Digital Revolution Drives Booming Chip Sales
By Cindy Christ

Global semiconductor sales are up 33 percent year-over-year, led by booming demand for chips used in handheld devices and strong growth in Asia.

Worldwide sales of semiconductors reached $14.8 billion in January, up from $11.1 billion a year ago, the Semiconductor Industry Association reported Wednesday.

"The chip industry is off to a strong start for year 2000," said George Scalise, SIA president, in a statement.

"January sales were stronger than traditional seasonal patterns. Traditionally, January sales tend to be weak; however, these sales numbers convincingly illustrate the continuation of our industry's growth pattern that commenced in mid-1998," Scalise added.

The SIA determines semiconductor sales using a three-month moving average of sales activity.

Year-over-year, growth in the overall semiconductor market is up 32.9 percent compared to the same three-month period in January 1999. In the Asia Pacific and Japan markets, the industry grew at a faster rate, or 45.9 percent and 43.2 percent respectively.

Growth in the Americas was slower, up 25.1 percent. Europe's sales grew 21.5 percent.

Chips used in telecommunications, digital signal processors (DSP) and flash products, were the fastest growing segment of the market in January, according to the report.

The engine behind 70 percent of the world's mobile phones, digital signal processors are programmable chips that operate in real time and at faster speeds than general-purpose semiconductors.

Digital chips used in flash memory products also are becoming increasingly important in wireless communications, and to provide data storage for a myriad of consumer devices including digital cameras, MP3 players, TV set-top boxes, Internet appliances and personal video recorders.

Industry analysts estimate the market for handheld devices will expand from $420 million last year to $1.1 billion by 2003.

Shares in companies in the DSP and flash memory markets have been on fire this year, reflecting results of today's report.

SanDisk (SNDK), the world's largest supplier of flash memory cards used in handheld devices, hit a new all-time high of $162 Wednesday, rising $25.44, or 18.6 percent. Over the last 52 weeks, shares in SanDisk have traded as low as $8.50 and as high as today's record level.

Last year, SanDisk sales and profits nearly doubled, with total revenues rising 82 percent, product revenues up 99 percent and earnings per share up 100 percent.

"We believe that SanDisk's target markets are entering a strong growth phase, fueled by the accelerating convergence of consumer electronics, Internet and wireless. These new and exciting markets represent immense opportunities for sustainable growth for SanDisk in the years ahead," said Dr. Eli Harari, SanDisk president and CEO, in a news release.

Shares in Texas Instruments (TXN), the No. 1 maker of digital signal processors and supplier of 60 percent of DSPs used in cell phones, are up about 72 percent since the beginning of 2000, trading Wednesday around $172 share. Over the last 52 weeks, TXN is up more than 300 percent.

While the company is benefiting from explosive growth in wireless communications and digital electronics, Texas Instruments says the move to Digital Subscriber Line service could power sales even higher.

DSL is the technology that turns ordinary phone lines into broadband pipes speeding Internet downloads from 50 to 100 times faster than conventional dial-up modems.

A new government mandate requiring local phone companies to open up their lines to other DSL providers is expected to produce a dramatic drop in DSL prices in the second half of 2000.

Texas Instruments expects the growing demand for faster Internet connections to accelerate the growth in DSL subscribers from 4 million this year to 30 million in 2003.

"2000 will be a breakout year for TI in the ADSL market," says George Barber, vice president and general manager for TI's broadband access group, in a statement.

"As explosive Internet usage converges with widespread broadband access, it will create one of the most exciting programmable DSP opportunities since the cell phone," he added.

Despite the strong SIA report, the Philadelphia Stock Exchange Semiconductor index (SOX) closed down 21.6, or 1.7 percent, at 1242.17. Year to date, the SOX is up about 76 percent and more than 250 percent over the last 52 weeks.