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Chip price tumble slashes sales growth, report says

Rapid price attrition is main factor contributing to lower growth than projected, according to Semiconductor Industry Association.

Global microchip sales will grow by only 1.8 percent this year, much more slowly than an earlier projection of a 10 percent increase, as prices in key markets tumble, an industry group said Wednesday.

Total microchip sales will reach $252 billion in 2007 as prices fall rapidly in the three main market segments of microprocessors, dynamic random access memory (DRAM) for computers, and flash memory used in consumer gadgets, the Semiconductor Industry Association said.

"Rapid price the major factor contributing to lower growth than previously projected," the association's president, George Scalise, said in a statement.

Prices for semiconductors used in personal computers will decline 1.6 percent in 2007 despite an expected 10 percent increase in PC unit sales. "Intense competition is contributing to price erosion at a more rapid pace than historical patterns," the group said.

Average selling prices of DRAM were down by about a third in April compared with December. The group said rising inventories will continue to depress prices for DRAM chips.

The association said it expects total microchip sales to rise to $306 billion in 2010.

The new forecasts come as Intel and Advanced Micro Devices, the top two microchip processor makers, remain locked in a price war as they fight for market share. Makers of flash memory, including SanDisk, have also cited falling prices for weak earnings or losses.

Sales of consumer gadgets such as digital music players are experiencing "very strong unit growth," but prices of flash memory fell 35 percent in April from a year earlier, even as unit shipments rose nearly 54 percent, SIA said, citing data from the World Semiconductor Trade Statistics organization.

"Despite a forecast of slower growth, we expect that global sales of microchips will surpass last year's record level," Scalise said.

The Philadelphia Semiconductor Index of 19 chip stocks was up 1.1 percent in noon trading.

Story Copyright © 2007 Reuters Limited. All rights reserved.