Soft Sales, Prices Hurt Chips Forecasts

The 2007 forecast for semiconductor makers got a whole lot cloudier today with the Semiconductor Industry Association (SIA) cutting its forecast for global microchip sales growth this year from 10 percent to just 1.8 percent.

The SIA cited sharp declines in average selling prices (ASPs) for microchips in several key market segments, including microprocessors, DRAMs and NAND Flash, along with a slowdown in unit sales, although the sales numbers were nowhere near as bad as the ASP projection.

The association said worldwide sales will grow by 1.8 percent to $252 billion in 2007, with further growth to $306 billion in 2010.

“The new forecast projects a 5.4 percent compound annual growth rate for year end 2006 through 2010. Rapid price attrition in three key market segments — microprocessors, DRAMs, and NAND Flash memories — is the major factor contributing to lower growth than previously projected,” said SIA President George Scalise in a statement.

SIA’s projections weighed heavily on the ASPs, but Mercury Research principal analyst Dean McCarron sees a slowdown coming from just a dip in sales, a trend that began in the first quarter of this year, he said. All markets, except notebooks, have been flat this year.

Desktop hardware sales have been weak as a result of Vista failing to meet expectations, he said. “There had been a lot of hope that Vista would result in a significant amount of upgrades, with people wanting more RAM and such. That doesn’t seem to be the case,” he told

As for server sales, he said there is no clear reason why it went soft. It went from being one of the hottest to one of the softest, and is one reason for the downward revision of projections. Gartner and IDC have both said they see fewer physical boxes being sold but more decked out as virtualization becomes more popular.

“There is some speculation that this is the early impact of virtualization. Others speculate that it’s simply that we saw a stronger than usual server market in 2005 and the first three quarters of 2006, reflecting pent-up demand. Once that was satisfied, it settled down again,” said McCarron.

McCarron expects the usual bump in sales in the second half of the year, as is the norm. He said a report in the San Jose Mercury News that Intel  would cut prices by up to 50 percent is totally normal, and that the company slashes prices every year in July in advance of the build cycle for the second half of the year.

The one element he’s not sure of is the impact of Intel’s new Penryn and AMD’s   Phenom processors.

He said they’ll contribute to sales, but he’s unclear on whether they can overcome the softness of the first half of the year.

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