Chip group sees first sales decline since 2001

Correction, 10:46 a.m. PST: This story misstated the day the SIA made its announcement. It is Wednesday.

The Semiconductor Industry Association said Wednesday it is projecting the first decline in global chip sales since 2001.

SIA projects that 2009 sales will decline by 5.6 percent to $246.7 billion before resuming growth in 2010.

The forecast projects sales this year of $261.2 billion, a 2.2 percent increase from sales of $255.6 billion last year. But sales in the fourth quarter, historically a strong time period for the microelectronics industry, are expected to decline by 5.9 percent from the previous quarter, the SIA said.

The near-term prospects reflect comments from Taiwan Semiconductor Manufacturing Company (TSMC)--the largest contract chip manufacturer--at the end of last month and a fourth-quarter warning last week from Intel.

TSMC said that it expects to see a 20 percent drop in revenue in the fourth quarter as the "supply chain"--the myriad companies that order chips from TSMC--reduces "inventory very aggressively."

Intel said revenue will come in "significantly weaker" than expected across all its market segments.

"The current global economic turmoil is clearly having a significant impact on semiconductor sales," said SIA President George Scalise in a statement. "The fortunes of the semiconductor industry are increasingly tied to consumer spending on electronic products. Consumer purchases now drive well over half of worldwide semiconductor sales."

The SIA statement Wednesday cited a recent Deutsche Bank report that estimates personal computer unit sales will decline by 5 percent and cell phone unit sales will decline by 6.4 percent in 2009, with declining sales across all geographic regions. PCs and cell phones together account for approximately 60 percent of worldwide semiconductor consumption.

The semiconductor industry has enjoyed six years of uninterrupted growth since the dot-com collapse in 2001, according to the SIA. "There are few similarities between 2001 and the current conditions," said Scalise.

"The collapse of semiconductor sales in 2001 was driven primarily by the implosion of 'dot.com' industries which resulted in an enormous inventory overhang," he said. "Excess inventory is not an issue today, and the industry is well positioned to resume growth quickly once the current worldwide economic uncertainty subsides," Scalise said.

Sales will grow by 7.4 percent in 2010 to $264.9 billion and by 7.5 percent in 2011 to $284.7 billion, the SIA said.