Silicon Insider: Don't Forget the Microchip

The second lesson I learned is that everything in technology moves to the pace set by the semiconductor industry. No matter how far detached your business is from actual chips -- say, your Max Levchin at Slide.com, designing tools to measure the usage of certain software widgets by teenagers on Facebook -- your long-term fate is inextricably bound with that of the semiconductor industry. If Intel and Samsung missed a beat in delivering their next generation of microprocessors, no matter how far down the digital food chain you are, you will eventually feel the effects, just as much as Pluto does changes on the surface of the sun.

Unfortunately, most contemporary tech reporters know very little about the semiconductor industry, and don't care to learn much more. It is too old, too big and too hermetic in their eyes. It isn't sexy and so they don't see much need to cover it. That's a pity, because I've always found the single best indicator of whether the tech world is heading into a boom or a bust is to watch, still after all of these years, the booking-to-billings ratio of new orders in the chip business. Add to that an understanding of the arrival date and the likely characteristics of the next generation of microprocessors and you can not only pretty accurately guess the boom-bust cycles in electronics, but even their amplitude.

That very few mainstream tech reporters even cover the semiconductor industry anymore goes a long way toward explaining why the media are so often surprised by sudden, seemingly inexplicable, shifts in the industries they cover. And if they can't see what's coming, they certainly can't alert their audiences. And that explains a lot of the volatility in the tech world: It's not just the high company fatality rates caused by rampant entrepreneurship, it's also a singular lack of understanding by everyone involved of the underlying forces driving the entire process. Had they been watching the trajectory of processing equipment orders the chip companies were placing on the Semiconductor Equipment Manufacturers such as Applied Materials (the ultimate coal mine canaries), they might have seen this "unexpected" shift coming from a long ways off.

This lack of interest and understanding explains why several news announcements of the last few days failed to make much of a blip in the press.

The first one, which I referenced at the beginning of this column, was the announcement Wednesday by Apple that it would pay $278 million for low-power chip design company P.A. Semi. If it seems surprising that Apple, in everyone's eyes nowadays the ultimate consumer electronics/digital content company, would devote that kind of money to a chip company acquisition, consider the report that it was Steve Jobs himself who led the negotiations.

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