SIA: Semi industry sales up 2% in 1H 2007

By Colleen Taylor, Contributing Editor -- Electronic News, 8/3/2007

As the industry deals with rapid pricing drops, semiconductor sales showed modest growth year-over-year during the first six months of 2007, according to a report issued today by the Semiconductor Industry Association (SIA).

Worldwide sales of semiconductors grew to $121 billion in the first half of 2007, an increase of 2 percent from the $118.4 billion reported for the first half of 2006, the SIA said. Second-quarter sales of $59.9 billion declined by 2 percent from the $61.1 billion reported in the first quarter of 2007. Sales in June 2007 amounted to $20 billion, a decline of 1.7 percent from the $20.3 billion reported in May.

"Continuing rapid price attrition in several important market segments held growth in total semiconductor sales to just over 2 percent in the first half of 2007 despite increases in total unit shipments of almost 7 percent," SIA's President George Scalise said in a statement. "End unit demand in major industry drivers, including personal computers and cell phones is growing in line with forecasts. Together, these two market sectors drive about 60 percent of semiconductor demand."

The personal computer industry, however, is showing signs of health, the SIA reported. "Sales of personal computers were strong in Q2, with unit growth now projected at more than 10 percent for 2007," Scalise continued. "PC buyers are continuing to reap the benefits of declining prices for microprocessors and DRAMs, which enable PC manufacturers to offer very powerful systems at attractive prices. The average price of a desktop system has fallen to around $700, while the memory content of these machines has increased by approximately 50 percent over last year."

In addition, mobile phones are making progress toward a strong full year 2007 sales performance. "Unit shipments of cell phones are on track for 10 percent growth in 2007," Scalise noted. Unit sales of DSP chips, key components of mobile phones, grew by 3 percent in the first half, which the SIA said was an indication that there may have been excess inventory in the supply chain at the start of the year.

The pricing problems associated with memory chips, however, continue to plague the industry as a whole. "The major story for the chip industry for the first half of 2007 continues to be rapid price attrition," Scalise said. "DRAM prices declined nearly 40 percent while unit shipments grew by almost 66 percent year on year. …The pattern was similar, if somewhat less dramatic, in the NAND flash segment, especially early in the year. NAND unit shipments grew by almost 40 percent compared to June of 2006 but ASPs declined by just more than 15 percent. Recently NAND prices have been stabilizing, and the price decline in June was the smallest we've seen this year."

The SIA reported that sales of microprocessors declined by 3 percent sequentially, but were up by more than 7 percent from June of 2006. Unit shipments of microprocessors were up by 19 percent for the first half of 2007 compared to the first half of 2006 while the rate of year-on-year price attrition in this segment has now fallen below 10 percent for the first time this year.

Overall, the data for the first half of the year shows solid, although not stellar, progress in the industry. "The industry sales increase of 2.1 percent in the first half is slightly ahead of our June revised forecast calling for 2007 sales to increase 1.8 percent," Scalise concluded. "We expect that key end markets will grow in line with expectations through the remainder of the year, and that total semiconductor sales for 2007 will meet the revised forecast."

Investment firm Lehman Brothers was similarly encouraged by the SIA's report: in a research note sent this morning, the firm said that is currently has a "positive general sector view" for the semiconductor industry, and expects to see a year-end uptick in the communications sector, in particular.