Global chip sales to recover in 2002

By : |June 5, 2002 0

Duncan Martell

SAN FRANCISCO: Worldwide sales of semiconductors, after their worst-ever
slump in 2001, will stage a modest recovery this year, rising 3.1 per cent to
$143 billion, a trade group said on Wednesday.

After a slim increase this year, the Semiconductor Industry Association, in
its mid-year forecast for the industry, predicts global sales of semiconductors
will rise 23.2 per cent to $177 billion in 2003 and 20.9 per cent to $213
billion in 2004. Muted growth of 0.9 per cent, to $215 billion, is expected to
follow in 2005, it added.

"So far this year, we have seen a significant decline in excess
inventory and manufacturing capacity, and the industry has resumed modest
sequential growth, indicating that we are in the initial stages of a
recovery," said Dwight Decker, chairman and chief executive of chipmaker
Conexant Systems Inc.

Increasing sales of cellular handsets, personal computers and of digital
consumer electronics devices during the next 10 quarters will lead the rebound,
Decker said.

The chip industry suffered last year as economies slowed, companies cut back
on information technology spending, and chip companies overbuilt inventories
based on overly optimistic assumptions of growth, particularly in the
telecommunications industry.

The Spring SIA forecasts growth that is less than the group’s first forecast
for 2002 semiconductor sales results, issued in November. That forecast called
for a 6 per cent increase in global chip sales this year.

However, the difference between the two forecast figures is largely due to a
weakening dollar between the period when the first forecast was compiled and the
period when data for the Spring forecast was collected.

Chip boom in Asia-Pacific
Rapid growth in the Asia Pacific region will help to fuel growth in the
notoriously boom-and-bust industry, which suffered its worst-ever year in 2001,
when global chip sales plunged some 34 per cent, twice the previous-worst
percentage decline in 1985.

During the next four years, the Asia-Pacific market will become the world’s
largest in terms of chip sales, followed by the Americas, the SIA said. That
region has already been the top revenue generator for Intel Corp., the world’s
biggest chipmaker, for the last two quarters.

The Asia-Pacific region accounted for 36 per cent of Intel’s first-quarter
revenue of $6.78 billion. For diversified semiconductor maker National
Semiconductor Corp., the region accounted for 32 per cent of its fiscal 2001
revenue of $2.11 billion, up from 30 per cent of its fiscal 2000 revenue of
$2.14 billion.

For 2002, chip sales in the Americas are expected to drop 4 per cent to $35
billion, fall 2 per cent in the European market to $30 billion, and tumble 14
per cent in the troubled Japanese market to $28 billion. Growth is expected only
in the Asia-Pacific market this year, the SIA said, with an estimated 27 per
cent rise to $51 billion.

But after 2002, the SIA predicted that growth in the Americas, European and
Japanese markets will take off, with double-digit percentage growth in 2003 and
in 2004. "Our expectation is that the recovery will gain momentum in the
second half of the year and continue with strong growth through 2003 and
2004," Decker said.

Most chipmakers, when they reported first-quarter results, noted that
inventories, with some exception in chips used in wide-area networking
communications products, had burned off to more manageable levels. Most also
forecast modest sequential revenue increases for the second quarter from the
first quarter, on the order of 3 per cent to 13 per cent.

"The recovery will be led by strong growth in Asia Pacific, as a result
of increases in outsourced contract manufacturing and strong regional consumer
demand," Decker said. The Philadelphia Semiconductor Index, a proxy for the
sector, has declined 10 per cent so far this year.

(C) Reuters Limited.

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