Microchip sales strong in January

March 4, 2005

The Semiconductor Industry Association reports that, as a whole, global microchip sales were strong in January, rising 17.5 percent from 2004, and decreasing only slightly from the month of December.

The SIA called the results encouraging. January is usually a weak month for microchip sales following the typically robust holiday season.

January sales totaled $18.3 billion and were down just 0.5 percent from December. Analysts attributed the smaller-than-usual slide to high demand for pricier consumer electronics such as digital cameras and music players like Apple Computer's iPod.

"We are seeing the impact of the inventory correction in some areas," Soleil Securities analyst Paul Leming said. "The headline reported number was better than expected."

He said the data could help buoy semiconductor stocks, which have risen about 25 percent from lows seen in September. The Philadelphia Stock Exchange semiconductor index was down less than 1 percent at 439.17 in early trading.

"The excess inventories that slowed growth in the second half of 2004 have been largely depleted," SIA President George Scalise said. He pointed to recent data from market researcher iSuppli that showed excess inventories fell from $1.6 billion at the end of the third quarter to $1 billion at year-end.

"In some market segments, inventories are now below target levels," he said. "Thus we are confident that inventory issues will not be a significant factor in semiconductor sales beyond the first quarter."

Leming said two types of memory chips--dynamic random access memory, or DRAM, and flash memory--did particularly well.

DRAM is the type of memory largely used in computers, and flash is the kind of memory that holds data even when turned off. It's used in everything from cell phones to music players.

"The area of real surprise was that average selling prices did better than I expected," Leming said. "That's something we've seen throughout this downturn. As the inventory correction has hit, (average selling prices) have held up and improved in some sectors."

Leming said this was due to the fact that shipment declines have been the largest in lowest-priced products.

Average prices on microprocessors used in personal computers can be $100 to $120 per unit, whereas average selling prices on the more mundane analog chips, used to convert digital data to real-world properties such as sound, can be priced around 30 cents.

"There is a product shift going to higher-priced products," he said. "Because the higher-priced products are a larger part of the mix each month, there is a statistical shift that goes on in the reported (average selling price) number."

Chip factory utilization continued to decline, as expected, throughout the second half of 2004, SIA said.

Overall, factories operated at 86 percent of capacity in the fourth quarter, SIA said, and leading-edge capacity utilization was 93 percent.

Industry capital spending increased to about $47 billion in 2004, roughly 22 percent of total sales.

"In a year of record industry sales, this level of capital spending is in line with capacity needs going forward and should not lead to either excess capacity or severe price pressures," Scalise said.

Source: C-Net News

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