In fact, the mergers and acquisitions scene in semiconductors has been brisk. Integrated Device Technology bought Fox Electronics in 2012 for $30 million. And San Jose's Micrel announced in August that it intends to buy oscillator-maker Discera for an undisclosed sum.

"What's happening is, the bigger integrated semi-makers are taking these no-margin orders and hoping to make that up on other product," Sherwood said glumly. "But the smaller players will probably have little choice. They either get bought or go out of business."

"Semiconductors has become very tough," he said.

No clear vision for semiconductors
Sherwood is far from the only analyst here wondering how the industry will make ends meet. As if on cue, midway through our chat Victoria Fodale strolled over and agreed wholeheartedly with Sherwood. Fodale is a senior analyst at IHS, the Tempe, Ariz., market research firm with a practice in global digital components

"The demographics of the global consumer electronics is changing," she said. "Emerging markets demand lower prices. So that money has to come from somewhere, and the bigger makers are not afraid to demand concessions in pricing, which ofttimes they get."

That, friends, makes it a Digital Age story investors know well: Fodale and Sherwood agree that what's driving the market in semiconductor oblivion is a blurred consumer electronics model that throws new features onto new devices without a clear vision of where the revenues will come from to pay for them.

"Does everyone really need to have camera phones and navigation? The answer is no," Sherwood said. "What's really happening there is we are cannibalizing several bigger markets to make one smaller market. What, really, is the value of having a phone with a camera? Not that much from a dollar and cents view."

"The big chip makers probably survive. But the smaller operators? I know I am looking for more customers for my research," Sherwood said. "Chips is going to get tough."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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