SAN JOSE - January chip sales were $18.3 billion worldwide, 0.5% below December sales but 17.5% higher than January 2004 sales, the SIA reported today. SIA pointed that January is usually a weak month for chip sales following the typically strong holiday season.

"The modest sequential sales decline is an encouraging sign," said SIA president George Scalise, in a statement. "January is historically one of the weakest months of the year for the microchip industry. We are encouraged by recent signs of strength in the overall U.S. economy, as evidenced by the 3.8% growth in GDP in the fourth quarter.

Dan Hutcheson of VLSI Research has noted that when GDP grows by more than 3% ,semiconductor sales have shown healthy growth except when there are excesses of inventory or production capacity. At the present time, neither production capacity nor inventory excess is a problem.

"The excess inventories that slowed growth in the second half of 2004 have been largely depleted," Scalise said. "According to iSuppli, excess inventories declined from $1.6 billion at the end of the third quarter to $1 billion at year end. In some market segments, inventories are now below target levels, thus we are confident that inventory issues will not be a significant factor in semiconductor sales beyond the first quarter."

Factory utilization continued to decline, as expected, throughout the second half of 2004. Overall utilization was at 86% in the fourth quarter, and leading-edge capacity utilization was at 93%. Industry capital spending increased to approximately $47 billion - roughly 22% of total sales - in 2004.

"In a year of record industry sales, this level of capital spending is in line with capacity needs going forward and should not lead to either excess capacity or severe price pressures," said Scalise.