Infineon's stock sped out of the starting blocks on March 13, 2000 and hit a high on the Frankfurt exchange of €92.50 in June. Then demand for semiconductors slumped, and Infineon hit a slick of red ink as losses mounted over the next two years. The company's share price has fallen more than 90% to around €7.
That boom and bust story — minus the racing car — is true for companies across the semiconductor industry, which has been mired in the worst economic slump in its history. Semiconductors are the fuel of the modern world of communications; they run everything from your computer to the airbag in your car. They are also big business; in Europe, semiconductor manufacturers employ at least 100,000 people, according to industry estimates. Thus the slowdown has meant layoffs among the biggest manufacturers: Infineon, Geneva-based STMicroelectronics, the Dutch giant Philips, and others outside Europe like Motorola and Mitsubishi. Worldwide semiconductor sales peaked at $204 billion in 2000, according to World Semiconductor Trade Statistics (WSTS), and slipped to $141 billion last year. More than 100 chip manufacturing plants, called FABS, shut down as global demand evaporated.
It has been a long cold lonely winter, but finally there are signs that the semiconductor sector may be warming up again soon. Though wary of uncertainties, companies are cautiously talking about a recovery. "The companies that are big enough and investing in research and development will continue to improve productivity, and the others will disappear," says Peter Bauer, Infineon board member in charge of sales and marketing. Analyst growth forecasts for semiconductor sales this year range from a conservative 8.9% at Gartner Dataquest to an outright ecstatic 16.6% at WSTS.
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And such numbers make other analysts salivate, because they hint that the embattled tech sector may finally be coming out of the doldrums. "Semiconductors are the feed for the rest of the technology industry, at least for hardware," says Steve Cullen, director of semiconductor research at In-Stat/MDR, a Scottsdale, Arizona-based technology research group.
Indeed, some tech heavyweights are coming out of the closet to say that the worst is over. Executives of Intel, the world's biggest chipmaker, demonstrated guarded optimism about a tech rebound. "The thing we are really waiting for is an enterprise commitment to upgrade," said Intel chief financial officer Andy Bryant recently.
It's not surprising that he sees it that way, since computers and servers used in businesses and telecommunications networks traditionally drive chip growth. This time around, consumer sales are driving: autos, PCs, DVD players, MP3 devices, set-top boxes, cell phones and digital cameras. Jean-Philippe Dauvin, chief economist at STMicroelectronics, says that from the mid-'90s until the end of last year, a typical European car like the VW Golf contained semiconductors worth around $70, but this year's models contain $220 worth of chips to control everything from CD player and power steering to upscale collision control systems.