UPDATE 5-Trade group cuts 2008 global chip sales forecast
(Adds closing index, stock prices, context on broad U.S. stock market drop)
SAN FRANCISCO, June 11 (Reuters) - Global semiconductor sales won't rise as fast as previously forecast this year as competition crimps prices, particularly for memory chips, an industry group said on Wednesday, helping to send a popular chip stock index down 3.4 percent.
The Semiconductor Industry Association (SIA) sees global chip sales gaining 4.3 percent to $266.6 billion in 2008, down from a growth forecast of 7.7 percent issued in November.
Last week market research firm Gartner Inc forecast global chip revenue would increase 4.6 percent to $286.5 billion this year, up from its February estimate of a 3.4 percent rise.
The SIA also said it expected chip sales to rise at a compound annual growth rate of 6.1 percent through 2011. In November, it had forecast 7.7 percent growth for 2007-2010.
In its midyear update, the association said it saw slower growth for 2008 despite healthy demand for products such as mobile phones and personal computers. Soaring energy prices have dampened consumer discretionary spending, yet folks continue to snap up gadgets, flat-panel TVs and the like.
"The cost of energy is having a huge impact on discretionary spending, but people are still allocating discretionary spending to electronic devices," SIA president George Scalise said on a webcast to discuss the forecast.
Shares of top microprocessor maker Intel Corp (INTC.O) fell 3.8 percent, and smaller rival Advanced Micro Devices Inc (AMD.N) tumbled 6.3 percent. The stock of memory chipmakers Micron Technology Inc (MU.N) fell 6 percent and SanDisk Corp (SNDK.O) declined 4 percent.
All three major U.S. indexes lost about 2 percent on Wednesday after oil prices raced back to near record highs, fanning inflation fears.
However, Gartner said last week it had seen no significant slowdown in the markets for digital consumer electronics and automotive products.
Yet with consumer electronics sales increasingly driving the chip industry, the SIA said it was closely watching rising food and energy costs, as well as other developments that affect personal spending.
DRAM WOES
Meanwhile, prices for DRAM memory chips, the most widely used in the PC industry, are tumbling, as they have been for more than a year. In the first four months of 2008, global DRAM revenue fell by 34 percent, even as unit shipments rose more than 40 percent.
"DRAM is our biggest problem now in terms of driving revenue," Scalise said.
Shares of Micron, the biggest U.S. maker of DRAM chips, closed down 46 cents to $7.34 on the New York Stock Exchange, while chipmaker SanDisk was down $1.02 at $24.48 on Nasdaq.
The SIA said unit sales of PCs were on track to rise 10 percent this year to about 300 million, and it expects mobile phone unit shipments to increase 12 percent to more than 1.3 billion.
Excluding memory products, the SIA estimated semiconductor revenue growth at 7.4 percent this year. Although the U.S. economy is slowing, sales are likely to benefit from increasing demand for consumer products in growing markets such as China and India.
Revenue from sales of microprocessors, which accounts for 14 percent of the industry total, is expected to grow more than 10 percent annually for the next two years, the SIA said. Microprocessors are the "electronic brains" of PCs, video gaming consoles and other devices.
More than 50 percent of semiconductors now end up in products used by consumers, Scalise said. Some 40 percent go to the so-called enterprise market, which consists of large businesses, and the remaining 10 percent are in government and related sectors.
Scalise said capacity utilization was healthy.
Contract chipmakers are running at almost 94 percent of capacity, he said, while plants using the latest technology, where elements of chips are as small as 45 nanometers across, are running at almost 97 percent.
"There's a good balance between supply and demand at this stage," Scalise said.
The Philadelphia Stock Exchange Semiconductor Index .SOXX declined 13.58 to 381.68 on Wednesday. Through Tuesday, it had fallen 3 percent this year, compared with a 7.6 percent drop for the Nasdaq composite index .IXIC (Additional reporting by Franklin Paul in New York; Editing by Lisa Von Ahn/Jeffrey Benkoe)
