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Gartner Slashes Global Chip Sales Forecast

Falling chip prices are stunting revenue growth.

Expectations for the chip industry's performance in 2007 have gone from mediocre to moribund.

Industry research firm Gartner slashed its outlook on Thursday, predicting global chip sales growth of a scant 2.5% in 2007 vs. its previous estimate of 6.4% growth.

The primary culprits for the lower outlook are DRAM memory and microprocessors -- two main components in PCs.

Plummeting prices for both type of chips has stunted the industry's overall revenue growth. And Gartner doesn't see an immediate turnaround.

DRAM revenue is expected to fall by 11.1% in 2007 to $30.5 billion, with a mild decline continuing into 2008. Microprocessor revenue is expected to be flat in 2007, as the fierce price competition between

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"It is likely that, despite continued unit growth in influential electronic systems markets, downward device ASP pressure will remain in place for much of 2007 as oversupplied semiconductor market conditions persist," said Gartner research vice president Richard Gordon in a statement.

The revised outlook comes on the same day that the U.S. Commerce Department cut its reading of first-quarter gross domestic product to 0.6% from its previous estimate of 1.3% growth. Sluggish GDP is bad for the chip business, since the industry's fortunes are increasingly tied to consumer spending on electronic gadgets.

Still, the Philadelphia Stock Exchange Semiconductor Sector Index was up 1.2% to 487.4 in midday trading Thursday.

Gartner said that global chip sales in the first quarter of 2007 fell more than 5% sequentially, which it said was worse than the typical seasonal slowdown that comes at the start of the year.

On the positive side, Gartner echoed comments by various companies stating that the glut of chips flooding the market appears to have peaked during the first quarter. That suggests the chip sector could be close to emerging from its latest downturn.

"There are still individual sectors where 'inventory' days continued to rise, but in most sectors inventories have leveled or are already beginning to decline," said Gordon.