Trade Group: Hardware Driving Chip Recovery

The semiconductor recovery is underway and is expected to build in 2003, according to new numbers issued Monday by an industry trade group.

The report from the San Jose, Calif.-based Semiconductor Industry Association (SIA) suggests that the growth will come primarily out of the Asia/Pacific area and will be mostly spent on hardware such as PCs, cell phones, Wi-Fi and even servers.

“We expect the momentum built throughout 2002 in both cell phones and PCs to increase in 2003,” said SIA President George Scalise. “As a result, for the first time since 2000, we believe IT spending on hardware will register an increase.”

Final numbers for 2002 revealed global semiconductor sales reached $12.5 billion in December 2002, bringing total revenue for the year to $140.7 billion. That marks a 1.3 percent increase from the 2001 level of $138.9 billion.

During the year’s final quarter , SIA reported a rise in revenue of 1.9 percent sequentially to $37.6 billion from $36.9 billion, following increases of 5.6 percent, 5.8 percent and 8.2 percent in the first three quarters of 2002, and was up 23 percent over the corresponding quarter of 2001.

Scalise said based on the trade group’s reports old chip inventories appear to have balanced out and supply and demand for microprocessors, microcontrollers, DSPs and Flash EEPROMs, have stabilized, which is something analysts have been pointing towards for a few months now.

PCs continue to be the single largest end market for semiconductors, accounting for 30 percent of total chip consumption. SIA says that is a good indication that the corporate buyer is returning to the market. During the December quarter due to increased PC demand, Microprocessors and DRAMs were up 10.1 percent and 7.6 percent respectively.

“This is remarkable performance, in the face of lackluster demand in the Information Technology market,” said Scalise. “We expect further improvement across broad product sectors, positioning the industry for 19.8 percent growth in 2003, increasing revenues to $169.3 billion.”

The consumer sector, including DVD’s and digital cameras, continues to drive new growth, especially in Application Specific Products.

Wi-Fi (802.11b) has also emerged as another brisk growth driver for semiconductors, as Wireless Local Access Networks (WLAN) sweep across the country, giving consumers the ability to connect from their offices, at home, in coffee houses, or in transit at the nation’s airports. The SIA said compound annual growth rates of WLAN IC’s expected to exceed 35 percent over the 2000-2005 forecast period.

The trade group says Asia Pacific continues to be the world’s fastest growing market, recording a 29 percent increase in chip sales for the year, pushing it past the Americas as the world’s largest market, with a 36 percent share.

For the year 2002, chip sales declined 13 percent in the Americas, 8 percent in Japan and 8 percent in Europe from 2001 levels, as electronic equipment production continues an unprecedented migration to facilities in the Asia Pacific region.

Scalise said the semiconductor industry should be able to attain its estimates for 2003 even if there is 5 percent quarter-over-quarter growth. The SIA said only thing barring such a full recovery this year would be a global impacting event such as a war with Iraq or conflict with Korea.