No Signs of Recession in The Chip Business

Sales are up modestly, with strength in certain markets. DRAM is most definitely not one of them.

By Andy Patrizio

Semiconductor sales are slowing, but they are still growing according to two separate surveys released on Monday. Gartner found sales rose 3.8 percent in 2007 to $273.9 billion, while the Semiconductor Industry Association (SIA) reported a 1.5 percent increase in February over the prior year.

The growth is coming in specific areas for different companies, Gartner noted. For example, Intel's 10.7 percent growth to $33.8 billion, to lead the market, was led by strong sales in mobile processors, which has been the fastest growing market for computing for some time now.

Toshiba rose from number six to number 3 in revenue which increased 20.8 percent in 2007 to $11.8 billion thanks to sales of integrated circuits for Sony's PlayStation3 console, NAND flash and CMOS image sensors for mobile phones.

Gartner said that in the current economy, chip customers would do well to track customer usage and find out where the sales are going, since some markets will be stronger than others. "Periods of uncertainty, like the current one, often create ideal situations to strengthen product and application portfolios without paying inflated prices," said Richard Gordon, managing vice president at Gartner in a statement.

The market feeling the most pain would have to be the DRAM market, which saw a decline of $2.4 billion in revenue year over year, or 7.1 percent, due to the huge oversupply even with the increasing demand for more memory. One company defying that is Hynix Semiconductor, which saw 2007 revenues grow 19.1 percent.

Hynix did this by aggressively adding capacity, but in doing so, the market was plagued with oversupply throughout 2007 and consequently steep decline in average selling price. As such, Gartner said "Hynix must take most of the blame for the market's unprofitability in the second half of 2007."

Meanwhile, this past February saw a modest gain in chip sales of 1.5 percent over February 2007 to $20.44 billion, according to the Semiconductor Industry Association (SIA). Sales declined by 4.9 percent from January, but that's typical of normal seasonal patterns in the industry at this time of year.

The SIA noted that even though demand for DRAM rose 40 percent year-over-year in February, prices still declined by 43 percent, which goes completely counter to the basic rule that prices increase along with demand. What that means is supply is outstripping demand, which is growing at a phenomenal rate, and it has done so for some time now.

John Greenagel, a spokesman for the SIA, declined to point fingers like Gartner but did say there is too much supply. "Unit shipments are up dramatically year-over-year. When the units are up, that means they are going into end products somewhere. That means there is a market for end products, but that means there is such a supply problem that the industry has no pricing power," he told InternetNews.com.

"There's a lot of people in the DRAM business cranking out an awful lot of products," he added. "When a customer can get all the product they need from any number of suppliers, it's going to be a buyer's market. It's a great deal for consumers right now."

Despite all the talk of trouble in the U.S. economy, thus far it hasn't manifested in the electronics market. Greenagel said he's waiting to see the next report from the Consumer Electronics Association which would show whether there's been a decline in gadget purchases, but so far he said there are no signs of decline in product sales.