Last week's pair of 'Giving the Finger To Wall Street' posts here and here discussed how Wall Street pressures CEOs into harmful lay-offs and profitless growth. Now, it seems, Wall Street has another harmful effect on semiconductor companies: it pressures them into foregoing long-term R&D.
In that admirable 2007 book, 'The History of Semiconductor Engineering', by Bo Lojek, it states: 'To ensure that research is focused along corporate strategic interests, politically correct companies recently reduced their efforts to only one factor - to satisfy Wall Street.'
Lojek adds: 'The main problem of a company which is only market-driven is that any surprising discovery events which may somehow randomly occur in the course of a market-driven project are not welcome. Due to the conflict with expectations, there are neither resources nor time for the unexpected discovery.'
And nearly all big breakthroughs come from unexpected discoveries. So Wall Street is, effectively, debarring the semiconductor industry from making breakthroughs. And how it needs them!
To succeed long-term in the semiconductor industry you need to invest long-term. "If you make decisions to please the financial community for the next quarter you are wrong", says Pasquale Pistorio, the great former CEO of STMicroelectronics, "you have to think of your company as an on-going concern. For instance we started investing in MEMS in 2000."
Only recently has MEMS become a profitable business for ST. It was the same with MPEG2. ST invested in developing MPEG2 technology years before there was a market for it. In 1995 ST entered the MPEG2 market and quickly became the world leader.
It seems that the sooner the semiconductor industry stops co-operating with Wall Street the better.
Companies that don't co-operate will have to take an initial hit on their share price but, in the days of a ubiquitous Internet, there are other ways than through stock-brokers' and bankers' analysts for CEOs to put their profit projections and company prospects to the investing public.
Subscribe to this blog's feed
Comments (6)
Come on you CEO's ... take a leaf out of French history, grab your pitch forks, march up on Wall Street and the Square Mile/Canery Wharf etc and turf these people out to oblivion; they've collectively done the industry a great dis-service. The stock market was supposed to be for long-term investment, where long-term means longer than tomorrow morning!
Posted by Malcolm Penn | November 2, 2009 3:04 PM
Posted on November 2, 2009 15:04
Marchons, Marchons, Malcolm, aux armes! I'm right behind you with my sharpened pitch-fork.
Posted by David Manners
|
November 2, 2009 3:17 PM
Posted on November 2, 2009 15:17
Apparently the stock exchange has taken big-time to 'high frequency' trading - the buying and selling of shares in nanoseconds, which I would hazard to guess does not involve long-term investment strategies.
This would obviously not be possible without the proliferation of computers, that in turn wouldn't exist without microelectronics and semiconductor companies.
As someone who is not known for his affection for 'technology for the sake of it', and who might just have some sympathy for those who have innocently suffered from the likes of blanket CCTV, road-revenue cameras, and mass data-storage of personal information, amongst other results of technological advancement, I can see just a hint of irony there.
Touche, mes amis.
Posted by AndyRem | November 4, 2009 3:05 PM
Posted on November 4, 2009 15:05
Bon point, AndyRem
Posted by David Manners
|
November 4, 2009 3:09 PM
Posted on November 4, 2009 15:09
It is tricky, but I'm not wholly convinced.
This has been a perpetual problem: there are reports from the 1930s complaining about the short-termism of the City.
Lord Weinstock famously ran GEC on short horizons and his attitude to R&D has been blamed for a lot, but that was 20+ years ago (and the folks who followed him were hardly an improvement...)
There are other industries that need to invest in the long term: pharma or aerospace timescales make our industry seem frantic. They complain too, but they still survive, so it is not 'timescales' per se, but whether or not the rewards are there.
And the biggest irony?
Many of those who complain about the short-termism of public markets argued "we need banks and funds to buy and hold private companies; then they do not need to worry about the quarter and will invest for the long term"
Well, that is called private equity and we see just how well *that* turned out.
Posted by El Rupester | November 6, 2009 2:44 PM
Posted on November 6, 2009 14:44
Yes, El Rupester, Arnie practically killed off the UK semiconductor industry - but not quite. I've always thought that good semi CEOs find very innovative ways to fund their companies - government-funded R&D, government-funded factories, university-assisted R&D, deals like the Abu Dhabi Globalfoundires deal which got AMD out of debt. Semi companies can do these deals because the semiconductor industry is seen as such an attractive industry - pushing the boundaries of science and technology, employing the brightest and the best (that's worth a beer El Rupes), stimulating creativity, and boosting productivity in other industries. Trouble is the industry is probably capital-destructive in its generality, rather than capital-generative, and its profitability and growth are spotty - confined to the companies who are smart enough to see and exploit new areas quickly. So when a sharp-eyed little MBA/accountant from Wall Street casts his steely glance over the figures he thinks: 'Holy Smoke we shouldn't be involved in this'. But if he looks twice, he'll find situations and CEOs who buck the trend. Gordon Moore didn't become the richest man in California because his company's growth and profitability followed the industry trend line.
Posted by David Manners
|
November 6, 2009 3:08 PM
Posted on November 6, 2009 15:08