Falling prices for DRAM chips and microprocessors badly hurt the global semiconductor market, which will likely limp to a sales increase of just 2.5 per cent in 2007, according to a report released by analyst Gartner.
Semiconductor sales were originally expected to rise by 6.4 per cent over 2006 levels, the study said. But chip sales in the first quarter of 2007 were more than 5 per cent lower than in the fourth quarter of 2006, leading the research company to cut its 2007 market revenue forecast to $US269.2 billion.
The numbers reflect a continuing price war between Intel and Advanced Micro Devices (AMD), as the processor vendors struggle for market share. That war has already taken a toll on AMD, which blamed slow chip sales for its $US611 million loss in the first quarter of 2007. Intel, a much larger company, has continued to post profitable quarters, but on May 2 added another 1000 layoffs to a corporate reorganisation it began in 2006.
Conditions are worst of all in the DRAM sector of the industry, which will see its revenue drop 11.1 per cent in 2007 to $US30.5 billion, then limp to a smaller decline in 2008, according to research vice-president at Gartner, Richard Gordon.
The forecast could spell trouble for Samsung Electronic, the world's largest producer of DRAM and NAND flash. However, Samsung's pain may be dulled if tumbling chip prices attract consumers into stores, as prices for end-user products using NAND flash memory such as PCs, iPods and digital cameras are also expected to drop.
In the long run, chip prices would continue to fall throughout 2007 as semiconductor manufacturers try to clear excess chips out of their warehouses, Gordon said.
Chip manufacturers do have some cause for optimism, however, as they have already begun to control that inventory by cutting production. If that effort succeeds, the industry could return to modest growth of 8.7 per cent in 2008 and 7.2 per cent in 2009, he said.