iSuppli Cuts Chip Revenue Forecast, Citing DRAM Prices, Financial Crisis

While worldwide semiconductor revenue is still expected to top $280 billion this year, the ongoing financial crisis on Wall Street and falling prices for dynamic RAM memory chips are forcing iSuppi to reduce its annual forecast for the industry.

On Oct. 9, the iSuppli research firm trimmed its 2008 revenue growth forecast for the semiconductor industry from 4 percent to 3.5 percent. For the year, chip revenue is expected to reach $280.1 billion, compared with the $270.6 billion in revenue the industry saw in 2007. Since September, there have been signs that macroeconomic issues have begun to impact the semiconductor industry.

There are several reasons why iSuppli analysts trimmed their chip revenue forecast. These include the ongoing credit crunch in the United States, financial worries on Wall Street that could cut spending on IT equipment and a reduction in consumer spending.

“With companies unable to get credit, the crisis could spread to the wider economy, impacting demand for electronic equipment and semiconductors,” Dale Ford, an analyst with iSuppli, wrote in report. “The final level, and the most significant area of impact, is the broader effect on consumer confidence and spending if the overall economy collapses.”

In addition, analysts found that DRAM prices are continuing to plummet. This year, memory chips are expected to account for about 10 percent of all worldwide chip revenue. Prices for NAND flash memory are also expected to fall, which appears to have forced Micro Technology, a major supplier of DRAM and NAND flash memory chips, to close an older production plant and cut its work force by 15 percent.

The iSuppli study is one of several reports that have been issued in the last week about the semiconductor industry and the impact the financial crisis and the credit crunch are having on the IT industry. While it's still too early to paint a definitive picture of how all this will impact the wider IT industry, chip makers such as Intel, Advanced Micro Devices, Samsung and Micron are reliable bellwethers, since so many products, from cell phones to PCs to servers, use microprocessors.

On Oct. 10, the Semiconductor Industry Association reported that while semiconductor sales increased 5.5 percent from August 2007 to August 2008, macroeconomic issues could have a big impact on the industry later this year. Gartner, on Oct. 8, found that chip makers will spend about 25 percent less on capital expenditures in 2008, and these companies will also cut spending in 2009.

Intel and AMD are expected to release their third-quarter financial results the week of Oct. 13, which should shed some more light on how the overall economy is impacting the tech industry.

The iSuppli report held out hope that continued demand for desktops and notebooks, especially within the consumer market, might help make up for the loss of revenue from memory chips and other concerns. For the year, iSuppli is calling for PC shipments to increase about 12.5 percent. However, it should be noted that average selling prices for PCs continue to drop, thanks to the availability of low-cost notebooks, or “netbooks,” from Hewlett-Packard, Dell, Lenovo and Asus, even as shipments increase.