The local semiconductor industry has already cut costs and reduced its workforce, but a sharp decline in demand is setting the stage for further job cuts during the coming year as the sector struggles to offset sluggish sales combined with surplus inventory during a global recession.

Demand for semiconductors has fallen mostly because the sale of consumer products that incorporate chips has been hit hard by the economic downturn. In November, worldwide sales of semiconductors declined to .8 billion, a 9.8 percent drop compared with November 2007, according to the Semiconductor Industry Association.

But the true fallout from the slump may lie ahead, experts said.

Spending on semiconductor equipment is expected to decline 31.7 percent during 2009, according to Gartner Inc.

Early indicators suggest sales are set to decline 25 percent during the first quarter and 30 percent to 40 percent this year compared with 2008, said Dean McCarron, principal analyst for Arizona-based Mercury Research. The situation will require a production slowdown and a workforce reduction to offset slumping sales, he said.

“Companies have to go into a self-preservation mode,” McCarron said. “That generally includes cutbacks and layoffs.”

But McCarron stressed that a 30 percent decline in production doesn’t translate to a 30 percent workforce reduction because many jobs in the industry are nonproduction, research and development positions.

Several semiconductor companies operate in Central Texas, including Freescale Semiconductor Inc., Sunnyvale, Calif.-based Advanced Micro Devices Inc. (NYSE: AMD), Samsung and Austin-based Silicon Laboratories Inc. (Nasdaq: SLAB).

As of November 2008, metropolitan Austin reported about 17,100 workers employed in the industry, the highest workforce level since before the tech bubble burst in 2001. That year, Austin reported 21,200 semiconductor industry jobs, according to the U.S. Bureau of Labor Statistics.

The Semiconductor Industry Association, which says the industry employs 216,000 workers nationally, declined to comment on prospective layoffs.

Susan Davenport, Austin Chamber of Commerce vice president of business retention and expansion, said job cuts in the industry are expected to mirror the general manufacturing sector during the recession.

“This industry is definitely one that will be hit,” she said.

Freescale, which in October announced plans to cut at least 2,400 jobs from its global workforce, reported plans to lay off 138 workers in Travis and Williamson counties this month. The company, which employs about 5,000 local workers, declined to comment on future layoffs.

In November, California-based Applied Materials Inc., which operates a 1,750-worker facility in Austin, revealed plans to cut 1,800 jobs, about 12 percent of its workforce, companywide. The number of local job cuts won’t be determined until March, spokesman David Miller said.

Last month AMD, which employs about 2,500 local workers, reported in a regulatory filing it was cutting 600 jobs — 154 in Austin — to save million. But AMD plans on additional cost-cutting measures, which could include further workforce reduction, during the first half of the year, spokesman Mike Silverman said.

Written by Christopher Calnan ABJ Staff