SAN JOSE, Calif. — The semiconductor industry's business model "is really broken" with more belt tightening and consolidation ahead, said Steve Sanghi, the chief executive of Microchip, speaking in a candid interview from the EE Live! show floor.
"We are evolving to a slower-growth industry, and even though Microchip is still growing we will eventually converge to the mean," said Sanghi who has led the microcontroller vendor through generally increasing revenues since 1990.
The go-go days of double-digit revenue growth are over as the chip business settles into a middle age measured by mid-single-digit annual growth, Sanghi believes. The change also marks the end of the days when customers routinely saw 8% annual reductions in chip prices and employees pocketed 5% annual raises, he said.
In the new environment, chip buyers will pay flat or rising prices. Employees will compete for merit raises that come on a more graduated schedule. And chipmakers will continue acquiring each other to fuel growth.
"We are working on the entire puzzle, and hence we are coping well, but it's not without stress," said Sanghi. The changes have sweeping "impact on customers, retention -- the whole supply chain."
The days of forward-pricing chips based on expected advances in process technology are over, Sanghi told us. "The industry has to change its practices -- you have to make money today, because no one will let you make it tomorrow."
Next page: Consolidation necessary, but not sufficient