SAN JOSE – First quarter sales of semiconductors hit $59.1 billion worldwide, up 7.3% year-over-year, the Semiconductor Industry Association reported.

First-quarter sales fell 1.3% from the fourth quarter, reflecting normal seasonal patterns.

March sales of $19.7 billion were up 2.3% from February.

“Very strong sales of cell phones were a major contributor to the year-on-year increase in microchip sales,” said SIA president George Scalise. “Cellphone unit sales increased 31% from the first quarter of 2005 and ran substantially ahead of expectations. Unit sales are now expected to reach one billion this year."

According to iSuppli, the average semiconductor content of a cell phone is now approximately $41 per unit, Scalise said. PCs and cellphones now account for more than half of all semiconductor sales.

Scalise cited two factors – a substantially shorter replacement cycle and very robust demand in China – for cellphone growth.

“China now has approximately 410 million cellphone subscribers,” Scalise said. “China is adding new subscribers at the rate of five million a month, and Chinese consumers appear to be choosing high-end phones with increased functionality.”

Scalise also noted that the replacement cycle for cell phones has declined from an average of 26 months to about 18 months, as manufacturers offer new products with smaller form factors and increased functionality.”

Unit sales of PCs rose 13% in the first quarter year-over-year, according to IDC. “Competition in the PC market was very intense in the first quarter of 2006, with the result that consumers are finding extremely powerful notebook and desktop systems available at very attractive prices.”

Microprocessor sales in the first quarter of 2006 were $8.83 billion compared to $8.28 billion in 2005, an increase of 6.8%. There is evidence that PC prices are declining more rapidly than the historic rate of around 10 %per year. “Once again, consumers are reaping the benefits of Moore’s Law in action,” said Scalise.

Scalise noted that inventory in the supply chain for some products has been growing as manufacturers build inventory in the expectation of market growth. “End market demand, capacity utilization, and inventories are the most critical factors affecting industry growth. End market demand remains generally strong, and capacity utilization continues to be above 90%. We will be closely watching the inventory situation, especially in market segments for consumer products. Rapidly rising energy prices remain a concern,” said Scalise.

“We estimate that gasoline prices at current levels will take approximately $138 billion from American households’ discretionary income this year. Despite recent rapid increases in gas prices, consumer confidence remains strong. If pump prices continue to increase significantly, there will be further erosion of discretionary income and that could affect consumer confidence and consumer spending."