Worldwide chip sales fell 28.6 percent in January compared to a year ago, and flash memory chip maker Spansion has filed for bankruptcy protection. Those are just a couple of headlines that show just how grim the economic meltdown has become for the semiconductor industry.

The Semiconductor Industry Assocation has said that chip sales are at $15.3 billion, down from $21.5 billion a year ago. And the January figure was down 11.9 percent from December’s sales of $17.4 billion. George Scalise, president of the industry trade group, said that January is historically a weak month, but this year the market suffered even more from eroding consumer confidence and declining sales across the board.

Demand weakened has in key industry sectors like personal computers, cell phones, automobiles and general consumer items. The bright spot is that  inventory levels are very low, and there are some signs that forward visibility is improving. Scalise said he is encouraged that the Economic Recovery Act recently signed by President Obama will help drive demand for chips in areas like energy, health care and infrastructure improvement.

But right now nothing can help Spansion, which filed for bankruptcy protection on Sunday and announced last week that it is laying off 3,000 people, or a third of its workers. The company named a new chief executive, John Kispert, former president of KLA-Tencor, as a replacement for Bertrand Cambou, Spansion’s longtime leader. The company is still up for sale, and says it made the bankruptcy filing in consultation with bondholders with $625 million in debt coming due in 2013. For now, Spansion is focusing on flash memory market segments where it can make money fast, including wireless chips and devices in which flash is permanently built in.

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