Analysts: The chip industry is booming despite the economy

Semiconductor chip sales worldwide rose 7.5 percent in May compared to a year ago and 2.8 percent compared to last month despite drops in prices, which the Semiconductor Industry Association attributed to growth in emerging markets.

The 7.5 percent figure -- for sales of $21.8 billion in May compared to $21.2 billion in April and $20.3 billion in May 2007 -- is especially noteworthy considering that the San Jose, Calif., organization had lowered its November prediction of 7.7 percent to 4.8 percent earlier this month due to strong price pressures on memory chips, said John Greenagel, director of communications.

While these are sales to manufacturers, not to consumers, consumer sales of semiconductor products are also holding up, Greenagel said, noting that PC sales -- the largest single segment -- are in line with expectations, that cell phones are very strong, and that digital TVs are holding up well, though the automobile industry is hurting, he said.

In comparison, Reuters reported last week that orders for durable goods such as cars and washing machines were unchanged in May after two months of decline, and that analysts had predicted growth of 0.1%. The Commerce Department also reported that orders for computers and electronic products rose 2%, while orders for electrical equipment were up 1.5%. The US economy is not quite in a recession -- defined as two consecutive quarters of negative growth -- because it grew 0.5% in the fourth quarter of 2007 and 1 percent in the first quarter of 2008, Greenagel said.

Growth is especially strong in emerging markets such as China, India, and South America, noted Greenagel. China, for example, has 300 million middle-class consumers -- the equivalent to another United States. And in many such economies, where there is no telecommunications infrastructure, people rely on cell phones. The US now accounts for only 21% of PC unit sales worldwide, compared to 31% recently; and 13% of cell phone sales, compared to 21% five years ago, SIA said.

Chip sales by unit are growing even more strongly than results indicate because prices are dropping 30 percent per year, Greenagel said. Vendors such as Micron Technologies are manufacturing and shipping a lot more product for less money, he said.