The growth rate graph of the relatively young semiconductor market charts a roller coaster of sharp peaks and troughs caused by myriad reasons, some common to all industries, some unique to the technology sector. This presents serious issues for the economic success of the companies in the market, and periods of natural instability for people working within the sector.

Jean-Philippe Dauvin is ST's Group Vice President of Knowledge and Education, known slightly less formally as the company's chief economist. Jean-Philippe has, by his own chuckling admission, been around for many of these market cycles. Here he tells us how he brings his experience to bear – in harness with the whole spectrum of traditional economists' tools and disciplines – for the good of ST and its people.

"There is still plenty of growth potential in semiconductors, fuelled by applications of new technology. There is the push of technology into developing countries and the pull of new demand from the developed world. Like any industry there are market cycles, and we have the short three- to five-year, almost traditional, market cycle. But in semiconductors we also have longer 10-year cycles caused by changes in usage, technology, and geography of the market, and so on – and these can involve extraordinary upturns and downturns. As our industry matures and these dramatic up and downturns soften, companies in our sector must adapt their business models to survive.

Manage the short cycle by planning for the upturn

The short cycles we could say are typical of any industry, adjustments in supply and demand, ups and downs of pricing, inventories, product life-cycles. We are able to forecast, monitor and manage these far better as the industry matures. We learn to spread the life of products, and the more we understand the needs of our customers, the more we can help them control levels of inventory, for instance in supporting their Just in Time manufacturing needs. But if swings are as dramatic as 40% then the industry is responsible for great social impact, with much hiring and firing.

Semiconductor market cycles

The long cycle – recognize the new planet

Managing each long cycle realistically means adapting to a new landscape. Remember the days before IT was used in accounting and payroll, these functions were carried out by armies of clerks – that landscape has obviously changed. Sometimes these changes can be incredibly dramatic, as different factors collide – and today we are facing a new semiconductor world molded by what I call the four Cs – consumer, China, cost and consolidation.

We are now in a consumer-driven business. In the developed world TV is reaching saturation, PCs and mobiles are slowing but there are constantly new consumer applications, which means a continuous price drop for semi-conductors. But like it or not, to compete, the functionality must improve within the price drop, so the cost of R&D increases. Therefore there is consolidation, as the industry can be challenging for small companies. So to the other C, China (and India too). These are huge markets, that's where the customers are, that's where 75% of the world's household appliances are built. Just as the US was for PCs 25 years ago, and Europe for digital handsets 15 years ago, China will soon be the new electronic power of the world, and we plan to be part of that process.

So we are hiring and training locally in China, but as always innovation is the way forward, and nowadays where we design product isn't necessarily where we ship product, which used to be the traditional indicator. The real picture is that Europe is still important, it is where we do the high added-value design. So while we are increasing the payroll in China, we are also increasing the payroll in Europe and the US – all part of adapting to the new planet while maintaining our roots.

Knowledge and Education

Yes, that's my job title, and the two are inextricably linked. In my job as an economist I have just four people using the traditional arsenal of the economist to understand the demand for our work, and what the competition is doing. Just as importantly we have to communicate this around ST. Not just in our continually revised forecasts and market indicators for senior management, but to tell everybody the market trends, so everybody understands the environment we are working in – the need for speed in innovation or flexibility in projects, the extra market information to help our sales teams perform successfully.

This way, everyone at ST understands the market picture, understands what they need to do, and can participate effectively. We do this through the intranet, through e-learning, World Class magazine, site road shows. As far as I am aware this employee engagement in the market environment is unique, so in itself it's an innovation – an innovation in behavior. Just as important is our external communication.

The signals that point to new routes to profitability

I mentioned the ever-changing landscape. Our role is to predict this landscape, to look for the signals, however weak, of future applications for our technology. For instance, what will people use their mobile phones for, how can we get our low-cost photovoltaic energy technology to market, what will robotics mean to us?

Currently a good example of where we are looking at future applications is in healthcare. We have to explore the issues, understand the reality of where chips will be used and how, for surveillance, diagnosis, treatment and the like. The new business potential of these new technologies is generally in the developed world – for instance the Japanese use of robotics for elderly health care.

So there you have it, that's my role. To understand where our business is going and where it can go. And then to tell everyone!"

Jean-Philippe Dauvin
Group Vice President, Knowledge and Education