SIA: Price cuts hurt chip revenue in first half of year

Continuing price cuts in the semiconductor market held revenue growth down to 2.1 percent in the first half of 2007, even though strong sales of PCs and cell phones pushed chip shipments to rise nearly 7 percent from the same period last year, according to a report released Friday.

Global chip sales reached $121 billion in the first six months of the year, compared to $118.4 billion in the first half of 2006, according to the Semiconductor Industry Association (SIA).

The trend toward lower prices could harm profits for chip vendors but is good news for consumers because it has affected all types of chips, including the microprocessors that power PCs, the DRAM chips that hold memory in digital cameras, and the DSPs (digital signal processors) that are crucial components of cell phones.

One reason for the slump is a continuing price war between Intel and AMD, which have been fighting for market share of the CPUs in notebooks, desktops and servers. Another factor is excess inventory, according to SIA President George Scalise.

“The major story for the chip industry for the first half of 2007 continues to be rapid price attrition,” Scalise said in a statement.

Indeed, when Samsung announced on July 12 that its second quarter profit had fallen 5.6 percent year over year, to $1.5 billion, company executives blamed an oversupply of chips for forcing down prices and hurting healthy sales.

Industrywide, prices for DRAM chips, one of Samsung’s major products, fell almost 40 percent compared to the first half of 2006, offsetting a 66 percent increase in unit shipments, SIA said. And prices for NAND flash chips dropped by more than 15 percent, offsetting a 40 percent rise in unit shipments.

The microprocessor market suffered slightly less damage with prices falling by less than 10 percent as unit shipments climbed by 19 percent compared to the first half of 2006, SIA said.

That is good news for AMD, which has been hurt badly by falling prices in recent months. The company posted its third consecutive quarterly loss on July 19, losing $600 million despite strong revenue.

Despite the price erosion, the industry’s revenue growth of 2.1 percent was slightly above SIA’s forecast of 1.8 percent, prompting the firm to predict stable sales through the rest of 2007.

“We expect that key end markets will grow in line with expectations through the remainder of the year, and that total semiconductor sales for 2007 will meet the revised forecast,” Scalise said.