Semiconductor Sales Exceed Expectations in 2006, Similar Growth Foreseen for 2007

According to SIA, 2006 was the "year of the consumer." Semiconductor sales were boosted by strong demand for consumer products such as cell phones, MP3 players, and HDTVs. Cell phone shipments were up more than one billion units in 2006, and growth of cell phone service in emerging markets remains robust. More than 34 million MP3 players were sold in the United States in 2006, while sales of HDTVs more than doubled over the past year, driven by price declines and a greater amount of high-definition programming.

However, several data points appeared toward the end of the year that do not portend well for 2007. While capacity utilization rates for worldwide integrated circuit manufacturers were around 90% for most of last year, inventory began to pile up, and it is now estimated that about $4 billion in excess chips were lying around at the end of the fourth quarter. As would be expected, prices have suffered. Global Insight's spot DRAM price index has slipped 29.5% over the last 13 weeks, but the decline has started to slow. Nevertheless, capital expenditure plans for the coming year appear strong, as North American semiconductor equipment manufacturing's book-to-bill continues its recent strength—seemingly, weak pricing looks to be the call for 2007.

Global Insight sees 2007 as a year of cautious optimism, with world sales climbing 5.5%, to $261.3 billion. We expect that the market will grow in terms of unit shipments, but that average selling prices will remain under pressure overall. On the plus side are the expectations for robustness in key end-markets—namely, consumer items like digital TVs and cameras, cell phones, and MP3 players—where the semiconductor content swells, enabling lower costs plus improved functionality. Moving into 2008, the industry looks to maintain vigorous growth, as the adoption of leading-edge chip manufacturing technology, particularly continued investment in 300-millimeter wafers and the introduction of the 45-nanometer manufacturing process, takes root.