Chip sales to shrink in 1998

Amidst a spate of chip forecasts, an industry trade association today said that slow semiconductor sales during the first quarter of 1998 will likely result in a shrinking market this year, confirming findings from other reports.

Worldwide chip sales will decrease 1.8 percent to $134.6 billion in 1998, according to a report from the Semiconductor Industry Association (SIA), a trade group representing companies from 70 countries. This compares to the industry's historical growth rate of 17 percent.

The SIA adjusted its sales forecast downward after first-quarter results showed chip sales decreased 11.5 percent in Japan, 10.2 percent in the United States, and 9.7 percent in the Asia-Pacific markets.

Analysts say economic uncertainty, an ongoing oversupply of memory chips, and the devaluation of Asian currencies continue to be the main factors in the decline. For instance, the SIA estimates that $1.7 billion of the expected $3 billion decline in Japan's semiconductor market is due solely to currency depreciation.

In individual product sectors, memory chip sales will continue their long slide downward. Sales revenues are expected to drop 26.6 percent this year to $14.5 billion, but may finally climb upward in 1999 after a three-year decline. Sales of microprocessors such as those used in mainstream PCs are expected to remain constant this year after 26.6 percent growth from 1996 to 1997.

The news isn't all bad, though. The SIA is forecasting a return to the more normal growth of around 17 percent in 1999, and says the industry should see sales of $222.3 billion by the year 2001.

"With Internet use doubling every 100 days and Internet commerce about to explode, we can already see the beginnings of the next growth cycle for semiconductors and consumer electronics," SIA president George Scalise said in a prepared statement.

Sales of digital signal processors will be one of the driving forces in this growth, with sales increasing by an average of 27 percent through the year 2001.