DRAM Buoys Chip Sector

An industry report says that global sales increased in January, but Gartner cuts 2007 sales estimates.
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Global chip sales increased 9.2% in January, led by strong sales of DRAM memory chips, according to the Semiconductor Industry Association, an industry trade group.

But in a sign of the semiconductor industry's continuing woes, a separate report by research firm Gartner cuts its annual growth estimate for chip sales in 2007 due to what it labeled a sluggish start to the year.

Gartner projected that worldwide chip sales will increase a modest 6.4% in 2007, vs. its initial projection of 9.2% growth. A mild softening in end markets combined with surplus chip inventory will dampen sales growth in the first quarter, weighing down the overall results for 2007, according to Gartner.

While excess supply of chips in recent months has slowed sales and dragged the industry into a downturn,

many investors see signs that a recovery may be at hand.

Gartner flags 2008 as the peak year of a chip industry upturn, although with projections for 8% overall growth, the chip sector is clearly not growing at its erstwhile double-digit clip.

In 2007, the microcomponent market will increase a paltry 3%, as microprocessor companies

Intel

(INTC) - Get Report

and

Advanced Micro Devices

(AMD) - Get Report

continue to wage a fierce price war. And memory chips will increase 6% this year as prices for commodity components weaken, Gartner said.

Prices for NAND flash memory used in MP3 players and cell phones have fallen off a cliff in recent weeks, causing

SanDisk

(SNDK)

to

slash its employee numbers by 10% and freeze salaries.

But prices for DRAM chips used in PCs have fared much better, as the high system requirements to run

Microsoft's

(MSFT) - Get Report

new Vista operating system have caused PC makers to stuff machines with more memory.

According to the SIA, DRAM revenue surged 72% year over year in January to $3.6 billion.

Worldwide chip sales in January totaled $21.47 billion, vs. $19.66 billion a year ago, according to the SIA.

"January semiconductor sales reflected historical seasonal patterns, with strong year-on-year sales growth coupled with a modest sales decline," SIA President George Scalise said in a statement.

"The semiconductor industry continues to benefit from consumer confidence, which has been buoyed by recent gains in both personal and disposable income," Scalise said.