Chips Sales Grew 3.8 Percent in Q1 2008

In the face of economic pressures, worldwide semiconductor sales still managed to scratch out a decent gain of 3.8 percent, to $63.4 billion for the first quarter of 2008, the Semiconductor Industry Association (SIA) reported today.

The quarter saw what the SIA said was a “normal” seasonal decline after the fourth quarter of 2007, since Q4 is always the biggest quarter for sales. But the overall drop was not as bad as would be believed in tough economic times.

In fact, the numbers might have been higher had the average selling prices (ASPs) of memory not continued to plunge. “Weakness in memory revenue as a result of rapid price erosion masks the overall strength of semiconductor sales,” said SIA President George Scalise in a statement. If memory is removed from the mix, then total semiconductor sales increased by a very healthy 11 percent year-on-year.

“I have to admit I was surprised,” John Greenagel, a spokesman for the SIA, told “The industry is so dependent on sales of consumer electronics, with all the doom and gloom of how depressed consumers are, I was expecting a down quarter.”

But, he adds, that view is too US-centric and fails to account for the rest of the world, which is not suffering a pullback. He noted that semiconductor sales in the U.S. grew slower than overall worldwide sales (2.3 percent in the U.S. versus the 3.8 percent growth worldwide year-over-year).

“The US now represents 21 percent of PCs purchased, and 71 million were sold in Q1” worldwide, said Greenagel. “There are emerging markets that are significant, and the semiconductor content of everything is going up so there is a growing momentum for sales.” He said there are more semiconductors being used in everything from high definition TVs to cell phones to cars.

The 71 million figure comes from a Gartner report that said PC unit sales grew by 12 percent to 71.1 million units, with stronger sales outside the U.S. than inside the country.

The real problem is prices. Unit sales go up but prices go down, which defies the basic rule of economics that price rises with demand. That’s due to an oversupply that has managed to outpace even the already huge demand for memory products.

CPU prices, he noted, declined a modest 3.5 percent while sales increased by 13.4 percent year-over-year. That’s normal attrition as new products hit the market, such as Intel’s (NASDAQ: INTC) Penryn chips and AMD’s (NYSE:AMD) Phenom processors, which all shipped in Q1.

DRAM and NAND flash, on the other hand, continued their plunge. ASPs for DRAM dropped 52 percent from the same quarter last year even as unit sales grew 30 percent. NAND prices are down 70 percent.

Normally there is around a 30 percent decline due to price attrition and improvements in yields, but 70 “is rough,” said Greenagel. “I’m not sure if prices will stabilize. Right now we’re not seeing stabilization. It’s a tough time to be in the memory business,”

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