Chip Industry Group Slashes 2007 Outlook

Sales growth of just 1.8% is now seen.
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A prominent industry group drastically cut its outlook for worldwide chip revenue in 2007, adding its name to the list of outlets predicting a glum year for semiconductor sales growth.

The Semiconductor Industry Association issued its midyear forecast Wednesday, projecting that global chip sales will total $252.1 billion this year, up just 1.8% from 2006.

The new forecast is a significant revision from the SIA's prior outlook of 10% sales growth.

SIA President George Scalise blamed the slower-than-expected revenue growth on rapid price attrition in three major chip categories: microprocessors, DRAM memory and NAND flash memory.

Wednesday's SIA forecast

echoes a similar report by research firm Gartner last month, which cut its 2007 forecast from 6.4% growth to 2.5% growth.

A glut of chip inventory flooded the market midway through 2006, sending the supply of semiconductors above the existing demand and pushing down prices for many types of chips. While many chipmakers say they are already recovering from this industry downturn, the hit on business in the first half of the year was enough to ensure that sales for all of 2007 will fall short of initial expectations.

Microprocessor sales will decline 1.6% in 2007, according to the SIA, as prices erode "at a more rapid pace than historical patterns." The price erosion is due to intense competition between

Intel

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and

Advanced Micro Devices

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, both of which have been aggressively cutting prices to take market share.

Sales of memory chips, which includes DRAM and NAND flash, will post negative 0.3% growth in 2007, according to the SIA. Analog chips will see 0.1% sales growth.

The SIA said that the end markets for products that incorporate chips, such as PCs, cell phones and MP3 players, continue to be in line with previous forecasts.

"End markets continue to be strong, with consumers realizing major benefits from lower chip prices coupled with ever-increasing performance and functionality from advances in chip technology," said Scalise.