Global chip sales growth sputters; estimate slashed

The global chip market is suffering from falling prices in microprocessors and memory chips, bad news for companies but great for users.

Steep declines in DRAM (dynamic RAM) for PCs and NAND flash memory, used in a variety of gadgets, including digital cameras and iPods, as well as microprocessors prompted the Semiconductor Industry Association (SIA) to slash its global sales forecast for this year to $252 billion, just 1.8% growth compared to last year. The previous estimate called for sales growth of 10% this year.

Sales of gadgets themselves are on track to meet forecasts, however, SIA said. Chip shipments overall remain healthy, as does end-user demand. But prices continue to fall for a variety of reasons, including a glut in the memory market and a price war between Intel Corp. and Advanced Micro Devices Inc. in microprocessors.

"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. Despite a forecast of slower growth, we expect that global sales of microchips will surpass last year's record level," the SIA said in a statement on Wednesday.

Intel and AMD have been battling each other through price reductions for over a year now, and reports indicate that Intel will cut prices on some microprocessors again in late July. The price war has been good to consumers, delivering more technically advanced microprocessors at a lower cost. Microprocessors are generally the most expensive chip inside a PC.

The DRAM market has been hit the worst. The price of mainstream 512Mbit second-generation double data rate DRAM that runs at 667 MHz has plunged 72% so far this year to $1.79 per chip, according to DRAMeXchange Technology Inc., a Taiwanese clearinghouse for the chips. The market research division of the company has noted that the chips appear to be bottoming out, and that prices could tick up a bit later this month. DRAM price reductions for users normally come a few weeks or a month after the spot DRAM market falls.

NAND Flash memory has suffered a similar fate as DRAM, but not quite as steep a decline. A glut of the chips early in the year has been wiped out by memory makers, which tweaked production lines to make more DRAM instead of NAND flash. Prices of 8GB NAND have fallen 18% this year to $9.26, according to DRAMeXchange, while the 4GB capacity has dropped nearly 15% to $5.69.

The SIA expects PC and mobile phone sales to rise 10% each this year. Mobile phone sales may give chips a bigger boost, however, because users are buying more third generation communications handsets, which contain more chips than older phones.

Sales of personal media players and digital music players are expected to grow by more than 20% this year, SIA said, but noted that price competition in the market will likely keep NAND flash chip prices tame.

The SIA report follows a similar estimation of the global chip industry by Gartner Inc. A few weeks ago, the market researcher lowered its forecast to just 2.5% growth to $269.2 billion this year, down from an earlier estimate of 6.4%.

Copyright © 2007 IDG Communications, Inc.

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