Semiconductor Industry Concerned About Wall Street Financial Crisis

In the aftermath of all the news about the U.S. credit crunch and Wall Street's financial crisis, a new report shows that sales of semiconductors grew more than 5 percent in August thanks to help from cell phone and consumer desktop and notebook sales. However, the report warns that a bailout from Congress is needed to continue the sales growth. The report precedes upcoming quarterly reports from Intel and AMD that should give better guidance.

The good news for the semiconductor industry is that sales increased more than 5 percent in August thanks to robust sales of cellular telephones, desktops and notebooks. The bad news is that Wall Street's current woes could dampen the forecast for the rest of the year, especially if consumer confidence erodes.

The report, released by the SIA (Semiconductor Industry Association) Oct. 2, shows sales of semiconductors increased 5.5 percent from August 2007, when sales totaled $21.5 billion to August 2008, when the numbers reached $22.7 billion. In 2008, semiconductor sales through August topped $170 billion worldwide, a 4.5 percent increased from the same time period in 2007.

While those numbers might seem a positive sign for both chip makers such as Intel, Advanced Micro Devices, Samsung and others, the SIA report did carry a cautious statement by President George Scalise. His statement indicated there could be trouble if Wall Street's crisis of confidence continues and consumer spending suffers as a result.

"With consumer purchases now driving more than half of semiconductor sales, consumer confidence is essential to the entire supply chain of the global technology sector; thus it is essential for Congress to move swiftly to restore stability to the U.S. financial system," Scalise concluded.

The warning from SIA comes at a time when the IT industry is not sure if the fallout from the failures of Freddie Mac (the Federal Home Loan Mortgage Corp.), Fannie Mae and Lehman Brothers will begin to spread out from the financial and banking industries to the wider economy. The latest rumblings on Wall Street began in September, which means the next SIA report might offer a better picture of how Wall Street's failures will impact the IT industry.

The plea by SIA to the U.S. Congress for the proposed bailout plan also shows how important sales of consumer electronics, compared to traditional IT sales involving desktops PCs and server systems, have become for the semiconductor industry. That point was echoed on the GigaOM blog.

"The continued consumerization of technology - from moms keeping their schedules on BlackBerrys to teens toting cell phones, laptops, MP3 players and digital cameras - means more chips are selling into gadgets than into servers," wrote Stacy Higginbotham.

Later this month, Intel and AMD will release their latest financial numbers and both companies serve as a bellwether for the IT industry, especially when it comes to PC and server sales. The numbers from the two chip companies will also offer a glimpse into consumer confidence and show whether Wall Street's problems have begun impacting consumer electronics sales on Main Street.

Read about the release of the Xeon 7400 series processors-formerly code-named Dunnington-for multiprocessor server systems.

However, since most of the current problems on Wall Street began midway through September, the impact of the last few weeks might not be reflected on the two companies' third-quarter financial numbers. (The sales period ended Sept. 30.) Earlier this week, a financial analyst with Piper Jaffray wrote that Intel should hit its third-quarter numbers.

The SIA report also found that the prices for memory, including DRAM (dynamic RAM) and NAND flash memory continue to fall, which slowed some chip makers down in the last few months. The continued drop in memory prices showed up Oct. 1 when Micron Technology, one of the world's leading producers of DRAM and NAND chips, reported a $344 million fourth-quarter loss.