Chip Business in a Nutshell Dept.: Right now the semiconductor business is in one of the worst slumps I've ever witnessed. A slump like this has invariably been followed by a huge boom because the normally planned capacity increases have been halted, and then when more chips are needed they're not available, leading the prices of what is available to skyrocket. This causes a classic boom in semiconductors, followed by a build-out of more capacity and then, of course, overcapacity. Chip prices then plummet, leading to a boost in profit margins for manufacturers who use the chips in their products. If these manufacturers played their cards right, they would then lower their prices on the consumer products in high demand, the public would go nuts and buy everything it could at a great price, and everyone would be happy as long as the demand was maintained. Manufacturers usually keep demand up by increasing the product cycle frequency and turning out new models faster and faster. Eventually, quality begins to fluctuate just as the consumer market is saturated, and demand falls. Chip companies cut back on their plans to increase capacity, and a new slump begins. That's where we came in and here we are. End of scenario.
The one thing to note about this chip cycle is that at no time does the Moore's law drum stop beating. The new designs and increased power continue to be built into whatever is being sold at the moment. Fewer chips may be made and sold, but that doesn't mean that the pace of chip design is slowing down. This is also true for the hard disk business as sales slow down. They'll still be selling 2TB drives instead of 1TB drives by this time next year. It may even be 3TB drives.
I was at a recent Seagate event where I could see the executives visibly shudder when I talked abut the idea that a terabyte is approaching $99. They say that as of Q4 of 2008 you could not sell a terabyte for $99 profitably, and people who could find a $99 terabyte were buying a loss leader or a gimmick sale. (In other words, in consumer parlance, a good deal!) They knew that once the meme of a $99 terabyte got into the public consciousness, then the drives would all be $99 and hopefully they could make money on a $199 2TB drive. That's until people begin to think of a $50 terabyte.
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