An economic slowdown could crimp sales of chips used in consumer devices, according to the Semiconductor Industry Association (SIA).
Despite recording a fourth consecutive record high level of monthly chip sales, the SIA warned that greater dependance on sales of consumer electronics devices such as MP3 music players and digital cameras means the chip industry could face a downturn if an economic slowdown occurs.
The global industry group said recent signs of such an economic slowdown could foretell slower chip growth in coming months. Sales for now, however, remain brisk ahead of the holiday season, the SIA said, with 9.2 percent growth in October compared to the same time last year. Sales were strongest to Europe.
Market researcher Gartner said production lines are churning out fewer chips than they could, and that the slowdown reflects an increase in inventory levels similar to 2004, when a glut caused a downturn in the industry.
Specifically, global factory use rates, which measure the amount of chips a factory churns out compared to its total capacity, dropped to 88.6 percent in the third quarter from 91.2 percent in the second quarter, while in advanced, 12in (300mm) factories, usage fell to 87.9 percent in the third quarter, the lowest level since the fourth quarter of 2004.
"So, it is looking more and more as though 2006 is repeating the inventory increase / production cutbacks seen in 2004," wrote Gartner analyst Bob Johnson in a report. He predicts companies will slow down on factory expansion going into 2007.