Strong PC Demand Boosts Chip Revenues, DRAM And Flash Prices Plunge

San Jose (CA) - PC sales appear to be much stronger than expected earlier this year, as semiconductor sales showed a solid performance in the first half of the year. Notebooks are generally believed to be responsible for the surprise increase in sales, prompting market researchers to adjust their market estimates.

Global chip sales for the first half of 2008 came in at $127.5 billion, about 5.4% above the H1 2007 result. June semiconductor sales were $21.6 billion were up by 8% from the $20 billion reported for June 2007. June sales increased by 0.5% from May, when sales were $21.5 billion.

"Healthy demand in the U.S." as well as "continuing strength in international markets" so far was able to more than offset increased energy costs, which have had little impact on demand for electronic products that drive semiconductor demand. Demand for computers, especially notebooks, is still

growing, leading JPMorgan upward its forecast for unit sales of personal computers to 13%. Computers consume about 40% of semiconductors produced worldwide. Cellphones, which drive about 20% of demand will see a growth rate of about 10 to 12% for the year, the Semiconductor Industry Association (SIA) said today.

Emerging markets are becoming increasingly important for the global chip economy as PC unit sales are expected to grow by 19% in those regions. In 2008, developing countries - with sales of over 153 million units - are expected to account for half of worldwide PC sales.

Memory products remain the major concern of the chip industry. Excluding memory products, the industry would have grown by 12% in H1. The SIA said that price attrition in memory products contributed to a 6% year-on-year decline in total memory sales despite sharply increased unit sales.

"Advances in semiconductor technology continue to deliver huge benefits to consumers, as semiconductor devices deliver higher performance and increased functionality at lower cost," said George Scalise, president of the SIA. "At the same time, rapid price declines for microchips tend to mask the real growth of the industry. The cost of 1 Gb of DRAM has declined by 43% during the past year, while the price of 2 Gb of NAND flash has declined by 61% in the last 12 months. Lower prices enable increased memory content in consumer devices. Micron estimates that the memory content of the average PC will increase at least 50% this year, while the memory content in the average cell phone will increase by more than 150%."

Of course, the dramatic situation in the DRAM and Flash memory industry means that consumers will be able to purchase memory for much lower prices. And a recovery of the segments isn’t expected to arrive anytime soon. Market research firm iSuppli said that "the global DRAM market is showing renewed signs of weakness, with prices expected to fall during the third quarter due to bloated inventories." The firm said that "OEM contract prices for DRAM likely to decline in August and September."

A general recovery of the DRAM segment could take some time, as new production processes will be available soon and are likely to flood the market with DRAM chips. iSuppli believes that DRAM manufacturers may see better times in H2 2009.