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The Semiconductor Industry Association [SIA] lowered its forecast for 2007 sales, saying:

Sharp declines in average selling prices (ASPs) for microchips in several key market segments – microprocessors, DRAMs, and NAND flash – will contribute to slower growth in worldwide sales of semiconductors in 2007, the Semiconductor Industry Association said today. SIA lowered its forecast for 2007 global microchip sales growth from 10 percent to 1.8 percent despite solid fundamentals and continued strong unit growth in major end markets. The new SIA forecast projects total sales of $252 billion in 2007, rising to $306 billion in 2010.

“Despite strong unit demand for semiconductors, driven by healthy growth in major end markets, worldwide microchip sales will not reach our earlier forecast of 10 percent growth in 2007,” said SIA President George Scalise. “We now expect that total sales will grow by 1.8 percent to $252 billion in 2007, with further growth to $306 billion in 2010. The new forecast projects a 5.4 percent compound annual growth rate for year end 2006 through 2010. Rapid price attrition in three key market segments – microprocessors, DRAMs, and NAND flash memories – is the major factor contributing to lower growth than previously projected.”

The SIA noted that end markets that drive sales of these products – personal computers, cell phones, MP3/PMP devices, and other consumer products such as digital TVs and digital cameras – continue to be in line with previous forecasts.

The fact that end market demand is “in line with previous forecasts” but sales are weaker means there is exactly the type of overcapacity-related price cuts that I have been forecasting for some time. Back when the rest of the world didn’t seem to be on board that argument it made me bearish about the prospects for semiconductor stocks. Now that everyone understands what is going on, the prospects that the predicted outcome will disappoint investors has been reduced, and I am no longer bearish.

For those that want to drill down deeper into the various semiconductor end markets, here are SIA’s latest forecasts.

semi end markets

Disclosure: author has a short position in SMH put options at time of publication.

Source: Semi Industry Association Cuts Global Sales Growth Forecast from 10% to 1.8%