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Why a Jump in Chip Sales Is Something to Celebrate


Semiconductor sales climbed in October.

The chips are down, at least year-over-year, but a monthly increase in October semiconductor sales could mean that the economic recovery is truly on its way and that technology retailers will have something to smile about come the new year.

A report released Monday morning by the Semiconductor Industry Association, an industry trade group representing 90% of the production of chips in the US, showed that worldwide sales of semiconductors fell 3.5% in October from the year prior, when sales were $22.5 billion. Yet, sales were up 5.1% month-over-month to $21.7 billion from $20.6 billion in September. All monthly sales numbers represent a three-month moving average of global semiconductor sales.

"October is historically a strong month for the semiconductor industry as electronic equipment manufacturers ramp production for the holiday season," said SIA President George Scalise. "Inventory management throughout the supply chain has been very tight, and this may extend the fourth-quarter build season by a few weeks."

Semiconductors are used to make the innards of high-tech electronics like computers and mobile devices. The demand for chips is a bellwether for the sale of high-end electronics, as well as for the economy as a whole.

"As semiconductor sales are increasingly driven by the performance of the overall global economy our sales are reflecting the improved economic conditions in our world markets," added Scalise.

Improvements in sales are slowly working their way across the globe with a 14.1% increase in chips sales in the Americas year-over-year, while the rest of the world is still dragging. European sales were down 17.8%, sales in Japan fell 11.6%, and other Asian Pacific nations saw a drop of 1.3%.

The strength in chip sales has also been reflected by semiconductor giant Intel (INTC), which reported a positive third quarter in mid-October. Intel's earnings and outlook were viewed favorably by both investors and analysts -- according to the company it posted the strongest second-to-third quarter revenue growth in 30 years. The number-two chipmaker, Advanced Micro Devices (AMD), also bested expectations by reporting revenue of $1.4 billion, ahead of the Street's average estimate of $1.2 billion. Yet, it still pulled to a loss for the quarter of $0.26 per share.

As Cyber Monday wraps up the holiday shopping weekend, it's apparent that shoppers are focusing on big technology purchases this season like personal computers, mp3 players, and high-definition televisions. And who can blame them, when even companies like Apple (AAPL) (known for rarely offering discounts on its highly sought-after products) pushed down the prices.

According to the National Retail Federation, almost 30% of Black Friday shoppers headed to electronics stores. Deep discounts from Apple and Dell (DELL) were seen throughout the weekend with Dell offering as much as $400 off some of its personal computer products. Apple and consumer electronics retailer Best Buy (BBY) both landed in the top five websites to draw customers on Black Friday, according to comScore.
No positions in stocks mentioned.

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