Fierce competition causes semiconductor market to decline

San Jose (CA) - Growing pricing pressure in key segments of the global semiconductor industry brought the first year-over-year revenue decline in 2005. Despite increasing energy prices, the Semiconductor Industry Association (SIA) sticks to its forecast that revenues will post overall solid growth for the year.

Sales figures for the semiconductor industry hovered around an expected level in July, but were quite what many would call exciting for an industry that was pampered by record sales results over the past year. Global chip sales came in at $18.01 billion, 0.3 percent up the $17.96 billion reported in June, but down 0.03 percent from July 2004 sales of $18.02 billion.

"Strong competition contributed to declining prices for semiconductors, which resulted in nominal growth on higher unit sales in July," said SIA president George Scalise. According to Scalise, unit sales of personal computers and cell phones are running well ahead of earlier projections, but fierce competition "has resulted in substantial price attrition." Especially the PC and cellphone sector could see declining prices due to competitive pressure: "Consumers are the beneficiaries," Scalise said.

The outlook for the remainder of the year remained "strong," according to Scalise. Energy costs apparently are not yet affecting the chip industry, but concerns are on the table: "There is some concern that high energy costs will impact sales of electronic consumer products if they continue to rise unabated," he said.