DRAM, DSPs Raise Chip Sales

Semiconductor sales continued to rise in the first part of 2004, fueled
in part by non-PC equipment, according to new statistics released this week.

The latest numbers from the Semiconductor Industry Association (SIA)
suggest that worldwide sales rose to $17.8 billion in June. That is 2.8
percent more than the $17.3 billion in sales reported in May and a 40.3
percent increase over June 2003 sales. As for the second quarter of 2004,
global sales peaked at $53.45 billion, an increase of 9.5 percent from the
first three months of the year. Worldwide semiconductor sales amounted to
$38.1 billion in the second quarter of 2003.

Nowhere is that growth more present than dynamic random-access memory
. Sales in that segment shot up more than 100 percent over last year’s
numbers, according to the SIA, making it the leading driver of
second-quarter growth.

“Sales of personal computers have remained strong, with year-on-year
growth of around 13 percent in the second quarter,” SIA President George
Scalise said in a statement. “DRAM prices were especially firm, reflecting
strong demand and limited supply during the quarter. With new production
capacity coming on line, coupled with higher production resulting from the
transition to smaller die sizes, it is likely that the supply-demand
situation will ease going forward. The likely result will be more intense
competitive pressures.”

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.

The other item in great demand continues to be Digital Signal Processors
(DSPs), which are found in wired and wireless communications applications.
Along with consumer devices like digital cameras and camera phones, the
chips are also found powering computer subsystems and applications in
automobiles.

Earlier this year, the trade group forecasted the
DSP market to rise 27.1 percent in 2004 to $7.8 billion; 19.3 percent to
$9.3 billion in 2005; and 7.6 percent to $10.0 billion in 2006. But in the
past month, the SIA found wireless communications and related
application-specific processors (ASPs) jump by 86.5 percent from the same
period a year ago. In addition, sales of optoelectronics devices were up
52.4 percent year-on-year.

“It is clear that the DSP market momentum is improving,” Will Strauss,
president of research group Forward Concepts, said in a newsletter to
subscribers. “Further good news is the very mild decline in ASPs. Some of
that trend is attributable to the additional value from increasing DSP
functionality, such as higher speeds, increasing on-board memory and added
peripherals.”

Forward Concepts points out that the biggest growth was in short-range
wireless, which is defined by industry trade groups as “DSPs for application
in WLAN, Bluetooth, UWB, ZigBee, etc.” The “Wireless, All Other” category is
defined as “DSPs designed for application in 2-way radio, cordless phone,
etc.

“I suspect that some of the growth in these two groups is simply
re-categorizing of SoCs [system on a chip] for these markets that were
previously reported as ASICs or “microperipherals,” since WSTS
has moved a number of integrated circuits to new categories this year.

Strauss also noted that although the Asia Pacific market (mostly China,
Korea and Taiwan) continues to dominate with over half of the DSP market,
Japan’s market share (as measured by shipments to Japan, not manufactured in
Japan), increased significantly in the first half of 2004, growing to almost
17 percent from last year’s 13 percent.

“Our analysis of the data does not indicate any quarterly growth in
consumer electronics, so Japan appears to have become a bigger sink for
wireless DSPs, likely indicating a big uptake in 3G deployment there,”
Strauss said.

Scalise also added that the key indicators to watch going forward are
capacity utilization and inventories, which could cause market saturation
and a financial bind for manufacturers.

“Capacity utilization was approximately 93 percent at the end of the
first quarter, and we believe utilization rose to the mid-90 percent range
by the end of the second quarter,” Scalise said. “There is some evidence of
inventory accumulation in a few sectors, but on the whole, it appears that
customers are continuing to manage inventories very carefully. With strong
demand from most major end-use markets, we do not believe excess inventories
will be a problem in most market sectors in the near term.”

The SIA’s report also reiterated the Asia-Pacific market’s thirst for
chips. The region showed its strongest year-on-year growth at 61 percent,
followed by the Americas at 30 percent, Europe at 29 percent and Japan at
26 percent.

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