Worldwide sales of semiconductors reached $59.1 billion in Q1, 7.3 percent higher than Q1 2005 when global sales were $55.1 billion, the Semiconductor Industry Association (SIA) reported today.

Sales for Q1 declined by 1.3 percent from Q4 2005, when sales were $59.9 billion. The SIA said the sequential decline reflected normal seasonal patterns, as Q1 is typically a weaker quarter.

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, in a statement. "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,” continued Scalise. “Cell phones and PCs now account for more than half of all semiconductor sales."

Scalise cited two factors -- a substantially shorter replacement cycle and robust demand in China -- for cell phone growth. According to SIA, China now has approximately 410 million cell phone subscribers and is adding new subscribers at the rate of five million a month. Chinese consumers appear to be choosing high-end phones with increased functionality, Scalise said.

Scalise further 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.

On the PC end, unit sales increased by 13 percent in Q1 compared to the same quarter of 2005, according to IDC. Microprocessor sales in Q1 were $8.83 billion compared to $8.28 billion in 2005, an increase of 6.8 percent. However, the firm noted that there was evidence that PC prices are declining more rapidly than the historic rate of around 10 percent per year. 

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," he said.

With gasoline prices at the pump continuing to skyrocket, Scalise also pointed out that erosion of discretionary income could affect consumer confidence and spending. SIA estimates that gasoline prices at current levels will take approximately $138 billion from American households' discretionary income this year.

By: DocMemory
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