As the blue-green algae of the telecom food chain, chipmakers get rocked by bigger waves than do systems vendors, service providers or carriers — and are the best harbingers of downturns and recoveries.
The ebb and flow of news from the semiconductor companies last week revealed that weakness is already giving way to new strength. Sales were slashed dramatically this quarter, but innovation and spending on R&D were not.
Intel on Tuesday announced three acquisitions — LightLogic, Cognet and nSerial — to give it a stronger toehold in the optical market, leading to faster, cheaper transponders that could jump-start spending by incumbent and competitive exchange carriers. Such transponders — developed by several chipmakers — could lead to more choices and cheaper rates next year for enterprises seeking broadband services.
"Capital spending continues to be strong," said Tony Stelliga, general manager of strategic marketing and business planning at Intels telecom components division. "Well spend $7.5 billion [in 2001.] We havent revised that down."
At PMC-Sierra, first-quarter revenue was down 48 percent from the final quarter of 2000. Customers canceled $39 million in chips theyd already ordered, leaving sales of $119.9 million.
Still, Bob Bailey, PMC-Sierras chairman, president and CEO, said shipments should grow strongly sometime in the second half of the year. "At this weeks sales call, our salespeople raised their forecasts — for the first time in six months," Bailey said. "Theyre as bullish as Ive seen them in a long time. Our bookings are still weak, but April so far has been a clearly positive month."
"Relentless innovation" in broadband access, digital photography, streaming audio and video, and Internet products should resurrect the market, Bailey said.
Jay Patel, who follows the semiconductor industry at The Yankee Group, said chipmakers are "well in the process" of clearing their excess inventory. "Theyre continuing to innovate, still investing heavily in R&D," Patel said.
Innovations from the likes of Applied Micro Circuits, Broadcom, Connexant Systems, Intel, PMC-Sierra and Vitesse Semiconductor are putting four functions on a single chip. "Thats the beauty of the semiconductor industry," Patel said. In good times or bad, it never forgets that constant innovation is the key to success and survival, he said.
Other news from chipmakers:
Vitesse Semiconductors second-quarter revenue was 26 percent lower than the previous quarter. But six-month revenue was $286.8 million — a 51 percent increase over the six-month period a year earlier.
JDS Uniphase slashed 5,000 jobs and reported a loss of $1.29 billion. Still, most of the loss had to do with merger charges and changes in the value of investments. Excluding acquisitions, revenue soared 90 percent to $920.1 million from the year-earlier quarter.
Two weeks ago, Texas Instruments reported that 2,500 employees would be laid off, and that revenue was down 17 percent from the previous quarter and likely will be down another 20 percent in the quarter ending in June.