It’s been a pretty miserable Q2 for the chip sector. Although the semiconductor industry’s overall revenues declined sequentially by only 1 per cent in Q2 (after a 6 per cent decline in Q1), many companies have found profits elusive.
The two private equity-owned companies, Freescale and NXP started off the bad results story for Q2 recording losses of $288m and $367m respectively.
Then Infineon (excluding results from 85 per cent owned subsidiary Qimonda) reports a mere $13m Q2 profit, while STMicroelectronics reported a $148m profit on Q2 operations (but a $758m loss due to re-structuring charges) compared to ST’s $168m profit for Q206, and with revenues down 3 per cent in Q207, compared to Q206.
ST’s competitor, and collaborator, in the wireless market, Texas Instruments, also had a bad Q2, reporting sales down 7 per cent on Q206. Net profit dropped a massive 75 per cent from Q206, from $2.39bn to $610m.
What will bother ST is that, despite all its cost-cutting measures, ST's margins are still 34.7 per cent, while TI’s margins are 52 per cent.
Despite a DRAM price war raging most of the year, it was the memory makers, Samsung, Toshiba and Hynix which looked the happiest in Q2, with Hynix sufficiently encouraged by a $229m7m Q2 profit, to predict it will be the world No.1 chip manufacturer in 2017.
That’s reminiscent of a Samsung aspiration uttered some 25 years ago, that it would become the world’s No.1 chip maker, and hold that slot for the subsequent 100 years. The Koreans, sometimes dubbed ‘the Italians of Asia’, can get a little carried away.
The auguries are good for memory, with the applications of NAND flash, solid state computers, mobile phones, iPhone, iPod etc, solidly growing the demand, and with DRAM prices now looking as if they’ve reached their self-inflicted, warring lows.
It’s the non-memory makers which are causing concern. So many companies, NXP, Freescale, ST, Infineon and TI are trying to manage a downsizing operation as they move away from manufacturing to so-called ‘fab-lite’ models, which some say is a euphemism for fabless.
Downsizing is a miserable business. It’s expensive. Morale gets eroded. Often the wrong people get kicked out. Promising projects get scrapped. It rarely results in a better company.
If the semiconductor industry is to sink into a downturn this year, one particularly wonders what the future is for the private equity owned companies, Freescale and NXP, recently ejected from long-time cosy berths as subsidiaries of Motorola and Philips respectively.
Motorola and Philips had been in the chip industry for as long as there has been a chip industry, and they tended to take a tolerant, understanding, somewhat avuncular attitude to the vagaries of their chip arms with their voracious hunger for capital and totally erratic sales and margins.
Will Freescale’s and NXP’s new owners, Blackstone and KKR, adopt a similarly tolerant, understanding and avuncular attitude if times get tough?
Somehow, one doubts it.
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