Microchip sales growth seen accelerating

SAN FRANCISCO (Reuters) - Growth in worldwide sales of semiconductors will accelerate over the next three years, driven by an explosion of consumer gadgetry and strong demand in developing countries, a US trade group said on Wednesday.

Sales are seen rising 7.9 percent in 2006 to US$245.5 billion, the Semiconductor Industry Association said in its annual forecast.

Growth will rise to 10.5 percent in 2007, when sales are seen reaching US$271.3 billion, and to 13.9 percent in 2008, when sales will reach US$309.2 billion, it said.

"There has been stronger-than-expected demand for our products across the board. There is far better inventory management, better capital investment management," SIA President George Scalise told a conference call.

Hundreds of companies compete for a slice of the industry that makes products such as the microprocessors found at the heart of personal computers, memory chips in digital music players, and power management circuits for mobile telephones.

Major players include number one chipmaker Intel; Korea's Samsung Electronics Co Ltd, the biggest producer of memory chips; and Taiwan Semiconductor Manufacturing Co, the world's largest contract chipmaker.

The sector's volatility has made accurate forecasting difficult.

Last year's SIA report forecast that chip sales this year would be flat with 2004's US$213 billion. But consumers shrugged off high energy prices to snap up hot devices like high-end mobile phones and music players, and the SIA now sees 2005 growth of 6.8 percent to US$227.6 billion.

"As far as the biggest surprise goes, it would have to be that the increase in energy costs did not impact demand at all," Scalise said. "When we put our forecast together a year ago. we were quite conservative and expected demand to be flat."

He said the industry's drive to make smaller, cheaper, more efficient products would drive growth for years to come, and SIA analyst Doug Andrey said there was still vast potential in developing markets such as India, Latin America and Africa.

"In the PC industry...it turns out that 75 percent of unit growth in PCs this year is coming outside the established markets of the United States, Europe and Japan," Andrey said.

However, forecasts by the SIA and others of moderate annual growth of about 10 percent over the next few years have triggered debate as to whether the industry that gave birth to Silicon Valley is maturing.

Growth this year will be down sharply from 2004's 28 percent.

Much of the boom-bust cycle has been driven by memory chips, traditionally found in computers but increasingly in consumer gadgets such as Apple Computer Inc.'s popular iPod music player.

The SIA said sales of flash memory -- the type found in smaller iPods and digital cameras -- would grow 15.9 percent to US$21 billion in 2006, after growing 16 percent this year.

Sales of computer memory should fall 10 percent in 2006 to US$23 billion, a drop the SIA called a "mild cyclical decline".

Additional reporting by Justin Hyde in Washington.

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