A Light Holiday for Chip Sales

Sales of semiconductors continued to inch higher in October, thanks in large part to a frenzy of shoppers seeking digital devices.

New numbers from the Semiconductor Industry Association (SIA) show that worldwide sales of semiconductors grew to $18.8 billion in October. That is an increase of 1.5 percent from the $18.5 billion in September and 22 percent higher than the $15.4 billion in sales recorded in the same, year-ago period.

The consumer electronics (CE) market appears to be the growth driver, including cameras, watches, even toasters. But the report indicated a slow down might be coming in 2005.

“Sales of consumer electronics are especially strong in the fourth quarter as the holiday build continues,” SIA President George Scalise said in a statement. “Consumer electronics sales may be modulated somewhat this season by slower than expected growth in the sales of digital video recorders [DVR] and a very competitive market in DVD players, factors that have put pressure on component suppliers. Continuing high energy prices are clearly having some effect on discretionary spending by consumers, reducing visibility for the industry outlook for December sales.”

The SIA said it now expects fourth quarter sales will be essentially flat at third quarter levels, but continues to believe chip sales will end the year with growth of at least 28 percent, their highest levels since 2000.

Another bright spot in the stats were sales of digital signal processors (DSP), which rose by 8.5 percent over September. The SIA said it was a sign that the inventory correction that began in the wireless handset market in July has run its course.

As part of its annual forecast for 2004-2007, the SIA said it is anticipating the DSP market will grow by 28.2 percent to $7.9 billion in 2004; flatten out a bit by 6.9 percent to $8.4 billion in 2005; regain strength by 15 percent to $9.7 billion in 2006; and reclaim its sales by 24 percent to $12 billion in 2007.

Also contributing to the overall sales picture are PC sales, which have been further buoyed by strength in the corporate market. Personal computer sales traditionally peak in the fourth quarter, driven by holiday purchases. Scalise said sequential sales growth of 6.4 percent for microprocessors and 2.8 percent for DRAMs are signs that excess inventories of these products have also been worked out of the supply chain.

Despite a growth of 61.2 percent to $26.9 billion in 2004 for the DRAM market, the SIA is predicting a decline of 14.7 percent to $23 billion in 2005.

The San Jose, Calif.-based trade group also reported overall semiconductor fabrication plants were busy 93 percent of the time in the third quarter. That is a slight dip from previous 95 percent levels. The largest fabs and foundries bucked that trend at 96 percent and 98 percent respectively.

On a regional level, sales in all geographic regions except Japan, which dropped 1.8 percent in October and 0.7 percent over the last three months.

The SIA’s report is based on a three-year moving average of sales activity. The numbers are tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 semiconductor companies.