World-Wide Chip Sales Continue Climbing On Mobile-Phone, PC Growth
Dow Jones Newswires
NEW YORK -- Exploding demand for communications devices and a more disciplined approach to adding manufacturing capacity should help semiconductor companies avoid the boom-or-bust paradigm that has plagued the business throughout its history, an industry trade group said.
At a meeting with reporters here to discuss its just-released 1999 sales data, spokesmen for the Silicon Valley-based Semiconductor Industry Association said fully 60% of the industry's growth this year will come from communications devices, a rather fuzzily defined category that includes chips used in cellular phones, hand-held computers and other Internet-ready appliances.
The SIA expects total industry revenue to grow 20% in both 2000 and 2001, up from worldwide semiconductor sales in 1999 of $149 billion, an all-time high. That revenue total, a 19% increase from 1998 levels, shows how fully the industry has recovered from the severe downturn of 1996-1998.
Because of the fast-growing demand for communications devices -- as well as a speedy upgrade cycle when compared with other chip-powered devices, such as personal computers -- revenue growth will be more stable in the future, SIA representatives believe. By 2003, they expect cell-phone chips to account for 20% of the industry's overall revenue, up from 18% in 1998.
"This is the first upturn since the 1970s led by something other than PCs," said Doug Andrey, the SIA's director of information systems and finance.
Just a year and a half ago, the industry was slogging through one of the worst recessions in its history, sparked by a woeful oversupply of semiconductors. While experiencing a period of brisk demand and super-fast growth in the early 1990s, chip companies eagerly, too eagerly it turns out, added capacity in a bid to meet what they believed would be a future filled with endless customer orders. As a result, inventories swelled and prices fell drastically, especially in the market for dynamic random access memory, or DRAM, a type of memory product.
Perhaps to allay fears that a similarly myopic enthusiasm would cause yet another backlash this time around, the SIA pointed out that capital spending on manufacturing capacity remains stable. In a key indicator of the industry's new-found discipline, Andrey said, capacity is being added more slowly than companies' revenue growth.
In its report, the SIA said capital spending by U.S. semiconductor companies in 1999 declined 9% from a year ago, which follows an 8% drop in 1998. Still, their overseas counterparts are increasing capacity -- and doing it rather quickly: Taiwan chip makers, for instance, boosted spending by 36% in 1999, while in Korea, budgets for adding factory space surged 92%.
"We're not being Pollyannas here," said Kevin M. Brett, a public relations official from LSI Logic Corp. (LSI) who, along with spokesmen from a half-dozen other U.S. chip makers, attended the SIA's meeting. Indeed, the SIA is projecting a slowdown in 2002 because of the ebbs of supply and demand that are part of most industries.
But mitigating any future cyclical slowdown in the semiconductor industry, said SIA President George M. Scalise, will be chip companies' increasingly efficient supply practices. Helped by rising dependence on outsourced manufacturing, better manufacturing methods and increased use of e-commerce, the average period it takes for a chip order to be filled is two weeks, down from an historical average of 14 weeks. That means potential shifts in demand won't result in swollen inventories, Scalise said.
Of the products used in communications devices, sales of flash-memory circuits surged 83% in 1999 to $4.6 billion, while digital signal processors rose 25.7% to $4.4 billion, the SIA said in its Monday report.
Microprocessors -- used in PCs, servers and mainframes -- continued to rule the roost with $27.2 billion in revenue. At 9.8%, however, growth in that sector was much slower than in other categories. DRAM memory chips rose 48% to $20.7 billion, driven by stiff demand for computer servers.
Wall Street's most closely watched semiconductor datum -- three-month rolling average billings -- also exhibited the industry's health. For December, billings rose 30% to $14.7 billion from a year ago, the 12th straight month of growth since turning negative in March 1998, according to Joseph Osha, an analyst with Merrill Lynch & Co.
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