Global Chip Sales Grow 8.9% - TheStreet

Global Chip Sales Grow 8.9%

Single-digit growth may become the near-term norm.
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With strong economies worldwide, consumers snapped up electronics goods in 2006, pushing global chip sales up 8.9%.

Total sales of semiconductors in 2006 came in at a record $247.7 billion, vs. $227.5 billion in 2005, according to trade group the Semiconductor Industry Association. The results were roughly $1 billion shy of the group's revised forecast made in November.

In December, chip sales grew 9% year over year, but declined 3.6% sequentially to $21.7 billion.

The growth in 2006 was largely driven by consumer-electronics products like cell phones, MP3 players and HDTV sets, according to SIA President George Scalise.

Lower costs and improved functionality offered by semiconductor technology has allowed the new crop of gadgets to proliferate, said Scalise. And favorable economic conditions in the major world markets has resulted in strong consumer confidence and spending, he said.

The Asia-Pacific region, including China, experienced the strongest growth in 2006, with chip sales up 12.7% year over year, according to the SIA.

Scalise said the 3.4% increase in U.S. GDP reflected continuing strength of the U.S. economy, which is the largest end market for products. But he noted that high PC penetration in developed countries, like the U.S., had slowed total sales of PCs in 2006.

While overall chip sales growth in 2006 was solid, it was a far cry from the double-digit growth the industry once rang up. In 2004, chip sales surged 28% year over year.

While consumers are buying more electronic goods, lower-priced chips seems to be limiting the semiconductor industry's revenue growth.

Scalise noted that the average value of semiconductor content of a cell phone fell slightly to around $40 in 2006, mainly due to demand for low-end phones in emerging markets. That fits in with comments by

Texas Instruments

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, which has seen its

revenue pinched as a result of this trend.

And the price war between

Intel

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and

Advanced Micro Devices

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has pushed down the microprocessor segment's contribution to the overall industry growth.

According to the SIA, unit shipments of microprocessors increased 10% in 2006, but total microprocessor revenue fell 5.1% year over year. The average selling price of microprocessors declined 14.1% in 2006.

According to the SIA's latest long-term forecast, annual worldwide chip sales will not grow by more than 11% in the next three years.