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A Smaller Semiconductor Industry Moves Forward

The good news is the economic improvements in the semiconductor market. But let’s remember that true recovery is still a long ways off.

For example, Intel recently posted a huge jump in 4Q09 profit of $2.3 billion, or 40 cents a share, compared with a profit of $234 million, or 4 cents a share, for the year-earlier period. Quoting from a consensus survey by Thomson Reuters: “Revenue was $10.6 billion, up from $8.2 billion for the same quarter in the year-earlier period.” The article notes that this profitable quarter was due primarily to cost cutting measures.

The fact that this huge profit was achieved primarily by shrinking the corporation is nothing special to the semiconductor market. This is the way almost every successful company has achieved profits during this recession.

Does that mean the economy is improving, at least in the short term? A recent article in the Wall Street Journal reminds us that, “… since a peak in 2005, Intel’s revenue is down 9.5% and its earnings are down nearly 50%. The company’s work force? It’s at 2003 levels.”

Will smaller semiconductor companies be capable of maintaining the innovation needed to create new products that drive consumer and corporate spending? That depends greatly upon how companies have cut back on their workforce, the data for which is difficult to find.

Still, the outlook is encouraging. iSuppli recently reported that, “after a 6.7 percent drop in 2009, the global consumer electronics market is expected to achieve a mild recovery in 2010, with revenue expanding by 1.6 percent partly because of improving sales of LCD-TVs, digital set-top boxes (STBs) and appliances.” Not terribly innovative products, but growth in any sector is still good.

Whether that growth leads to a long term economic recover is hard to tell. We’ll find out together.

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