Need a Recession Strategy? Follow the Chip Industry Model

Last Updated Nov 4, 2008 7:13 PM EST

The semiconductor industry has long been characterized by turbulent boom and bust cycles. In good times or bad, chip-makers deliver higher levels of integration in ever-shorter product cycles.

Recession, political change, economic turmoil, relentless global competition, nothing stops them. Through decades of constant improvement, perennial leaders like Intel, Qualcomm, and Texas Instruments have learned to survive and even thrive under the harshest conditions.

How do they do it? By using methods that every company should be looking at to combat today's tumultuous economic and political environment.

The Ten Components of the Chip Industry Survival Model

  1. Zero-Based Budgeting (ZBB). A method of budgeting by prioritizing and justifying projects based on projected expense and return-on-investment.
  2. Disciplined product focus and execution. Periodic reviews between development, marketing, sales and operations keep projects on track and on budget.
  3. Product diversification. End-markets cycle at different times and rates. Diversification provides a buffer from some product-lines while others face slumping demand or over-supply.
  4. Forecast end-user markets. Monitoring and forecasting end-user markets like computing and communications provides an early indicator of changing market conditions and transitions.
  5. Keep resources lean and mean. You'll never find a department or a project team with enough headcount in the chip business. Outsourcing and contractors, readily dialed up or down, are used to mitigate cycles.
  6. Use volatility to grab market share. Market turmoil can present opportunities to gain market share or displace leaders, but the reverse is also true. Assess risk v. reward tradeoffs, even in down markets.
  7. Supply chain management (SCM) and just in time (JIT) manufacturing. Use SCM and JIT manufacturing as a competitive advantage to minimize inventory and maximize profits.
  8. Monitor Book-to-Bill Ratio. The ratio of orders taken or booked to orders filled or shipped. This closely watched ratio indicates supply and demand trends.
  9. Flawless reduction-in-force (RIF) execution. To be avoided if at all possible, even with conservative budgeting, layoffs or RIFs are sometimes necessary. Flawless communication and execution are critical to minimize morale and other issues.
  10. Adapt with lightening speed. Advance planning, decisive action, and flawless execution ensure lightening quick responses to market changes and efficient operations.
In spite of recessions, global competition, economic turmoil, and political upheaval, the chip industry has managed to maintain a long-term growth trajectory and relatively consistent profitability among its leading companies. It's a shining example of what American ingenuity and perseverance can accomplish.

Now it's your turn. What challenges does the recession present to your business or industry? What methods or strategies do you suggest to mitigate its effects?