First Quarter Semiconductor Sales up 7.3 Percent over 2005

by Semiconductor Industry Association

STRONG CELL PHONE SALES DRIVE GROWTH

Worldwide sales of semiconductors of $59.1 billion in the first quarter of 2006 were 7.3 percent higher than first quarter of 2005 when global sales were $55.1 billion, the Semiconductor Industry Association (SIA) reported today. First-quarter sales declined by 1.3 percent from the fourth quarter of 2005, when sales were $59.9 billion. The SIA said the sequential decline reflected normal seasonal patterns.

March sales of $19.7 billion reflected an increase of 2.3 percent from February sales of $19.6 billion. In March of 2005, worldwide sales of semiconductors amounted to $18.4 billion.

“Very strong sales of cell phones were a major contributor to the year-on-year increase in microchip sales,” said SIA President George Scalise. “Cell phone unit sales increased by 31 percent from the first quarter of 2005 and ran substantially ahead of expectations. Unit sales are now expected to reach one billion this year. According to iSuppli, the average semiconductor content of a cell phone is now approximately $41 per unit. Cell phones now represent the second-largest market, after personal computers, for semiconductors. Cell phones and PCs now account for more than half of all semiconductor sales.”

Scalise cited two factors – a substantially shorter replacement cycle and very robust demand in China – for cell phone growth. “China now has approximately 410 million cell phone subscribers,” Scalise said. “China is adding new subscribers at the rate of five million a month, and Chinese consumers appear to be choosing high-end phones with increased functionality.” Scalise also noted that the replacement cycle for cell phones has declined from an average of 26 months to about 18 months, as manufacturers offer new products with smaller form factors and increased functionality.”

Unit sales of personal computers increased by 13 percent in the first quarter of 2006 compared to the same quarter of 2005, according to IDC. “Competition in the PC market was very intense in the first quarter of 2006, with the result that consumers are finding extremely powerful notebook and desktop systems available at very attractive prices.” Microprocessor sales in the first quarter of 2006 were $8.83 billion compared to $8.28 billion in 2005, an increase of 6.8 percent. There is evidence that PC prices are declining more rapidly than the historic rate of around 10 percent per year. “Once again, consumers are reaping the benefits of Moore’s Law in action,” said Scalise.

Scalise noted that inventory in the supply chain for some products has been growing as manufacturers build inventory in the expectation of market growth. “End market demand, capacity utilization, and inventories are the most critical factors affecting industry growth. End market demand remains generally strong, and capacity utilization continues to be above 90 percent. We will be closely watching the inventory situation, especially in market segments for consumer products. Rapidly rising energy prices remain a concern,” said Scalise. “We estimate that gasoline prices at current levels will take approximately $138 billion from American households’ discretionary income this year. Despite recent rapid increases in gas prices, consumer confidence remains strong. If pump prices continue to increase significantly, there will be further erosion of discretionary income and that could affect consumer confidence and consumer spending,” Scalise concluded.

The SIA’s Global Sales Report (GSR) is a three-month moving average of sales activity. The GSR is tabulated by the World Semiconductor Trade Statistics (WSTS) organization, which represents approximately 66 companies. The moving average is a mathematical smoothing technique that mitigates variations due to companies’ financial calendars.

About the SIA

The SIA is the leading voice for the semiconductor industry and has represented U.S semiconductor companies since 1977 and SIA member companies comprise more than 85% of the U.S. semiconductor industry. Collectively, the chip industry employs a domestic workforce of 225,000 people. More information about the SIA can be found at www.sia-online.org.