Corrigan: Consumers May Feed Robust IC Growth
EE Times
July 12, 2004 (9:00 AM EDT)
Wilfred J. Corrigan, chairman and chief executive officer of ASIC vendor LSI Logic Corp., is one of the semiconductor industry's few remaining active executives with a direct link to the industry's early days, having served as director of discrete products at Fairchild Semiconductor. Corrigan helped develop the commercial ASIC business when he founded LSI Logic more than 20 years ago, and remains a major force within the Semiconductor Industry Association. He sat down for a View from C-Level interview recently with EE Times editor in chief Brian Fuller. The complete video interview is available online at www.eet.com/c-level/corrigan.html.
EE Times: We're coming out of what you could call the WDE, the Worst Downturn Ever. What lessons did we learn, if any?
Wilfred J. Corrigan: This was [Cisco Systems Inc. president and CEO] — John Chambers used the words — the hundred-year flood. When some people say this may have been the worst, well, there was no question this was unequivocally the worst downturn we have ever experienced. You can look at 1970, 1974-5, which was the first big oil crisis, but even in that environment, the extent of the downturn was 17 percent.
This downturn was 35 percent. This is a real change. This is like an earthquake. That's why it's difficult to project going forward. A lot of people are into this, 'Gee, the industry is going to change, there's going to be single-digit growth rates from here on out.' I don't think they know. And the same thing is true with the current recovery we're in.
When you look at the cycle, what do we define as a recovery? One whole chunk of the industry — telecom — has been severely impacted, and the IT industry has been severely impacted. Certainly, we have started to see recovery in the past few months and it's gathered some momentum. But it'll be next year before we're even back to where we were in 2000. You're really almost starting a reconstruction period right now.
I think it's very difficult for us to project. I'm not a believer in the high single-digit growth.
EET: Let's talk about that growth rate a bit. You don't buy high single digits but is it a fait accompli that the growth rates are going to be lower than they were historically?
Corrigan: I don't think so. One of the things that blocks of analysts are saying is the IT industry is only growing so much. [Hewlett-Packard Co. chairman and CEO] Carly Fiorina was saying 1.5 percent. Numerous other people are saying 3 to 4 percent as a whole.
If the IT industry is only growing at this rate, how can semiconductors grow this year somewhere between 20 and 30 percent? So, is 2000 is happening all over again? Are we pumping out these semiconductors and they are disappearing into some phantom inventory in between? What's happening is, if anything, inventories are too lean right now. Clearly the semiconductor content is growing more rapidly than the end market. I don't think an IT industry growing at 1 to 3 to 4 percent has returned to its strength. But clearly you've got a much stronger participation of semiconductors. The camera didn't have much electronics in it 10 years ago. Now it's all semiconductors. If you look at a PC, the content in a PC certainly keeps on increasing. . . . The availability of low-cost DVD playback devices has radically changed that whole supply chain. If you go into Blockbuster or any of the other guys that used to be all-tape, there used to be a little tiny DVD section, and now it's mostly DVDs. And a major portion of that is for sale, as opposed to for rent. That's happened very quickly. The reason it has is you have extremely cheap DVD playback devices that may sell for from $20 to $40, but there will be 100 million of those shipped this year.
The cell phone. Ubiquitous cell phones. You go to China and we think that people are using cell phones here. We've only begun to use cell phones here. In Scandinavia, cell phones are the majority of phones and the majority of phone numbers. There are so many different ways in which semiconductors are being used. . . . The whole infrastructure [to support cell phones] is full of semiconductors.
The consumer is now a major player in the game. For 20 years, everybody talked about the three C's: the convergence of consumer, computers and communication. Then, everyone would show these Venn diagrams with these interconnecting circles and it never seemed to happen. Then the Internet came and instantly connected those three circles. There really is a huge synergy going on that's feeding demand for more electronics devices.
EET: You mentioned China earlier. Obviously a developing market and developing power in electronics. Same with India. Offshoring has been going on for 40 years. Do you think because this is an election year in the United States that the government will politicize the issue and make things difficult for managers here?
Corrigan: They're not going to do that. Neither party is going to do that. I think the Kerry rhetoric, like a lot of his other rhetoric, is nonsense. Fundamentally the amount of offshoring as a percentage of the total jobs is relatively small. If you look at the U.S. semiconductor industry, 70 percent of the business is done outside of the U.S. Seventy-five percent of the payroll of U.S. semiconductor companies is within the U.S. Now I think those are fairly compelling numbers.
In reality, the U.S. accounting rules have conspired to make it much more difficult to make that capital investment in the U.S. A few years ago, when you built a plant in the U.S., you could capitalize the plant and the startup costs and you can't really do that any more. It has to go straight to earnings.
I remember when assembly moved offshore in the '60s. I was at Motorola at the time. We were doing what Kerry would say is the right thing: We were putting capital investment in, we were automating transistor production. I got to Fairchild and I visited the Hong Kong plant and I looked at the costs and I said we were crazy. Fine if we're going to automate, let's automate the Hong Kong plant. Certain things are not going to be competitive if they're done in the U.S.
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