The approaching holiday season holds little joy for thousands of employees and executives in the semiconductor industry. This year major makers of the tiny electronic wafers, which are the raw material of the high-technology age and run everything from watches to supercomputers, are playing the role of the Grinch. They will shut their doors for up to three weeks next month, a time when workers normally expect year-end bonuses and office celebrations. The painful closings are only the latest steps that chip producers are taking to cope with a slump that has crippled the once booming high-tech industry. "There's no end in sight," says Richard Billy, an analyst with the Gartner Group, a computer-research firm. "The bloodbath will continue."
The downturn already rivals the depressions that have struck car-and steelmakers in recent years. Some 64,000 semiconductor employees have been laid off in the past ten months, a toll that equals 19% of the industry's U.S. work force. The top five chip producers, including Intel, Motorola and Advanced Micro Devices, lost a total of $195 million in the quarter ending in September, and the red ink keeps flowing.
While the semiconductor slump is centered in Silicon Valley, the industry's hub, it extends well beyond that California region. United Technologies said last month that it was permanently closing its Mostek subsidiary in suburban Dallas and laying off 2,500 workers in Texas and 3,200 worldwide. The decision followed more than a year of intense and often agonizing cost cutting. Said Marie Gentilo, 45, a Mostek quality-control worker: "There is nothing for us. Some of us are too old to get new jobs."
Texas Instruments, Mostek's Dallas neighbor, has also been suffering. TI said last month that it was closing plants in Houston and College Station, Texas, as well as El Salvador, and would lay off 2,200 workers and defer wage increases planned for the first half of 1986. The job cutbacks brought the company's layoffs to 7,000 this year.
Indeed, the slow growth of the computer market has been a chief source of the chipmakers' woes. They hastily built new plants and hired workers after personal computers, which are major users of semiconductors, became best sellers in 1983. But the popularity of desktop machines has so far failed to grow at the euphoric rate that experts predicted. Instead of doubling, personal-computer sales will do well to rise by 30% in 1985. That slower than anticipated growth, combined with weak demand for other types of computers, has contributed to a sharp drop in semiconductor prices. Result: worldwide chip revenues have fallen from $26 billion in 1984 to an estimated $21.6 billion this year.
While chip sales were sinking, U.S. firms continued to lose ground to the Japanese. Rather than cutting back production, such companies as Hitachi and Toshiba persisted in selling at falling prices to boost their market share. "The Japanese don't throw in the towel on the downturns," says Lane Mason, an analyst for Dataquest, which studies electronics firms. "They are willing to suffer a little more red ink in the short term to achieve their long-term goals."