Chip Sales on the Rise Again
February figures surprise analysts
By Jonathan Cassell
sumnet.com
San Jose--Semiconductor analysts were shredding their spreadsheets last week following word that worldwide chip sales rose a surprisingly robust 3.3 percent in February.
Global semiconductor sales reached $10.9 billion in February, up from $10.5 billion a year earlier, the Semiconductor Industry Association reported. The rise defied the expectations of market researchers--bullish and bearish alike--who had forecasted flat or negative growth for the first quarter.
"We are looking at our forecast again," said Ron Bohn, director of the Semiconductor Research Operations program for Dataquest, based here. "Right now, out forecast for the year is for growth of just under 15 percent. But we were expecting a 3 percent decline in revenue in the first quarter."
Bohn said he doesn't expect Dataquest to change its forecast for 1999 in the near term, but the company may reexamine the growth pattern it has predicted for the year. Dataquest's bullish forecast released in late 1998 predicted the chip market would remain largely flat through the first half of the year, but that growth would pick up the third quarter and surge in the fourth.
Notable bear Integrated Circuit Engineering Corp., which had predicted zero growth for the semiconductor industry in 1999, also is reassessing its forecast. ICE now is contemplating growth as high as 3 percent for 1999, though it still believes it will be a poor year for the semiconductor market, according to Jerry Karls, president and chief executive officer of the Scottsdale, Ariz.-based research firm.
The February SIA report included several upside surprises. Among them was that February marked the second consecutive month of year-over-year sales increases for the semiconductor industry. This marks the first time in more than a year that the industry has sustained growth for two consecutive months.
Another surprise was the geographically broad-based nature of the rise in chip sales in February. None of the world's chip producing regions reported negative sales growth on a year-to-year basis for the month. This marks the first time since September 1997—17 months previous to February—that no region declined, according to Doug Andrey, director of information systems and finance for the SIA, based here.
Still another positive development in February was the strength of the Asia Pacific region, which led the world with a 10.3 percent sales increase compared to February 1998. The Asia Pacific has experienced three consecutive months of year-to-year sales increases, with revenues rising 9.1 percent in January and 2.4 percent in December, according to the SIA.
The accelerating growth in the Asia Pacific region has been fueled by firming prices for memory chips, particularly DRAM. Prices for 64-Megabit DRAM rose steadily from July through January, according to the market research firm International Data Corp. The heavily memory-dependent Asia Pacific region has responded to the favorable pricing climate by increasing production.
A final positive development came from the unlikely source of Japan, which was the hardest hit region during the last semiconductor downturn. The Japanese semiconductor market increased by 2.8 percent in February, also bolstered by stable DRAM prices. Japan hadn't experienced any growth in a single month on a year-to-year basis since August of 1997, according to SIA figures.
All these factors lend credence to the optimistic 1999 forecasts that were issued by analysts and industry observers in late 1998. Most market researchers forecasted growth in the low double-digit range for 1999. The SIA recently issued a more conservative prediction that the global semiconductor market in 1999 would rise 9.1 percent to reach $133.4 billion.
Despite the positive growth news, there were a few negatives in the SIA report.
While no region reported negative sales in February, revenues in the Americas were flat for the month, with growth pegged at zero by the SIA. The lack of sales growth in the Americas is seen as a sign that the price war between Intel Corp. and Advanced Micro Devices Inc. is taking its roll on PC microprocessor business, which accounts for 10 percent of the worldwide semiconductor market, according to ICE's Karl.
Meanwhile, the European market grew a tepid 1.9 percent in February, the second slowest growth rate in the world for the month.
Perhaps more ominously, Dataquest, IDC and ICE report that DRAM prices have begun to soften in recent weeks. Prices for 64Mb DRAM declined slightly in February and March. IDC reported prices for some 64Mb parts fell to $9.30 in March, down from $9.61 in February and $9.87 in January.
Karls said prices for DRAMs and microprocessors are likely to decline for the entire year. Semiconductor makers are increasing their DRAM capacity, which could bring a return to the price erosion that rocked the market in 1998, Karls said. When viewed in the context of continuing global economic turmoil, the price pressure could indicate that the growth in the first two months of 1999 may not have staying power.
“The growth in the semiconductor market might just be a little blip on the screen,” Karls said. “I'm concerned about the economic issues.”
Karls said semiconductor sales could weaken during the key months of September, October and November due to price declines and economic weakness. This will result in minimal growth for 1999 at best, Karls said.
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