Chip sales hit record in 2000, but leaner times await

But upon hearing the news, analysts were quick to predict possible lows for 2001.

Despite a slowing economy in some areas of the world, the semiconductor industry closed out 2000 with $204 billion in sales. December 2000 chip sales were $17.9 billion, up 2.1 percent from November 2000, the San Jose, Calif.-based trade organization said.

The SIA has predicted the semiconductor industry will grow 22 percent in 2001. Average compound growth for the industry is 17 percent.

Despite the rosy outlook, analysts say the PC industry slowdown and overall economic factors will hurt the chip industry in 2001.

Analysts warn that rising inventories in most market segments, prompted by the economic slowdown, will force chipmakers to cut prices.

"We continue to believe that semiconductor industry revenue growth will continue to decline and probably dip into negative (year-over-year) comparisons by mid-2001," Lehman Brothers analyst Dan Niles said in a report released Monday. "We believe that this down cycle will be similar to past cycles and that we will not reach a bottom in revenue growth until the summer or fall of 2001 at the earliest. December is only the 4th month of deceleration."

"While we have been seeing aggressive pricing in (dynamic random access memory), price cuts did not happen in any widespread manner across most other types of semiconductor products in 2000," Niles continued. "In 2001, we are obviously starting to see some signs of more widespread deterioration including more aggressive pricing on microprocessors by Intel."

The semiconductor industry hit its high point last August.

December 2000 sales rose nearly 22 percent over December 1999, the SIA said. Flash memory and communications chips for high-speed Internet access and wireless bolstered those sales. Flash memory alone grew 133 percent, with sales of $10.6 billion, driven by cellular phones. The microprocessor market grew more slowly at 17 percent on sales of $31.9 billion, the SIA said.