SAN FRANCISCO (CNN/Money) -
I have to admit, I'm a little nervous. With all the positive economic news coming out of the tech sector recently (Cisco's big quarter, online retail's surprisingly strong third quarter), I'm having flashbacks and feeling a bit uneasy.
I lived through one bubble, and though I laughed when I saw a car with a bumper sticker reading "Please God, just one more bubble," I can't say the fall was worth the rise.
And yet, when I see the kinds of reports that the Semiconductor Industry Association (SIA) issued last week, I can't argue that these gains are anything but real (the current run-up in the stock market, on the other hand...).
Last week the group announced that worldwide semiconductor sales jumped 6.5 percent to $14.4 billion in September from August's $13.6 billion. That's the biggest monthly gain since 1990, folks.
On Nov. 5, the association upgraded its projection for 2003 total sales, predicting an increase of 15.8 percent to $163 billion for the year. For 2004, it now projects a 19.4 percent gain to $194.6 billion. The industry is edging closer to the magical $200 billion in annual revenue, a line it crossed only once, in 2000.
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What's driving the trend? Consumer purchases of cell phones, PCs, and consumer electronics -- all of which feature SIA member products. Consumers pushed the general economy along in the third quarter, snapping up the aforementioned goods in droves as prices dropped out of the "luxury item" realm for most buyers.
Those revenues aren't divvied up evenly among the thousands of companies on the semiconductor food chain, of course, but a closer inspection of some recent news shines a light on the winners, the losers, and the trends driving the gains.
Let's take a look at how a few individual companies in the semiconductor space are faring, and assess what's coming up for the fourth quarter and beyond.
What's ahead for the semis
Say the word "semiconductor" and most people think of Intel (INTC: Research, Estimates); its chips power the majority of computers around the world. Its most recent third quarter was a strong one, good enough to boost the company's price by more than 3 percent on the day of the earnings call.
But not all recent news from the Intel camp was good. Last week, IBM (IBM: Research, Estimates) stole a bit of its thunder with the announcement that Microsoft will use IBM chips -- rather than Intel chips -- in the new Xbox game consoles, due in 2005.
"That's a huge loss for Intel," says Lee Allen, an analyst with IDC. "IBM is displacing Intel from the game [console] business."
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AMD (AMD: Research, Estimates), the company that recently became the first to announce a 64-bit desktop chip, also reported a strong third quarter. But some analysts saw its returns as more indicative of the sector's strength.
"AMD is the real indicator," says Shane Rau, an analyst with IDC. "AMD didn't have any new products to drive the strong results, and it still did well." Many observers are paying close attention to AMD's fourth quarter, when the firm is scheduled to begin shipping its 64-bit products.
With the holiday season fast approaching, the fourth quarter is looking strong for semiconductors. But that's pretty typical, even in rough years, because of the sector's cyclical nature.
It's the first quarter that's usually the tar pit for semiconductor momentum. If the industry is to continue its recent strength through the February doldrums, it will need to rely on a huge but strangely silent market: corporate sales. Right now, the reports trickling in regarding corporate spending on new hardware appear largely anecdotal.
"There's not an all-encompassing buying pattern emerging across the industry," says IDC's Rau. The semiconductor industry can't sustain its growth, he says, "without corporations coming off the sidelines."
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