Chipmakers say declining prices hit market

Chipmakers have given their gravest assessment yet of the state of the industry, predicting growth of less than 2 per cent this year, down from previous forecasts of 10 per cent or higher.

The Semiconductor Industry Association said on Wednesday that sharp declines in average selling prices (ASPs) in three key segments – microprocessors, D-Ram memory and Nand flash – would contribute to slower growth in chip sales in 2007.

Although there would be strong unit growth, the SIA lowered its forecast of sales growth from 10 to 1.8 per cent, predicting sales worth $252bn in 2007, rising to $306bn in 2010.

George Scalise, SIA president, said the market in D-Ram (dynamic random access memory), the base memory that computers rely on to run applications, was under significant price pressure. “Average selling prices in April 2007 were down by approximately 33 per cent compared to December 2006,” he said.

“Inventory issues in this segment will affect ASPs going forward, and the forecast assumes continued degradation of prices.”

Memory chipmakers have been shifting capacity to D-Ram, rather than less profitable Nand flash, creating an oversupply. Demand for D-Ram, with the introduction of the memory-hungry Windows Vista operating system, has also been less than anticipated.

However, the SIA said that the end-markets for PCs, mobile phones and portable media players remained in line with previous forecasts.

Sales of PCs, the largest market for semiconductors, were on track for unit growth of 10 per cent, reaching 255m units, said Mr Scalise.

“Despite strong unit PC sales growth, we expect that sales of microprocessors will decline by 1.6 per cent as intense competition is contributing to price
erosion at a more rapid pace than historical patterns.”

Unit growth in mobile phones of 10 per cent – or 100m units – is expected this year, while portable media and MP3 players are expected to grow by 20 per cent.

The players largely depend on Nand flash for storage of music and video, but this has become an ultra-competitive market for chipmakers. The World Semiconductor Trade Statistics (WSTS) says ASPs for Nand flash fell by more than 35 per cent year-
on-year in April, although unit shipments grew by 54 per cent.