Recession May Help Keep Chip Prices Low

Implications: Every cloud has a silver lining.

Analysis: I hate to be perceived to be negative.  However, one man’s loss is another man’s gain.  Hence, as the world comes to realize it is in a recession, the consumer will benefit from lower chip prices.  The problem with this is that the consumer may not have a job to pay for the lower cost consumer electronics.

The recession needs to be seen as an opportunity to clean up balance sheets and optimize corporate operations.  There are tens of thousands of people losing their jobs and I feel for all of them.  However, you cannot stop running your business.

This downturn does not mean the cell phone manufacturers are going to stop designing better or sexier handsets.  In order for the semiconductor companies to continue reaping profits in the wireless industry, it will be necessary to sell cell phones.

Even with a recession, cell phones will be sold just not as many as chip manufacturers would like.  Small and mid tier semiconductor players are going to suffer during the recession.  Either these smaller players are going to shut down or Intel and Samsung are going to acquire them.

What will happen to chip companies in 2008?  I would say that we will continue to see a slow down in chip sales but I think it will level off in 2010.  When I say level off I mean flatten off and now grow.  The cell phone has become an essential part of everyday life.

The cellular carriers may see a reduction in revenues because of the recession.  I believe that video will end up like voice, it will go flat rate in the near future.  I also believe that people will start to use usage-based services more judiciously. People will be less inclined to spend money on new non-perishable items as well.

It would be nice to believe that children’s and adults who love games will continue to spend money on electronic devices with abandon but frankly this is a bad recession.  The recession has not hit the consumer markets (visibly) but the financial institutions that support the consumers and businesses are at the brink of a disaster.  The electronics industry will see further reductions. 

What is good to note is that there is sufficient market demand for multimedia that complex devices will be needed.  Further, with the WiMAX v. LTE Wars clearly underway, there will be demand for mobile devices.

There will be demand just not as high as vendors will like.  Yes, I am a glass is half-full type of person.  I believe that some demand is better than no demand.