UPDATE 5-Trade group cuts 2008 global chip sales forecast

(Adds closing index, stock prices, context on broad U.S. stock market drop)

By Duncan Martell

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.