Solve someone's problem in a downturn; they will love you forever, do the same in a boom; chances are you will be one of a crowd and forgotten tomorrow

“Solve someone’s problem in a downturn; they will love you forever, do the same in a boom; chances are you will be one of a crowd and forgotten tomorrow.”

With 2008 now behind us, it is time to look forward and make 2009 a productive and successful year. The downturn is likely to continue until around Q3 this year at the earliest, possibly into 2010, when the recovery will hopefully start to kick in. However amongst the continuing doom and gloom, the good news is that in recessions, innovation comes to the fore. Now more than ever is the time to grab the initiative and leave your competitors floundering.

Other than the economy, we know that the semiconductor fundamentals entering 2009 were not as bad as 2001, the 2001 slowdown was triggered by a simultaneously collapse of the dot-com inflated demand euphoria, the 9-11 driven economic slowdown and a massive inventory burn just as a huge amount of excess capacity was coming on stream – the so called perfect storm.

The economic downturn however is worse, adding to the uncertainty, driven initially by the 2007 subprime meltdown and then spilling into the real financial markets following the 2008 Lehman Bros collapse. This has led to a major global credit crunch with banks hoarding cash and rebuilding equity. Gorged on debt, companies and consumers all but stopped spending triggering the Q4-2008 double-digit chip market fall.

Faced with a disastrous Q4 and an uncertain 2009, the big players in almost every area are making cut backs on their R&D, so now is the time for start-ups and smaller companies to take the lead and grab some all important market share. While the short term gains of the cost cutting and hording cash are obvious, in the long run they will come back to bite and destroy not protect shareholder value. The smaller companies who are more versatile can start to take market share off the sorts of companies who were previously thought of as untouchable.

When the industry eventually emerges from the recession, consumers and major brands will start to look for the next level of technology and innovation, indeed it will be the new technologies and innovative products that will help drive the recovery. If the major players have been concentrating on their existing products rather than looking forward and investing in R&D, the next technology could come from a smaller company or even a start-up.

It is a well-established fact that innovation is the oxygen of creativity; likewise that creativity is the engine of future market growth … you never grow a business by relying on old products. It is the next wave of inventions that keep the industry growing, either by allowing you to do something that was previously impossible, adding new features to expand its appeal, making an existing solution more practical or reducing its cost to make it more affordable.

It is also well know that smaller companies are much more innovative than big ones. They have - or at least the successful ones will have - the passion, drive and fleetness of foot impossible to nurture in the inevitable large organisation bureaucracy. Entrepreneurs drive creativity; pen pushers stifle it; you do not (or rather should not) see many pen pushers in start-ups or SMEs.

With the recession restricting the overall market, that small company or start-up will stand out even more than usual. Solve someone’s problem in a downturn; they will love you forever, do the same in a boom; chances are you will be one of a crowd and forgotten tomorrow.

When the cycle bottoms the VCs and institutional investors will wake up from the recession slumber and get back to business of building new firms. Greed will bring them back to the equation, but by then the smart firms will already be on a roll.

Survival of the fittest and regeneration of the species will continue to drive the chip market evolution; recessions being one catalyst, innovation the other, except chip industry evolution cycles are measured in decades.

Posted By: Malcolm Penn

Date: 07-Jan-2009

Category: Electronics World Column