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Chipmakers Give Thanks for November

Semiconductors remained a hot commodity throughout November, fueling the debate that 2004 will be another banner year for the chip industry, according to a report released Monday.

As part of its monthly Global Sales Report, the Semiconductor Industry Association (SIA) said overall sales rose to $16.13 billion in November 2003. That's a 4.5 percent increase from the $15.43 billion recorded in October 2003 and a 25.7 percent rise from November of 2002.

While November is traditionally good for chips because of the holiday buying season, the San Jose, Calif.-based trade group said sales remained high in key areas such as PCs, cell phones, consumer devices and cars.

"November has been another exceptionally strong month for the industry with the year-on-year growth accelerating to 25.7 percent, indicating that 2003's second-half performance is one of the strongest on record for our industry," SIA President George Scalise said in a statement.

Since capacity utilization reached 95 percent in the fourth quarter, the SIA said it expects modest pricing power to continue in the industry.

Rising PC sales contributed to the industry's growth in the month, with DRAM up 4 percent and microprocessors up 3.5 percent, the report said. The global wireless market also continued to exhibit strong growth, with Flash up 11.2 percent and Digital Signal Processors up 3.5 percent in November.

"Year-to-date sales through November are 17.4 percent ahead of 2002. We expect sales for all of 2003 to exceed the current forecast of 15.8 percent with broad-based strength in all end-markets, especially computation, communications, global consumer and automotive," Scalise said.

Encouraged by the strong sales numbers, analysts like Rick Whittington with Greenwich, Conn.-based American Technology Research say investors in 2003 witnessed the beginning of an extended chip upturn.

"While we certainly believe that capital spending for new chip capacity will substantially outpace chip revenues in the coming years, we also believe the engineering skill sets embodied in the several dozen analog and digital chip companies we follow comprise ever greater prospective value in creating the needs of this expanding international workplace," Whittington wrote in his Monday newsletter brief. "As such, we look to higher peak cyclical margins in the coming cycle."

Regionally, the SIA said all geographic markets recorded rising chip sales for November, with Europe up 6.4 percent sequentially, Japan up 4.5 percent, the Americas up 4.1 percent, and Asia Pacific up 3.8 percent.

For example, the SIA said global consumer electronics markets, which tend to show strong sales in the December quarter, grew briskly in the month, reflecting the holiday buying season and eager adoption of multi-functional devices by consumers around the world. Sales of DVDs and digital cameras were especially strong.

Optoelectronics , which are often used in camera phones were up 5.3 percent in November, metal oxide semiconductor (MOS) logic used in products other than computers were up 4.8 percent, and sales of application-specific analog chips were up 4.6 percent for the month.

November's numbers seem to support the industry's forecast for double-digit growth in both 2003 and 2004. The SIA's annual forecast for 2003-2006 suggests global sales of semiconductors in 2003 are on par to increase by 15.8 percent to $163 billion. But more importantly, the trade group is projecting 2004 revenues to increase by 19.4 percent to $194.6 billion. Beyond that, the SIA forecasts a slight market correction of only 5.8 percent growth to $206.0 billion in sales in 2005, but an upswing back to 6.6 percent to $219.6 billion in 2006.

The SIA's report is based on a three-year moving average of sales activity. The numbers are tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 semiconductor companies.