Thanks to early efforts by chipmakers to work down inventories and resist historical spending trends, what usually is a lackluster period in the annual sales cycle turned out not so bad after all.

Worldwide chip sales in January were $18.3 billion, a drop of just 0.5% from December, and a 17.5% increase from a year ago, according to the Semiconductor Industry Association (SIA).

Month-on-month, the Japan and Asia-Pacific regions squeaked out incremental gains, while year-on-year Asia-Pacific (27.9%) and Europe (17.9%) maintained double-digit growth. Based on a three-month moving average, Europe was the only region showing positive growth (0.3%), with everyone else except the Americas (-9.3%) down just one or two percent.

The miniscule dip in sales in January, typically a slow month following the holiday season, is an encouraging sign, stated SIA president George Scalise, who also pointed to a 3.8% growth in the GDP in 4Q04 as a sign of growing US economic strength.

Additionally, chipmakers appear to have mostly depleted the rising inventory levels which they began working off late last year. Scalise cited iSuppli Corp. estimates of $1.0 billion in 4Q04 inventory, a decrease from $1.6 billion in 3Q04, with some market segments now below target levels. “We are confident that inventory issues will not be a significant factor in semiconductor sales beyond the first quarter,” he said.

Overall factory utilization declined to 86% in 4Q, with leading-edge capacity utilization also lower than previous months but still high at 93%. Industry capital spending of approximately $47 billion (about 22% of sales) in 2004 was in line with capacity needs going forward, according to Scalise, and shouldn’t cause excess capacity or severe pricing pressures. “At the present time, neither production capacity nor inventory excess is a problem,” he said.