It's a 'canoe-shaped' industry as the American's call it. It's gone down and for the first time it has stayed down for a long time

Walter Roessger President Semi (Europe)

"A lot of our companies are in a battle for survival financially, but it is also time to rethink and get creative for the next boom," Walter Roessger, president of conference organisers Semi (Europe), told the BBC's World Business Report in Lisbon.

The semiconductor industry had a record year in 2000 with growth of 89%, but last year chip sales fell 32% pushing major producers to cut capital expenditure as factories ran at about half their capacity.

"It's a 'canoe-shaped' industry as the Americans call it. It's gone down and for the first time it has stayed down for a long time," Mr Roessger said.

Customer demands

Co-operation at the level of research and development were described as more necessary than ever because of the global economic uncertainty.

But the call to 'get creative' met with criticism that the industry develops products its customers did not want.

"Does this technical innovation answer a need, in the sense of a request from consumers?" asked Jacques Neirynck of the Swiss Federal Institute of Technology.

"The usual complaints of television customers are not about the quality of the pictures but of the quality of the programmes."

Poor outlook

Chip demand is expected to improve by a modest 6% in 2002, mainly due to an expected upswing in demand in the second half of the year.

But this year chipmakers worldwide have announced massive capital expenditure cuts after shelving plans to boost capacity.

Last year, chip sales fell 32% to about $139bn from record sales of over $200bn in 2000, pushing capacity down to about 50%.

Intel, the world's largest chipmaker, reported record capital expenditure of $7.3bn last year but has cut its budget by almost $2bn to $5.5bn.

Intel is estimated to account for a quarter of global capital expenditure in the sector.

Similarly, Texas Instruments recently said it would reduce its capital expenditure this year by $1bn to $800m.