SAN JOSE, CA – Global sales of semiconductors for the first half of 2008 grew to $127.5 billion, an increase of 5.4% year-over-year, the Semiconductor Industry Association reported today.

June sales of $21.6 billion were up 8% compared to June 2007, and up 0.5% sequentially.

Second-quarter sales of $64.7 billion increased 3% sequentially.

Thus far, increased energy costs have had little impact on demand for electronic products that drive semiconductor demand, said the association.

“Continuing strength in international markets – coupled with healthy demand in the U.S. – helped drive higher worldwide sales of semiconductors in June,” said SIA president George Scalise. “Key demand drivers for semiconductors – especially personal computers, which account for 40% of semiconductor sales, and mobile phones, which drive about 20% of demand – continued to show double-digit unit growth. JPMorgan recently revised upward its forecast for unit sales of personal computers to 13%, with sharp increases in sales of portable systems. Forecasts for unit sales growth of mobile handsets range from 10% to 12% for 2008.

”Emerging markets are a major factor in driving worldwide semiconductor sales,” Scalise continued. “PC unit sales in emerging markets are expected to grow by 19% – more than double the growth rate in developed markets this year. In 2008, developing countries – with sales of over 153 million units – will account for half of worldwide PC sales. In mobile phones, developing countries are expected to account for 66% of total worldwide unit sales of over 1.3 billion, up from 61% last year. The emergence of large middle-class populations in China, India, Eastern Europe, and Latin America has more than offset the effects of slower growth in the U.S. economy. We expect demand for consumer electronic products in these new markets will continue to outpace growth in developed markets for the next several years.

“Inventory for the industry is in balance with minor excess in a few product sectors,” Scalise noted.

SIA said total semiconductor sales in June, excluding memory products, grew 12% year-over-year. Price attrition in memory products contributed to a 6% year-over-year decline in total memory sales, despite sharply increased unit sales.

“Advances in semiconductor technology continue to deliver huge benefits to consumers, as semiconductor devices deliver higher performance and increased functionality at lower cost,” said Scalise. “At the same time, rapid price declines for microchips tend to mask the real growth of the industry. The cost of 1 gigabit of DRAM has declined by 43% during the past year, while the price of 2 gigabits of NAND flash has declined by 61% in the last 12 months. Lower prices enable increased memory content in consumer devices. Micron estimates the memory content of the average PC will increase at least 50% this year, while the memory content in the average cellphone will increase by more than 150%.”

During the past 10 years, the price of a typical desktop PC has declined by nearly two-thirds, while performance and functionality have increased by a factor of more than a hundred, said Scalise. “The impact of advanced technology on energy efficiency is even more dramatic,” Scalise said. “A recent independent study showed computers have become nearly three million percent more energy-efficient over the past 30 years,” he concluded.

EL SEGUNDO, CA – Although China’s semiconductor purchasing boom is cooling down, the nation’s demand for locally designed chips is heating up, with domestic consumption expected to rise by more than 60% from 2007 to 2012, according to iSuppli Corp.

By 2012, $42.1 billion worth of Chinese-designed semiconductors will be purchased for use in electronic equipment made in the nation, up 63.4% from 2007, says the research firm.

“The growth of China's semiconductor consumption has slowed since 2005,” said Kevin Wang, senior manager for China Research at iSuppli. “The main reason is that foreign electronic equipment makers have decelerated the pace of their manufacturing outsourcing to China. This is having a negative impact on China’s electronic equipment manufacturing and semiconductor industries. China’s semiconductor industry now is undergoing a transformation, with an increased focus on designing chips for electronic products that are popular in the nation.”

China- and Hong Kong-based electronics OEMs and contract manufacturers are driving the demand for these locally designed chips. However, foreign ODMs that develop and manufacture goods for Chinese OEMs also are contributing to the growth, says iSuppli.

“In the electronics industry, China often is seen simply as a low-cost manufacturing region,” Wang said. “However, the rise of the semiconductor design business in China shows the nation’s high-tech future increasingly will reside in capitalizing on local brainpower to produce innovative products that appeal to the domestic audience.”

Mobile handsets were the largest application for Chinese-designed semiconductors in 2007, consuming $4.4 billion worth of chips for the year. PMP/MP3 players were the second-largest application, buying $2.2 billion worth of semiconductors.

Mobile handsets will remain the largest application through 2012, when the area will consume $9.8 billion worth of domestically designed chips. Notebook PCs by 2012 will become the second-largest area for domestically designed semiconductors, with $3.4 billion worth of consumption for the year, says the firm.

The fastest-growing segment for domestically designed semiconductors during the next few years will be mobile communications infrastructure equipment, which will experience a 24.9% CAGR from 2007 to 2012. Next will be LCD-TVs, which will achieve a 21.8% CAGR during the same period, according to iSuppli.

Chinese manufacturers that concentrate on other consumer electronics products, such as digital set-top boxes and white-good appliances, also will increase their spending on domestically designed chips during the coming years. Other expanding application areas will include car infotainment products and security systems such as surveillance devices, smoke detectors and door security systems.

The boom in locally designed semiconductor usage in China comes at a time of deceleration for the nation’s overall chip consumption. China's consumption of all kinds of semiconductors is expected to expand to $81 billion in 2008, up 7% year-over-year, iSuppli predicts. Consumption is expected to grow at a 7.7% CAGR from 2007 to 2012. In contrast, China’s overall semiconductor consumption grew at a CAGR of 27.7% from 2001 to 2006.

This year is a difficult one for Chinese electronic equipment producers, especially smaller manufacturers, says iSuppli. China’s central government has adopted a tight monetary policy to avoid overheating the economy, even while it reduced export tax rebates. Furthermore, the increasing value of the Chinese yuan is placing great pressure on domestic companies producing low-end electronic equipment. Furthermore, operating and labor costs are still rising, along with prices for food, gasoline and electricity. Higher inflation, a weakened equity market and the devastating earthquake in Sichuan province negatively affected domestic market demand for electronic equipment in the first half of 2008.

iSuppli anticipates the market will be in a readjustment period for the remainder of 2008 and 2009. Small companies without strong R&D capabilities will exit the market. At the same time, many leading Chinese OEMs, such as Huawei and ZTE, will grow larger by aggressively targeting international markets. Meanwhile, Chinese independent design houses are expected to acquire more international clients.