The chip industry is facing a crisis of confidence but it doesn't need to, because growth is still very much on the cards.

That's according to Malcolm Penn, CEO of Future Horizons, speaking at an industry seminar yesterday.

He said: 'It's very hard to meet someone that's positive about the industry at this point of time. My belief is the growth dynamics will still be with us because nothing has changed to moderate the dynamics.'

He said that Intel's Gordon Moore view was that unlike other industries, semiconductor firms should invest in a down cycle. And another luminary, Kawanishi San, described the 10 symptoms of big company malaise.

Those are an increase in the number of meetings, meetings don't not come to any conclusion, a firm is no longer able to rise to a challenge and is slow in responding and slow in responding to information from customers. Other symptoms include putting the emphasis on forecasting, emphasisising consensus at the expense of professional insight, trying to fit the business to the budget rather than the needs of the customer, ignoring figures and forget other business fundamentals, talking about past glories increases at the expense of future dreams, and when authority is replaced by power.

Penn said: |The industry is in a mid life crisis, with short term problems dominating the agenda, and startups are struggling to reach critical mass and the industry is more near term and related to the balance sheet rather than being driven by the market. We're being driven by the CFO not the CEO and all the CFO cares about is cut, cut, cut, cut, cut.'

He continued: 'If the economy is growing, normally the semi industry grows with it. There have been two times in the last 50 years when the chip industry has shrank even in a strong economy. The economy shrinking doesn't mean the chip industry will necessarily shrink with it.  The era of cheap money is over. The world has changed, the nice decade is over, and we're moving into something which will be less wholesome.'

He said: 'Chip companies have allowed themselves to be the puppets of the OEM. Nowadays we build things in batches, you get designed in and designed out. There is no other industry where customers say you have to pay for it.  You can predict how many mobile phones will be built, but which chip is in it is a different matter. The manufacturers deliberately design phones so they can slot in different chips from different manufacturers. They're playing games with the manufacturers.'

He continued: 'Fab capacity has showed more than 90 per cent utilisation for the last four quarters. We're getting perilously close to full capacity. You have some of the lowest levels of capex investment we've ever seen in the semiconductor industry. This is the first time we've seen this happen when capacity is tight.'  Doing more and getting paid less for semiconductors means death for a firm.

Unlike other analyst firms, Future Horizons reckons that growth in the semi industry for the rest of this year is likely to be around 10%, if the continuing decline in DRAM prices is discounted.

Penn said that India will be the world's biggest economy in 10 years time. While China is very heavily reliant on low cost manufacturing, India has developed a host of other strengths which means it will continue to grow. X

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