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Semiconductor sales inch up

Worldwide chip sales grew by 4.2 percent from August to September, a sign that the market's tough times may be ending.

Semiconductor sales inched up from August to September, a surge that observers say may be a sign that the worst is over for silicon providers.

Worldwide semiconductor sales grew by 4.2 percent in September, going from $9.81 billion in August to $10.2 billion, according to the Semiconductor Industry Association. While the September sales are down $1.6 billion from sales in September 1997, the SIA and analysts are excited about the monthly sequential jump.

Typically, semiconductor sales jump only 2.4 percent between the two months. The record, until now, was a 3.6 percent jump in 1992.

In addition, IC Insights reported that the average selling price for chips has been increasing since July.

"We are pleased to report that this is the first time in 1998 that we are able to discuss positive results in the IC [Integrated Circuit] industry," wrote Bill McClean, a consultant with IC Insights. "Computer sales have been strong all year. The current situation is that the computer industry's system inventories are finally under control. Moreover, the computer producers do not possess any IC inventory to draw from.

"If computer sales remain strong through 4Q 98, and we believe they will, look for continued good news from IC suppliers," McClean wrote.

Purchasing in North America, Europe, and Asia sparked the trend while Japan sales lagged, according to the SIA.

North American chip sales rose 4 percent in September although sales were off 12.7 percent from a year ago. European sales rose 6.2 percent and were almost even with sales from the previous year, while Asian sales were up 5.3 percent for the month and down 11.4 percent from the previous period a year ago. Sales in Japan were up 1.2 percent but down over 27 percent in year-to-year comparisons.

A number of factors converged in 1998 that made the year especially hard for silicon providers. The industry has been saddled with a glut of factory capacity for the past few years, which has lead to an overabundance of processors. The glut was especially acute among memory chipmakers, who were selling their products for less than cost for several months.

Computer vendors then also began to slow down their chip purchases because of a glut of PCs in the market. The Asian economic crisis then came along to compound matters.

July could have been the nadir, said McClean. Factory capacity will begin to tighten up and possibly even lead to a shortage in 2000, which could lead to a chip shortage. The global economy, however, could interfere with any recovery.

"The health of the global economy is still very much in doubt. The possibility of a global recession established the economic situation as the key factor affecting the semiconductor industry in 1999," he said.