So corrective action was in the hands of the industry itself. But this downturn is the result of a global economic downturn and the recovery of the semiconductor industry will lie in global recovery. Most of 2009 (first three quarters) will be gone before signs of recovery become visible.

Not every vertical will be as down as BFSI. Murthy sees a silver lining in the healthcare industry, buoyed first by the Bush administration’s directive that all individual medical records should go electronic and second from an expected boost under President Obama who is likely to improve healthcare delivery. Vashistha sees an upside also from the retail and utility sectors.

Rajam sees a positive fallout for independent IP developers who will benefit from consumer electronics biggies seeking to cut expenses by buying, not developing in-house, more IP. But this buying will be guided by their own cash positions. At the recent Las Vegas semiconductor industry show firms like Cisco and Broadcom with strong reserves were still talking about new products and R&D spend. With their resources they will be seeking to increase their market share with new products based more on third party developed IP even as industry revenues fall.

Vashistha sees Indian software leaders facing both a tough and positive scenario. They will be at a disadvantage vis-à-vis incumbents like IBM and Accenture and even Cognizant (its US front end is similar to the other two) which have an edge in domain expertise and value added services. But Indian leaders have the cash and will buy their way into such capabilities as useful assets in the west will be up for sale. Typically, a firm which has two or three good practices like say enterprise applications will seek to sell one of them to get urgently needed cash.

Recruitment in India will be down to a modest 10-15 per cent, mainly to take care of attrition, predicts Vashistha. Firms like Infosys will meet the cost challenge by “refreshing the pyramid” (effectively replacing experienced hands with freshers). Compensation in the industry will rise by a nominal 3-4 per cent, which will lower real wages as inflation can be expected to rule at around 6 per cent.

Source: Business Standard