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Prices Down, Sales Up For Semiconductors

The Semiconductor Industry Association on Friday announced that worldwide sales of semiconductors grew by just two percent in the first half of 2007 to $121 billion, up from the $118.4 billion reported for the first half of 2006. PC hardware continues to plunge in price and increased sales aren't enough to offset the drop, resulting in shriveling margins for the hardware makers.

Second-quarter sales of $59.9 billion represented a two percent decline from the $61.1 billion reported in the first quarter of 2007. Sales also dipped 1.7 percent from May to June 2007.

But that's looking at it from a dollar perspective. From a unit perspective, things were actually good. The SIA reported that both personal computer and cell phone unit growth sales are projected at more than 10 percent each for 2007.

The problem is the bottom falling out on pricing. "There has been stronger price erosion in a couple of areas than you would typically see, but it is a cyclical industry," said Anne Craib, director of market research at the SIA.

"While people are used to seeing double digit growth in the semiconductor area, the size of the industry at this point makes that difficult for that kind of growth to continue. I wouldn't char this as bad results for the first half of the year," she added.

The big culprit is DRAM, which has dropped in price nearly 40 percent while unit shipments grew by almost 66 percent year on year. "Memory is seeing greater erosion," said Craib. "Supply is really high. If you look at DRAM, the unit volume is up phenomenally. That would indicate robust demand, but there is high supply so prices are going down."

In-Stat Senior Analyst Jim McGregor isn't surprised. "When you get an upsurge in capacity and upsurge in competition and it's going to kill price," he told internetnews.com. "The majority of all PCs sold last year were in the $600 to $699 range. It really gets down to the fact it's a price sensitive field, and when you add on whole lot of capacity, that just compounds the problem."

Craib said there are a number of factors to this, including the high resource demands of Vista and due to the move to 64-bit computing, so computers can use more than 4GB of memory. So more and more computers are shipping with a lot more memory, said Craib.

Also hitting the price skids was NAND flash memory, which grew 40 percent over 2006 in unit shipments, but prices dropped 15 percent. That may change, however, due to an outage at the Samsung fabrication plants, where several lines were shut down on Friday. Reuters reports the outage could wipe out as much as one month's supply of NAND flash memory from Samsung, which provides 44 percent of the world's flash memory.

SIA sees PC unit demand as healthy and continuing to grow, in particular the consumer, which is now accounting for up to 40 percent of sales. Craib said she wasn't sure how much of that was driven by Vista, but there has been a trend toward multiple PC homes, so many consumers are buying their second and third PCs.