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Gartner karate chops 2011 chip forecast

$299bn sales at best, say crystal ball

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With demand for PCs cooling and chip inventories piling high, the prognosticators at Gartner now predict that chip sales will fall slightly this year.

In Gartner's earlier projection, extracted from a crystal ball in April, the company said that it hoped chip sales would rise by 5.1 per cent to $314bn. That was after realizing that chip sales actually started to slow at the end of 2010 and that revenues only hit $299.4bn, an impressive 30.9 per cent bounce in the wake of the Great Recession but still a bit shy of the $300.3bn Gartner expected for 2010.

Now, looking ahead for the remainder of this year, Gartner says the market is going shrink by one-tenth of a per cent, to $299bn, in 2011. Not good news for PC makers, but seeing as they are the source of the bad news, they already know.

"Three key factors are shaping the short-term outlook: excess inventory, manufacturing overcapacity and slowing demand due to economic weakness," explained Bryan Lewis, a research vice president at Gartner who tracks chips, in a statement.

"Semiconductor companies' third-quarter guidance is well below seasonal averages. The current guidance by vendors points to flat to down third-quarter growth. Typically, we see guidance for 8 to 9 per cent growth in the third quarter because of back-to-school and the holiday build. The supply chain is also showing significant slowdown, and semiconductor-related inventory levels are still elevated."

Last month, Gartner chopped its PC forecast, saying that unit shipments would rise by only 3.8 per cent, to 364 million PCs, this year. In the second quarter PC forecast, Gartner said it expected PC shipments to grow by 9.3 per cent, to over 400 million units. You can blame the tablet, the smartphone, and jittery consumers the world over. Except maybe in China and Brazil.

Because of the decline in the PC racket, DRAM stocks are building up and prices are going through the floor, and now Gartner is projecting a 26.6 per cent revenue decline for main memory this year. NAND flash memory sales are still expected to grow by 20 per cent this year, however, thanks to smartphone and iPad sales, said Gartner.

The worsening global economy is making Gartner less optimistic about next year.

"2012 is the wild card," said Lewis. "We have lowered our 2012 semiconductor forecast from 8.6 per cent to 4.6 per cent due to a worsening macroeconomic outlook. However, the odds of a double-dip US recession continue to rise and are raising fear that sales prospects will deteriorate further. Gartner is closely monitoring IT and consumer sales trends for any significant signs of weakness." ®

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