The head of the leading semiconductor trade group said today that the chip recovery under way for more than 15 months "appears to have stalled," in light of data that show sales in February fell 3.3% from the previous month. The monthly data reflects a three-month moving average.

"The traditional seasonally flat first quarter has been further impacted this year by geopolitical uncertainty," said George Scalise, president of the Semiconductor Industry Association. "Demand has softened in the markets that drove growth throughout the past year, including PCs, global wireless and consumer."

Though February sales were up 18% from last year's levels, the rate of growth has fallen over the past several months, noted Bear Stearns analyst Gurinder Kalra. In January and December, sales grew a respective 22% and 23% from 2002 levels.

Kalra said in a note this morning that he expects year-on-year growth to keep falling until bottoming some time in the late third quarter of this year.

"Most interesting is that on a quarter-over-quarter basis, we saw a 20% decline in units in the microprocessor segment. That's probably contributing to some of the weakness today," says Michael McConnell, senior research analyst for semiconductor stocks at Pacific Crest. On a rolling three-month basis, the most recent "quarter" would include December, January and February.

The situation has flip-flopped from last year at this time, McConnell points out. "Then, you had ASPs starting to decline but units growing. Thus far in 2003, we're seeing units decline but ASPs firming up. That leads me to believe inventories are very lean in the PC supply chain. They're tracking end-market demand, which seems to have gotten weaker. But pricing has firmed."

The Philadelphia Stock Exchange Semiconductor Index was down 3.6% in afternoon trading, to 299.


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