Downturn hasn't ended chip distribution deals

Downturn hasn't ended chip distribution deals
Yes, I know; the semiconductor industry is having a disastrous year. DRAM sales have plummeted, and even DSP demand is off significantly. Recent shutdowns of semiconductor factories and cutbacks in capital expenditures to alleviate stockpiles of inventories have also negatively affected the industry.

Clearly, such moves are designed to control costs and improve battered semiconductor pricing. And the chip vendors certainly are justified in their efforts to carry less inventory-especially since the electronics industry is facing the fastest demand drop-off and worst oversupply situation in years.

All this trickles down into the distribution channel, where chip sales are off significantly. But there may be a silver lining in the semiconductor cloud.

While the downturn has severely hurt distribution sales, the channel will become stronger during the recovery phase as more opportunities open up for distributors to carry more lines and more product. During this time, chip suppliers should be aggressively seeking distribution's help. As more distributors emphasize demand creation and value-added services, they can help chip vendors bring new products to market and gain efficiencies in the supply chain.

The proof is in the deals. Chip makers have continued to ink significant distribution agreements over the past few months. For example, ON Semiconductor signed a global distribution deal with Future Electronics in July to expand its global customer base. Digi-Key and Xicor entered into a worldwide distribution agreement that franchises the distributor to resell Xicor's mixed-signal products.

Distributor Symmetry Electronics sealed a distribution agreement with Integrated Silicon Solution Inc. to distribute ISSI's high-performance semiconductor components in North America and Mexico. All American Semiconductor hooked up with Equator Technologies to sell broadband signal processors. And DRAM supplier Elpida Memory formed partnerships in North America with distributors Future Electronics and Symmetry .

Still, chip makers are concerned that the first- and second-quarter slowdown doesn't appear to be improving. Many had hoped that demand would start to build in the second half. But it's still too early to tell. There are some rumblings that the computer industry is starting to come back, which would be a good sign for chip makers.

I'm wondering how factory closings and cutbacks in the chip industry will affect the supply and pricing scenario next year in the channel if a chip recovery is stronger and faster than what's anticipated. Think shortages and higher pricing. It could happen.