Chip industry shrugs off concerns, tops records in 2005

February 2, 2006 – Spiking oil and gas prices and catastrophic hurricanes in late 2005 proved no match for tech-hungry consumers and a surprisingly resilient semiconductor industry, judging by the latest data from the Semiconductor Industry Association (SIA).

Worldwide sales of semiconductors topped a record $227.5 billion in FY05, up 6.8% from the $213.0 billion posted in 2004, according to the SIA. Chip sales slipped 2.2% in December to $19.95 billion, but increased 8.6% from December 2004. Sales for 4Q05 were slightly above 3Q at $59.86 billion, and also 8.6% ahead of the same period a year ago.

Demand was driven principally by the usual suspects: consumer electronics products such as cell phones, digital cameras, digital TVs, and MP3 players. PCs also finished strong, displaying 17% unit shipment growth in the final quarter.

Overall capacity utilization rates are about 91%, with leading-edge utilization pressing up against the ceiling at 97%, according to SIA president George Scalise. Those levels are expected to stay the same through the early part of this year. The SIA cited recent iSuppli data claiming excess chip inventories were nearly $500 million below target levels by year’s end; thus, oversupply is “a nonissue,” a big distinction from the workdowns needed at the beginning of 2005, Scalise noted.

Scalise did express some concern about regional trends, specifically how the US stacks up vs. other regions. The US enjoyed a 14.6% Y-Y increase in chip sales in December, but Asia-Pacific saw 20% growth. The US’ contribution to total worldwide capacity has slipped from 28% to about 24%, and at the leading edge has plummeted from roughly 35% to about 14%, Scalise said. He applauded promises made by President Bush during the recent State of the Union Address concerning a new American Competitiveness initiative, which includes big increases in funding for technology R&D, training, and education. “We have the right agenda; now it’s a case of getting it implemented,” Scalise said.

The SIA estimates chip sales will be roughly flat in 1Q06, and over the entire year grow about 8% to $245 billion, enjoying a healthy overall economic climate. Scalise said the market should keep pace with 10% CAGR, “a remarkable rate for a $227 billion dollar industry.”


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