Revised forecast

The Semiconductor Industry Association (SIA) today issued a revised forecast projecting that worldwide sales of semiconductors will grow by 6% in 2005 to a record $226 billion.

The SIA November forecast had projected that 2005 sales would be essentially flat with the $213 billion sales level of 2004. The new forecast also projects a compound annual growth rate (CAGR) of 9.8% through 2008. The SIA now projects that global chip sales will reach $309 billion in 2008.

“Worldwide sales of semiconductors have been stronger than expected through the first quarter of 2005,” said SIA President George Scalise. “Higher sales have been driven by better than expected demand in a number of important end markets, including personal computers and wireless handsets. Our cautious forecast issued in November of 2004 was based on concerns that high energy prices and lingering excess inventories in a few segments of the industry would dampen sales in 2005. Those fears have not materialized, and economic growth – especially in the United States – has remained strong.”

Scalise noted that consumer spending on electronic products showed strong growth in 2004, citing a recent survey by the Consumer Electronics Association (CEA). Despite the effects of higher energy prices on discretionary spending by consumers, purchases of consumer electronics devices increased by 11% last year to approximately $1,250 per household. The CEA projects a further 11% increase in consumer spending on electronics in 2005.

Scalise also noted that the industry responded very quickly to reports of excess semiconductor inventories in the supply chain in the third quarter of 2004. “Inventory and capacity issues have historically been the principal factors contributing to semiconductor industry cycles,” said Scalise. “At the end of 2000, there was $15 billion worth of excess inventory in the supply chain – the equivalent of one month’s revenues for the worldwide industry at the time,” Scalise continued. “It took until 2003 to work off this inventory. In 2004, semiconductor producers and their customers responded quickly to rationalize supply and demand, with the result that excess inventories never got above $1.5 billion. By the end of the first quarter of this year excess inventories had been largely worked off and are no longer a factor in our outlook.”

Key drivers of semiconductor growth in 2005 are forecasted to be cellular telephones, personal computers, digital televisions, and digital cameras. “Fourth quarter sales of cell phones were much stronger than anticipated,” said Scalise. “We now expect that cell phone sales in 2005 will grow by 13% off a substantially larger base number. Our forecast for personal computer sales growth is unchanged at 10%, but unit sales in 2004 were 3 million above our earlier forecast. We have increased our growth forecast for digital TV sales from 50% to 65% , and for digital cameras from 6% to 15%.