Is the tech industry bouncing back?

SAN FRANCISCO — The global semiconductor market has been enjoying a mild rebound since March, offering hope that the wider technology industry is also on the course to recovery.

Observers hope this budding recovery, fueled by a demand for electronic components in China, signals the end of the semiconductor industry slump brought on by the global financial crisis.

Most chips go into consumer devices ranging from smart phones to laptops and televisions to automobiles. That makes semiconductor sales dependent upon factors like consumer confidence and holiday spending.

The semiconductor market has seen a series of month-to-month sales increases since March, accompanied by a firming of chip prices.

“We're definitely in a period of recovery which is good news, but we are bouncing back off of a very low sales base,” said semiconductor analyst Jim McGregor with the Arizona market research firm In-Stat. “What everybody's trying to figure out now is whether it's sustainable.” Since electronics makers order chips well in advance of selling their finished goods, semiconductor sales also serve as something of a barometer of how manufacturers view the consumer marketplace.

“The big questions looking forward are macroeconomic,” said semiconductor analyst Jim Handy, with the California market research firm Objective Analysis. “If we have another wave of the financial crisis or some loss of confidence, all bets are off and the chip industry could head back down.”

That caveat aside, observers are cautiously optimistic that the semiconductor industry has pulled out a worse dip than the collapse that occurred after the technology bubble burst earlier in the decade.

“The current downturn is much sharper than in 2001,” said the Brussels-based Organization for Economic Cooperation and Development in a recent analysis of the semiconductor industry.

“A modest month on month upturn since March 2009 suggests that demand is beginning to stabilize, although at substantially lower levels than one year earlier,” OECD officials said, suggesting that the global technology industry is “poised to rebound.”


The Semiconductor Industry Association (SIA) recently released a summary of the first six months of worldwide chip sales. The figures show the upturn but also reveal how far the market has slipped.

The SIA report said global chip sales rose 17 percent in the second quarter relative to their depressed first quarter levels, suggesting “a gradual recovery of demand.” The month-over-month sales growth continued in July, with sales up 5.3 percent over June, SIA said

But even with that second quarter bounce, SIA said worldwide sales were off 25 percent in the first six months of the year, totaling just $95.9 billion, compared to $127.5 billion in the first half of 2008.

Observers say the modest rebound is being led by China.

“Economic stimulus programs in China, including incentives for purchasing consumer products and investment in communications infrastructure, have helped drive semiconductor sales in the world’s largest chip market,” SIA said. The rest of the Asia-Pacific region is also starting to come back, said George Burns of Strategic Marketing Analysis, a California firm that follows chip-makers.

Burns said electronics manufacturers, who had let their chip inventories dry up after the financial crisis last fall, are ordering components in anticipation of year-end demand.

“In general the recovery in semiconductor demand is being driven from Asia because so much of the manufacturing has been outsourced there,” he said.

The modest revival of demand has helped put a floor under chip prices, according to Handy, the market-watcher with Objective Analysis.

“Prices have been stable since March,” he said. “In a normal market that's a good sign”

But observers say this is a nervous market and if electronics makers don't get sufficient orders for their goods, demand for chips could slump again.

“Everyone's playing a guessing game about what kind of holiday season we're going to have,” McGregor said.