November 3, 2003 2:12 PM PST

Worldwide chip sales spike

It's good to be in chips again.

Worldwide semiconductor sales increased by 6.5 percent to $14.4 billion in September from $13.6 billion, the Semiconductor Industry Association (SIA) said in a report it released Sunday. The gain represents the largest the industry has posted since 1990.

The results highlight an ongoing upswing in an industry that limped in the two previous years. Demand for cell phones, consumer electronics and other products, especially in Asia, have prompted chipmakers to increase shipments of flash memory and digital signal processors, among other products, according to the SIA. Chip sales have increased sequentially for the last seven months.

Chip shipments will likely rise 17 percent in 2004, George Scalise, the SIA's president, said in an interview. The trade group will give a formal forecast Wednesday. Capacity utilization, a measure of how much manufacturing capability is being used and an important factor in profitability, is up to 93 percent, much higher than in 2002, Scalise said. Last year, some foundries--chip companies that make semiconductors for companies that don't want to maintain their own factories--saw capacity utilization fall below 50 percent.

"There is now room for more capacity without bringing a glut onto the market," he said.

Many of these chips are ending up in China and other emerging markets, but analysts and companies say demand for information technology products is growing in Europe, Japan and the U.S. consumer market.

The effect can be seen in the recent financial results of a number of companies. Both Intel and Advanced Micro Devices reported better-than-expected earnings for the third quarter.

The two companies declined to declare that a turnaround has occurred; U.S. corporate spending is still asleep, and several companies, or divisions within companies, are losing money. Still, executives said they expect to see increases continue in the fourth quarter.

PC shipments have also been greater than expected this year. Last year at Comdex, National Semiconductor CEO Brian Halla predicted that the industry would start to enter a period of accelerating growth on June 21, 2003, but it was in a speech delivered mostly for laughs.

For the third quarter, chip revenue totaled $43.3 billion, up 17.5 percent from the same period last year and 13.7 percent from the second quarter of 2003, the SIA said.

The revenue increase was driven by a double-digit rise in chip revenue from three of the four geographical areas the SIA tracked. Asia-Pacific chip sales rose 19 percent, while chip sales in Europe and Japan grew 12 percent and 11 percent, respectively. Chip sales in the Americas increased by 9 percent, the SIA said.

Predictions of a turnaround in the semiconductor market, though, must be viewed with caution. The industry's mood swings often defy expectations. After a three-year trough that lasted from 1996 through 1998, the industry was expected to experience a boom from 1999 through 2001.

Although sales rose in 1999 and the first part of 2000, they ground to a halt in the second half of 2000, leading to a whopping 32 percent decline in 2001. In 2002, chip sales rose only 1.3 percent over 2001 to $140 billion.

The 2003 sales results are only barely tracking the SIA's earlier predictions. "We expect further improvement across broad product sectors, positioning the industry for 19.8 percent growth in 2003, increasing revenues to $169.3 billion," the organization said in February.

 

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