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Chips Hit Record Sales in 2004

The semiconductor market hit new sales records last year thanks to a surge in PC and wireless handsets.

A report issued today by the Semiconductor Industry Association (SIA) reveals worldwide sales of semiconductors topped $213 billion in 2004. The number is a 28 percent jump from the $166.4 billion recorded in 2003 and the first time global sales have surpassed $200 billion since 2000.

SIA President George Scalise said the milestone is even more remarkable when viewed in a broader perspective. In the last three years, chipmakers have seen worldwide sales of semiconductors plummet to $139 billion in 2001 following the collapse of the dot-com boom, the 9/11 terrorist attacks and a mild economic downturn.

Scalise said much of the growth came during the first half of the year. Global chip sales grew by 36.5 percent in the first half of 2004 compared to 21 percent in the second half. The trade organization, which tabulates its data from a pool of approximately 66 semiconductor companies, forecast only 19 percent growth for the year as a whole.

"By any standard, the 21 percent year-on-year growth in the second half of 2004 was very robust, but did not match the extremely strong first-half growth rate," Scalise said in a statement.

A large portion of the PC and wireless handset sales was due to corporations refreshing their aging hardware systems, the report suggested. Consumers also made up a good chunk of the chip purchases, with the popularity of digital music and digital photography playing a large role.

According to research firm IDC, PC sales reached 177 million units in 2004, nearly 15 percent better over 2003's number. The PC sales also had a ripple effect for DRAM .

Total DRAM sales grew by nearly 61 percent in 2004, by far the fastest-growing product line in the chip industry, the report said. Microprocessor sales like the ones made by Intel, AMD, Texas Instruments and IBM grew by just over 11 percent year-on-year.

Much like the PC business, wireless handset sales rose to 674 million units in 2004, up by more than 32 percent from 2003. IT research firm Strategy Analytics reports that handset growth helped boost sales of DSP (digital signal processing) chips. The chips used in mobile phones, faxes and digital televisions jumped 27 percent in sales over previous years. Sales of optoelectronic chips, widely used in digital cameras, also saw high demand with almost 44 percent year-on-year growth.

China and Taiwan led the world in sales growth with a year-on-year increase of more than 41 percent, the SIA report said. The two countries that make up a large portion of the Asia-Pacific region saw $88.7 billion in total semiconductor sales last year.

The SIA said the red hot Asia-Pacific Region was nearly double the size of the second-largest market, Japan, with total sales of $45.7 billion. Chip sales in Europe grew by 22 percent year-on-year; in the Americas by 21 percent; and in Japan by 17.5 percent.

Despite the glowing report for 2004, the SIA said 2005 should be lukewarm, and it forecasts a slight market correction of only 5.8 percent growth to $206 billion in sales for the year. The trade group estimates things should get back on an upward trend starting in 2006, with a predicted 6.6 percent rise to $219.6 billion.

"We expect that global sales will decline by 4 to 6 percent sequentially in the current quarter in part due to continuing efforts by the entire supply chain to reduce excess inventories and a very competitive market environment," Scalise said. "A seasonal decline in consumer spending patterns in the first quarter also contributes to our forecast of a modest decline. We believe factory utilization rates will continue to decline modestly in the first quarter. Our outlook for the year as a whole continues to project essentially flat sales at the record level of 2004."