Chip Stocks Dive in 2008 as Demand, Prices Slide

The U.S. semiconductor industry, notoriously volatile even without the shock of a global economic downturn, was badly hurt in 2008 as prices for memory chips continued their dizzyingly rapid fall and demand for PC microprocessors dropped off amid weaker demand.

As such, shares of chip makers and companies serving the sector suffered during the year. The Philadelphia Semiconductor Sector index, which is comprised of chip companies as well as manufacturers of chip-making equipment, fell by nearly half in 2008. The index closed Tuesday's trading session at 211.26, compared with 408.04 at the end of 2007.

"Things have been horrible all year and will continue to be horrible for the time being," said Avi Cohen, managing partner with Avian Securities.

Even Intel Corp., which has performed relatively well this year, was punished in the stock market. The world's biggest microprocessor maker recorded $5.1 billion in net income in the first nine months of 2008, up 7.5 percent from the previous year as it benefited from an improved manufacturing process and market-share gains.

But the tech bellwether's shares lost about 45 percent of their value in 2008. A steep decline began in September as the financial sector crisis intensified. Additionally, a $1 billion reduction to Intel's fourth-quarter revenue forecast in November did little to inspire investor confidence.

Shares of Intel's main rival Advanced Micro Devices Inc. fared even worse, despite a turnaround plan that includes spinning off its factories into a joint venture and shedding 2,100 jobs. Furthermore, in July the company's embattled chief executive Hector Ruiz stepped aside and was replaced by President and Chief Operating Officer Dirk Meyer.

AMD's stock is trading at a multi-decade low of around $2 per share, down about 70 percent for the year.

Job cuts were spread throughout the sector. KLA-Tencor Corp. and Applied Materials Inc., two of the world's biggest makers...