While chip stocks were battered in May, worldwide semiconductor sales trotted along at a steady pace. Semiconductor sales in May totaled $19.7 billion, up 9.4% from May 2005, according to a new report by the Semiconductor Industry Association. "Worldwide sales of semiconductors in May continued to reflect generally favorable worldwide economic conditions," said SIA President George Scalise in a statement. "As consumer products drive an increasing proportion of microchip sales, the growth of the semiconductor industry more closely reflects overall economic growth." The Philadelphia Stock Exchange Semiconductor Sector Index fell 10% in May, as rising interest rates and energy prices made some investors fear an imminent slowdown in the consumer demand that has been driving chip sales. Worries about industrywide semiconductor inventory levels, and the widening investigation into stock-option "backdating" that has hit many chipmakers, didn't help. According to the SIA report, PC microprocessor sales continued to falter in May, with total revenue down 2% from May 2005. In April, microprocessor sales were down 6% year over year. Scalise attributed the microprocessor sales declines to robust competition and some inventory corrections in the market. Intel ( INTC), the world's dominant maker of PC microprocessors, has indicated that it will aggressively slash prices to clear out inventory as it makes room for a new generation of processors and seeks to turn up the heat on rival Advanced Micro Devices ( AMD). Sales of DRAM memory chips used in PCs increased 13.7% from the prior year. Sales of cell phones and other consumer electronics products continued to be the chip industry's primary drivers of growth. Analog chips and digital signal processors, two key components in cell phones, saw year-over-year sales increase 21.5% and 13.7%, respectively, in May. Recently, there has been concern on the Street that cell-phone handset sales will start to fall off, following a note by a ThinkEquity analyst that cited a rumor that Nokia ( NOK) and Motorola ( MOT) had canceled chip orders of up to several million units.
Chip sales in May increased by 0.7% from April 2006. May chip sales have increased sequentially between 2% and 3% in three of the past five years. In May 2001 and 2005, both periods during which the semiconductor industry was in a cyclical downturn, chip sales posted negative sequential sales growth. In June, the SIA raised its forecast for 2006 worldwide chips sales growth to 9.8%, compared to its previous expectation of 7.9%.