demand for flash memory as both program code and data storage will also be strong in consumer applications such as videogames, MP3 players, PDAs and digital cameras.

Another important factor to consider in preparing for the next industry upturn is the Asia-Pacific semiconductor market. Currently the No. 2 market behind the Americas in sales revenue, Asia Pacific will serve as a key market for semiconductor applications moving forward. Many of the world's leading consumer electronic and PC vendors have recently shifted much of their manufacturing to China, due to the abundant availability of inexpensive engineering talent and skilled labor. U.S.-based companies looking to benefit from the huge potential in China need to understand that even after China's entry into the World Trade Organization, the Chinese government may continue imposing "local-content" requirements for electronic goods made in China. Local content means that a certain percentage of parts in a product sold in a country must be made locally, in order to protect a country's own domestic industry. SST recently announced that it will be creating a presence in China to ensure that it is well-positioned to benefit from the country's burgeoning electronics market.