Chip industry growth outpacing forecasts so far

Chip industry growth outpacing forecasts so far

Global chip industry revenue growth outpaced forecasts for the first half of the year, a good sign because the second half of the year is normally stronger due to heavy sales of electronics gadgets to students heading back to school and during holidays later in the year.

Chip revenues rose to US$109 billion for the first six months of 2005, up 6.5 percent over the same period last year, according to the Semiconductor Industry Association (SIA), one of the largest chip industry trade groups. The SIA, along with companies and analysts, have attributed strong chip growth largely to stellar sales of notebook computers and mobile phones this year, along with brisk demand for consumer electronics goods like MP3 players.

The 6.5 percent growth rate means chip industry revenue is outpacing most forecasts. It already exceeds the SIA's own full year forecast, of 6 percent growth to US$226 billion. And it's beating the 5.9 percent full year growth predicted by market researcher Gartner Dataquest.

"We are encouraged by the fact that sales for the first half of this year were up. ... The strongest growth in 2004 occurred in the first half of the year. In contrast, we expect the strongest growth in 2005 will occur in the second half of the year," said George Scalise, president of SIA, in a statement.

To be sure, the chip industry faces hurdles. Chip revenue declined 2.1 percent in the second quarter from the first quarter, mainly due to falling prices for DRAM (dynamic-RAM) chips.

Prices of the most widely used DRAM, 256M-bit DDR (double data rate) chips that run at 400MHz, have tumbled 32 percent so far this year to US$2.74 early Wednesday. However, the prices have recovered somewhat since hitting a low in mid-May of US$2.25 per chip, according to DRAMeXchange, an online clearinghouse for the chips.

The May-June timeframe is typically among the weakest for DRAM due to a lull in the personal computer industry, as companies begin planning for back-to-school and holiday sales in the second half of the year. Brisk production at new DRAM factories has also hurt prices, by flooding the market with chips.

The second half of the year could be much better for DRAM. Gartner predicts memory chips could see 3.2 percent revenue growth this year.

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