Chip sales point to a strong year

The semiconductor industry is poised to enjoy another year of unexpectedly strong sales growth in 2006 on the back of surging demand for cell phones, MP3 players, digital televisions and other electronic devices.

In its mid-year forecast on Wednesday, the Semiconductor Industry Association predicted another record year for sales and lifted its estimates from 7.9 per cent growth to 9.8 per cent, with revenues reaching $249.6bn.

Last week, World Semiconductor Trade Statistics, another industry body, raised its forecast of 8 per cent growth to 10.1 per cent and sales of $250.5bn.

This year and last year were originally seen as the bottom of the demand cycle, with zero growth forecast for 2005 by the SIA in February last year and only 6 per cent growth this year.

But the industry has been surprised by ongoing demand for the latest consumer electronic products as they become increasingly affordable. After 2004’s peak of
28 per cent growth to $213bn in sales, 2005 ended with a 6.8 per cent increase to $227.5bn. The SIA predicted yesterday that 2007 and 2008 would see a return to double-digit growth of 11 and 12 per cent respectively.

“Despite sharply higher energy prices, consumer demand for a wide variety of electronic products continues to fuel growth of the semiconductor industry,” said George Scalise, SIA president. “The fastest-growing major end-market segment is cellular telephones – especially third generation phones. We now believe approximately 1bn cell phones will be sold worldwide in 2006.”

Cell phones are loaded with chips, from wireless ones to memory, microprocessors and, increasingly, imaging chips.

They have an average semiconductor content of $41 per unit, second only to personal computers in chip consumption.

The SIA is predicting 20 per cent growth for cell phone shipments this year, 52 per cent for MP3 players and digital TVs and 10-12 per cent for PCs.

The chip industry also appears to have shaken off problems of overcapacity and inventory build-ups, which led to collapses in prices in the past.

The SIA said factory utilisation was at around 90 per cent and there were no signs of inventory problems. It said the industry could look forward to a compound annual growth rate of 9.2 per cent through 2009.

“It is remarkable for an industry of this size to sustain growth in the range of 8-10 per cent annually. With both inventory and capacity in balance, conditions are favourable for continued semiconductor industry growth,” said Mr Scalise.

Companies benefiting from the growth include Texas Instruments, the dominant supplier of chips for mobile phones. Intel, which is focused on PCs, is less optimistic than the SIA, predicting single-digit growth in its sector this year.