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Chip sales seen surging on gadget demand

Demand for computer chips is accelerating at a faster pace than the industry anticipated, reflecting the popularity of consumer gadgets that have become communications and entertainment hubs.
/ Source: The Associated Press

Demand for computer chips is accelerating at a faster pace than the industry anticipated, reflecting the popularity of consumer gadgets that have become communications and entertainment hubs.

Worldwide chip sales are expected to total $249.6 billion this year, a 10 percent increase from last year, according to a revised estimate released Wednesday by the Semiconductor Industry Association.

In November, the trade group had projected 2006's chip sales would rise 8 percent this year to $245 billion.

Sales are expected to rise at an even faster rate during the next two years, climbing 11 percent in 2007 and 12 percent in 2008, according to the association, whose membership includes more than 85 percent of the U.S. chip industry. Demand is expected to taper off in 2009, with chip sales edging up 4 percent to $323 billion.

The optimistic outlook didn't help the slumping stocks of two prominent chip makers that have recently released sales forecasts that fell below analyst expectations.

Intel Corp. shares fell 40 cents Wednesday to close at $17.39 on the Nasdaq Stock Market while Advanced Micro Devices Inc.'s shares shed 95 cents to close at $28 on the New York Stock Exchange. Intel's stock price has plunged by 30 percent so far this year while AMD's has dropped by 8 percent.

Meanwhile, the broad-based Philadelphia Semiconductor Sector index declined 10.81, or 2.4 percent, to close at 447.55.

Wednesday's higher sales estimate stems from consumers' seemingly bottomless appetite for mobile phones and other digital devices that have become staples of pop culture.

Consumers continue to spend hundreds of dollars on the gadgets despite sharply higher gasoline prices that have strained many household budgets across the country, said George Scalise, president of the semiconductor association.

Mobile phones are a particularly hot item, driven by an apparent desire for a wave of more advanced models that have expanded the handsets' usefulness beyond verbal communication by turning them into vehicles for Web surfing, pictures and videos.

The trade group estimated cell phone shipments this year will increase 20 percent to about 1 billion units. Each of those devices contains chips costing an average of $41.

Meanwhile, the shipments of MP3 players and digital televisions are expected to climb by 52 percent while digital camera shipments increase by 16 percent.

Personal computers continue to be the chip industry's biggest source of revenue, although the sales growth rate isn't as robust as those for the handheld gadgets and slick TVs that have been enthralling consumers.