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Global Chip Sales Revised Upward

Semiconductor sales in 2005 are heading for a bigger year than previously thought, thanks to growth in cellular telephones, personal computers, digital televisions and digital cameras.

As a result of sales so far this year, the Semiconductor Industry Association (SIA) issued a revised forecast projecting that worldwide sales of semiconductors will grow by 6 percent in 2005 to a record $226 billion.

That lifts the SIA's forecast in November, which held that 2005 sales of $213 billion would be flat compared to 2004 sales.

With the latest numbers, SIA is projecting a compound annual growth rate of 9.8 percent through 2008 for the industry, and expects global chip sales to reach $309 billion in 2008.

SIA President George Scalise said the upgraded forecast is based on sales through the first quarter of this year.

"Higher sales have been driven by better than expected demand in a number of important end markets, including personal computers and wireless handsets," Scalise said in a statement.

Plus, the SIA said its prior forecast in November of last year was weighed down by concerns that high-energy prices and lingering excess inventories in a few segments of the industry would dampen sales in 2005.

But growth in the United States has remained strong despite those concerns, Scalise added.

Some constants are still driving the numbers, such as consumers' brisk buys of electronic products in 2004, which remains steady so far this year, according to the Consumer Electronics Association.

It said despite the effects of higher-energy prices on discretionary spending by consumers, purchases of consumer electronics devices increased by 11 percent last year to approximately $1,250 per household. Now the association is projecting an 11 percent increase in consumer spending on electronics in 2005.

Overall, the SIA said the improved outlook is a reflection of the growing reach of semiconductors in a broad range of products.

Cell phones are now expected to grow by 13 percent this year. Personal computer sales stats didn't change at 10 percent growth, although unit sales came in at 3 million above expectations. Growth forecasts for digital televisions have gone from 50 percent to 65 percent, however.

The biggest jumper? Digital cameras, which are now forecast to grow by 15 percent, up from 6 percent in the prior forecast.

In addition, the industry responded very quickly to reports of excess semiconductor inventories in the supply chain during the third quarter of 2004, the SIA said.

For example, at the end of 2000, there was $15 billion worth of excess inventory in the supply chain. That worked out to one month's revenues for the worldwide industry at the time, Scalise said, and it took until 2003 to work off that extra capacity.

By 2004, however, semiconductor producers and their customers responded quickly to rationalize supply and demand, with the result that excess inventories never got above $1.5 billion, the SIA said. As of the first quarter of this year, any excess in the pipeline has been worked out.