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Chips and Dips

If the old adage that, "Nothing succeeds like excess," rings true, the semiconductor industry is happy to be living the more moderate path.

A report issued today by the Semiconductor Industry Association (SIA) said worldwide microchip sales in January dropped to $18.3 billion, half a percent below December sales of $18.4 billion.

On the bright side, the trade organization, which tabulates its data from a pool of approximately 66 semiconductor companies, said the excess inventories that slowed growth in the second half of 2004 have been largely depleted.

Traditionally, January is a weak month for microchip sales, following the typically strong holiday season, the SIA said. But January 2005 was at least 17.5 percent better than January 2004, with sales of $15.6 billion.

"We are encouraged by recent signs of strength in the overall U.S. economy, as evidenced by the 3.8 percent growth in gross domestic product (GDP) in the fourth quarter," SIA President George Scalise said in a statement. "At the present time, neither production capacity nor inventory excess is a problem."

According to semiconductor market research firm iSuppli, excess inventories dropped from $1.6 billion at the end of the third quarter to $1 billion at year-end. In some market segments, inventories are now below target levels. With that in mind, Scalise said, "inventory issues, will not be a significant factor in semiconductor sales beyond the first quarter."

"In a year of record industry sales, this level of capital spending is in line with capacity needs going forward and should not lead to either excess capacity or severe price pressures," Scalise said.

Still, semiconductor manufacturers may need to keep their eyes on their inventory if they want to avoid another glut of chips this coming fall.

While worldwide sales of semiconductors topped $213 billion in 2004, SIA's forecasts for 2005 are less rosy. The group predicts a slight market correction of only 5.8 percent growth to $206.0 billion in sales this year. An upswing back to 6.6 percent growth to $219.6 billion is anticipated in 2006.

On a regional basis, China and Taiwan once again led the world in sales with $7.76 billion in receipts, but growth for the fastest growing consumer market only increased 0.1 percent in January than in December.

Japan managed to eke out an additional percentage point to end January with $3.87 billion in sales. Europe and the Americas both dropped in sales last month by 1.7 percent and 1.8 percent, respectively.