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DRAM, DSPs Raise Chip Sales

Semiconductor sales continued to rise in the first part of 2004, fueled in part by non-PC equipment, according to new statistics released this week.

The latest numbers from the Semiconductor Industry Association (SIA) suggest that worldwide sales rose to $17.8 billion in June. That is 2.8 percent more than the $17.3 billion in sales reported in May and a 40.3 percent increase over June 2003 sales. As for the second quarter of 2004, global sales peaked at $53.45 billion, an increase of 9.5 percent from the first three months of the year. Worldwide semiconductor sales amounted to $38.1 billion in the second quarter of 2003.

Nowhere is that growth more present than dynamic random-access memory . Sales in that segment shot up more than 100 percent over last year's numbers, according to the SIA, making it the leading driver of second-quarter growth.

"Sales of personal computers have remained strong, with year-on-year growth of around 13 percent in the second quarter," SIA President George Scalise said in a statement. "DRAM prices were especially firm, reflecting strong demand and limited supply during the quarter. With new production capacity coming on line, coupled with higher production resulting from the transition to smaller die sizes, it is likely that the supply-demand situation will ease going forward. The likely result will be more intense competitive pressures."

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.

The other item in great demand continues to be Digital Signal Processors (DSPs), which are found in wired and wireless communications applications. Along with consumer devices like digital cameras and camera phones, the chips are also found powering computer subsystems and applications in automobiles.

Earlier this year, the trade group forecasted the DSP market to rise 27.1 percent in 2004 to $7.8 billion; 19.3 percent to $9.3 billion in 2005; and 7.6 percent to $10.0 billion in 2006. But in the past month, the SIA found wireless communications and related application-specific processors (ASPs) jump by 86.5 percent from the same period a year ago. In addition, sales of optoelectronics devices were up 52.4 percent year-on-year.

"It is clear that the DSP market momentum is improving," Will Strauss, president of research group Forward Concepts, said in a newsletter to subscribers. "Further good news is the very mild decline in ASPs. Some of that trend is attributable to the additional value from increasing DSP functionality, such as higher speeds, increasing on-board memory and added peripherals."

Forward Concepts points out that the biggest growth was in short-range wireless, which is defined by industry trade groups as "DSPs for application in WLAN, Bluetooth, UWB, ZigBee, etc." The "Wireless, All Other" category is defined as "DSPs designed for application in 2-way radio, cordless phone, etc.

"I suspect that some of the growth in these two groups is simply re-categorizing of SoCs [system on a chip] for these markets that were previously reported as ASICs or "microperipherals," since WSTS has moved a number of integrated circuits to new categories this year.

Strauss also noted that although the Asia Pacific market (mostly China, Korea and Taiwan) continues to dominate with over half of the DSP market, Japan's market share (as measured by shipments to Japan, not manufactured in Japan), increased significantly in the first half of 2004, growing to almost 17 percent from last year's 13 percent.

"Our analysis of the data does not indicate any quarterly growth in consumer electronics, so Japan appears to have become a bigger sink for wireless DSPs, likely indicating a big uptake in 3G deployment there," Strauss said.

Scalise also added that the key indicators to watch going forward are capacity utilization and inventories, which could cause market saturation and a financial bind for manufacturers.

"Capacity utilization was approximately 93 percent at the end of the first quarter, and we believe utilization rose to the mid-90 percent range by the end of the second quarter," Scalise said. "There is some evidence of inventory accumulation in a few sectors, but on the whole, it appears that customers are continuing to manage inventories very carefully. With strong demand from most major end-use markets, we do not believe excess inventories will be a problem in most market sectors in the near term."

The SIA's report also reiterated the Asia-Pacific market's thirst for chips. The region showed its strongest year-on-year growth at 61 percent, followed by the Americas at 30 percent, Europe at 29 percent and Japan at 26 percent.