Chip Sales Stall in February

The “Great Chip Recovery of 2003” has hit a snag, according to a report released Monday by the Semiconductor Industry Association (SIA).

The San Jose, Calif.-based trade group’s latest statistics show worldwide semiconductor sales totaled $11.8 billion in February, a 3.3 percent decrease from the $12.2 billion in revenue reported in January. The three-month moving average of sales activity is tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 companies.

Even though February’s numbers are 18 percent better from the $10.0 billion recorded in February 2002, SIA President George Scalise is concerned that the conflict in Iraq is dragging everybody down.

“The recovery in the semiconductor industry that has been underway for more than fifteen months appears to have stalled in February,” Scalise said in a statement. “Demand has softened in the markets that drove growth throughout the past year, including PC’s, global wireless and consumer. The traditional seasonally flat first quarter has been further impacted this year by geopolitical uncertainty.”

Proof of that sentiment lies in the fact that sales in all geographic markets were down sequentially in February. The report said year-over year sales in February rose 17 percent in Europe, 35 percent in Japan and 26 percent in the Asia Pacific market, now the world’s largest chip consumption market with a 36 percent share. Sales in the Americas market year over year were off 4.5 percent, reflecting the continued outsourcing of electronic equipment production and component purchases to Asia, particularly China.

Total electronic equipment production in China is forecast to double in four years, from $130 billion in 2002 to $252 billion in 2006, while component purchases by contract manufacturers in China are forecast to triple, rising from $35 billion to $100 billion over the 2002 to 2006 period.

Scalise said he was still confident about his controversial prediction of growth of about 21 percent to $169 billion in 2003, 22 percent to $206 billion in 2004, and then remain flat at $206 billion in 2005. Scalise said he is convinced “pricing pressure and impacting revenue across the market” will spur part of the sales.

“We expect demand to strengthen as we approach the second half of the year resulting in growth for the year in double digits,” Scalise said.

Whatever the final outcome for sales in 2003, the news is much brighter than a year ago. On a unit volume basis, year-over-year chip sales have continued to rise by double digits for the past ten months, with an average of 25 percent per month from July of 2002 through February of 2003.

SIA said year over year revenue comparisons also remain favorable, as the industry has climbed out of the downturn, with an average 18-20 percent gain over the seven months through February 2003.

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