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SIA: Supply Chain Saved Chip Sales

Faced with mountains of inventory, quick thinking by some semiconductor manufacturers helped the market avoid its first decrease in chip sales since the war in Iraq began.

The latest numbers from the Semiconductor Industry Association (SIA) suggest that worldwide sales rose to $18.2 billion in August, an increase of 1.1 percent from the $18 billion reported in July. That's the slimmest growth margin for nearly a year. The San Jose, Calif.-based trade group suggests the numbers are in line with historical patterns for August, but it could have been worse.

Nowhere was the situation more evident than in the Asia-Pacific region, where sales increased by only 0.1 percent when compared to last month. The rest of the world remained in line with estimates, the SIA said.

"Semiconductor producers and their customers have reacted with unprecedented speed to recent reports of excess chip inventories," SIA President George Scalise said in a statement. "In previous market cycles, it has generally taken several quarters for the supply chain to take corrective action. When the first reports of excess inventory accumulation surfaced in the second quarter, both producers and customers moved quickly to adjust."

Scalise said his group's data confirm similar reports that chip inventories are declining by industry analysts at VLSI Research and iSuppli.

"As we would expect with corrective action under way, factory utilization has declined slightly as manufacturers are starting fewer wafers. Factory utilization reached 95 percent in the second quarter, with leading edge and foundry capacity running at 99 percent. We expect a modest decline in capacity utilization rates in the current quarter," Scalise said. "Capital spending has been running at around 23 percent of sales, which is in line with historical patterns. At this time, we do not believe overcapacity will be a major concern in 2005.

With both producers and customers paying close attention to chip inventories and taking action quickly, the SIA said it expects chip sales will continue to show steady growth through the remainder of 2004 and should reach the SIA's current forecast of 28 percent growth for all of 2004. The trade group is expected to release its forecast for 2005 on Nov. 3.

In addition to supply chain sleight of hand, the SIA said PC and networking equipment helped keep August sales figures consistent with the patterns of the back-to-school season.

The SIA also said semiconductor sales for automotive applications typically slow down this time of year as a result of the annual model changeover. Offsetting that were sales of chips for consumer electronics, which usually begin to grow in August as manufacturers increase production for the holiday season.

In another notable spot on the sales front, Intel said Thursday it managed to reach a sales milestone. The Santa Clara, Calif.-based chipmaking giant said it has now shipped more than 50 million desktop, server and mobile processors with its Hyper-Threading (HT) technology since the innovation was introduced last year.

Intel claims the technology can boost performance as much as 25 percent when combined with its enabled chipset, BIOS, operating system and application software.

HT is part of a family of Intel technologies it refers to as its "*T family." The technologies, which include Intel's 64-bit extensions (EM64T), will also be joined in 2006 by Intel's LaGrande Technology (Security, LT) and Vanderpool and Silvervale Technology (Virtualization, VT/ST) to coordinate with Microsoft's next-generation Windows OS named Longhorn.

The chipmaking giant said it also plans to have its 65-nanometer manufacturing technology process ready in 2005 with the majority of its shipments coming in 2006.