A semiconductor trade group said worldwide chip sales in July rose moderately from the month before, but its latest appraisal suggests annual sales might fall short of expectations, as fierce price-cutting by microprocessor vendors and inventory overhangs limit the industry's revenue growth.

Instead of the roughly 10% annual growth rate that the Semiconductor Industry Association projected only two months ago, the group now seems to have pulled back its forecast to 6% growth.

"The worldwide semiconductor industry is on track to surpass $240 billion in sales this year, which represents a new record," SIA President George Scalise said in a statement.

But that figure is significantly less than the SIA's previously stated forecast for 2006 which calls for annual sales of $249.6 billion, up 9.8% year over year, and Scalise notably did not reaffirm that guidance in Friday's announcement.

The SIA bumped up its 2006 forecast in June, from its earlier projection of $245 billion, a 7.9% increase from the year before.

Scalise said growth continues to be strong across a broad range of end markets and geographic regions. Sales in Asia Pacific grew 13% year over year in July, while the sales in the U.S. were up nearly 18% compared to the year-ago period.

Total chip sales in July reached $20.1 billion, up 11.5% from the year before and 1.8% from June 2006.

"July sales reflect the historical pattern for the industry with growth in unit demand coupled with declining average selling prices," Scalise said. "This trend helps make possible the very attractive prices for many consumer products."

He singled out computers, which account for 40% of semiconductor demand, as experiencing particularly steep price declines, noting that the average selling price of a PC declined 7% year over year.

Intel

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and

Advanced Micro Devices

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, the two main suppliers of PC microprocessors, are engaged in a fierce price war to gain market share and clear out old inventory. In July, both companies reported falling gross margins for the second quarter and weaker-than-expected financial results.

Stifel Nicolaus analyst Cody Acree says the latest SIA numbers indicate that the industry is beginning to acknowledge the inventory situation within the chip sector. He noted that the weakness in the chip industry started in the PC sector, but is now even more widespread.

"It became evident as we went through the July conference calls that it was probably a little more systemic. We're seeing some of that contagion spread into the handset market, with almost everybody except

Texas Instruments

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blaming some inventory," said Acree.