Ups and downs

Worldwide microchip sales of $18.3 billion in January were 0.5% below December sales of $18.4 billion but 17.5% higher than January of 2004 sales of $15.6 billion, the Semiconductor Industry Association (SIA) reported yesterday. SIA pointed that January is usually a weak month for microchip sales following the typically strong holiday season.

“The modest sequential sales decline of one-half of one percent in January is an encouraging sign,” said SIA President George Scalise. “January is historically one of the weakest months of the year for the microchip industry. We are encouraged by recent signs of strength in the overall U.S. economy, as evidenced by the 3.8% growth in gross domestic product (GDP) in the fourth quarter.”

Dan Hutcheson of VLSI Research has noted that when GDP grows by more than 3%, semiconductor sales have shown healthy growth except when there are excesses of inventory or production capacity. At the present time, neither production capacity nor inventory excess is a problem.

“The excess inventories that slowed growth in the second half of 2004 have been largely depleted,” Scalise said. “According to iSuppli, excess inventories declined from $1.6 billion at the end of the third quarter to $1 billion at year end. In some market segments, inventories are now below target levels, thus we are confident that inventory issues will not be a significant factor in semiconductor sales beyond the first quarter.”

Factory utilisation continued to decline, as expected, throughout the second half of 2004. Overall utilisation was at 86% in the fourth quarter, and leading-edge capacity utilisation was at 93%. Industry capital spending increased to approximately $47 billion – roughly 22 percent of total sales – in 2004.

The SIA’s Global Sales Report (GSR) is a three-month moving average of sales activity. The GSR is tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 companies. The moving average is a mathematical smoothing technique that mitigates variations due companies’ financial calendars.