Act responsibly

The fiscal policy of tech companies in this extraordinary time should not be based on a panicky attempt to rescue growth and profitability at all cost

There is no doubt that Silicon Valley has been hard hit by the retrenching that has befallen businesses around the globe. Never before has the semiconductor industry experienced revenue declines in back-to-back years, but this is likely in 2009 as worldwide semiconductor revenue is forecast to decrease by 9.4% to $241.5 billion, down from $266.6 billion in 2008, according to iSuppli Corp.

For years our industry has been so closely associated with robust growth that a negative sales year produces dismay. Nonetheless, and even though demand for electronic components is pausing to take a breath, there is no justification for what Gartner Inc. recently reported, that semiconductor manufacturers are “shifting into panic mode for the first half of 2009, cutting capital equipment spending even more deeply than in 2008.”

The fiscal policy of tech companies in this extraordinary time should not be based on a panicky attempt to rescue growth and profitability at all cost — remember, in the vast majority of cases we are not talking about companies threatened with insolvency, this is not the auto industry. Instead we are talking about reduced company profits, albeit sometimes tremendously reduced. It’s not to be sneezed at, but it’s no reason for a firm to cut off its nose to spite its face. Let’s be honest, this year’s business results cannot be wholly reversed by slashing expenses alone.

We hope the industry will face its need for adjustment with courage and reason, not fear. We hope it will stop wasting all its dry powder on short-sighted activities — in both personnel and capital expenditures — that will hinder its ability to plant the seeds for long-term growth. As Intel Chairman Craig R. Barrett correctly noted in an article entitled “What’s Wrong with Silicon Valley?” in the January 17 edition of BusinessWeek: “You cut off your future if you don’t invest.”

History has shown us what fear and uncertainty can do; the steel industry in the U.S., to cite just one example, was crippled for decades by a policy of taking short-term profits and ignoring long-term capital investment. If we are to succeed in the long run we must take the blinders off of those who operate solely on quarter-to-quarter results and who simply refuse to see the forest for the trees.

As for the executives calling the shots, they have an opportunity to prove that not all industry leaders behave in the manner of Wall Street executives, who demonstrated what happens when important people are willing to sacrifice our collective long-term interest for their own short-term gain.

Make no mistake, the current economic crunch could be severe, with its true impact liable to hit hardest in the current quarter. We must be patient. Economic recovery will take time, and we cannot turn this aircraft carrier around with a canoe paddle. For starters, if Congressional leaders move quickly, by the time you read this they will have passed legislation to strengthen consumer confidence and stimulate government and industry investment that will drive near-term economic growth.

In any event, if we all act responsibly this observer has little doubt the downturn can be ridden out without major dislocations.

Murray Slovick