Marvell Technology Inc (MRVL)

[Cloner]

Gartner Slashes Global Chip Sales Forecast

By Alexei Oreskovic
TheStreet.com Senior Writer
5/31/2007 12:31 PM EDT

Expectations for the chip industry's performance in 2007 have gone from mediocre to moribund.

Industry research firm Gartner slashed its outlook on Thursday, predicting global chip sales growth of a scant 2.5% in 2007 vs. its previous estimate of 6.4% growth.

The primary culprits for the lower outlook are DRAM memory and microprocessors -- two main components in PCs.

Plummeting prices for both type of chips has stunted the industry's overall revenue growth. And Gartner doesn't see an immediate turnaround.

DRAM revenue is expected to fall by 11.1% in 2007 to $30.5 billion, with a mild decline continuing into 2008. Microprocessor revenue is expected to be flat in 2007, as the fierce price competition between Intel (INTC - Cramer's Take - Stockpickr - Rating) and Advanced Micro Devices (AMD - Cramer's Take - Stockpickr - Rating) continues.

"It is likely that, despite continued unit growth in influential electronic systems markets, downward device ASP pressure will remain in place for much of 2007 as oversupplied semiconductor market conditions persist," said Gartner research vice president Richard Gordon in a statement.

The revised outlook comes on the same day that the U.S. Commerce Department cut its reading of first-quarter gross domestic product to 0.6% from its previous estimate of 1.3% growth. Sluggish GDP is bad for the chip business, since the industry's fortunes are increasingly tied to consumer spending on electronic gadgets.