Although excess semiconductor inventories in the global electronics supply declined significantly in the first quarter, they remained at $2.8 billion at the end of the period- a level still high enough to negatively impact global semiconductor production and pricing. Meanwhile, growth in the mobilephone segment will slow dramatically in 2007 compared to 2006. Revenue in the wireless comms equipment sector, which is dominated by mobile phones, will rise to $202.3 billion in 2007, up 4.3% from $193.9 billion in 2006. This compares to 8.2% growth in 2006.

However, the biggest factor behind iSuppli's forecast revision is a reduction in expected DRAM revenue. The DRAM market hit a peak in 2006, with revenue rising by 35.2% to reach $33.9 billion. This surprisingly strong rise will be followed a major slowdown in growth, with revenue rising only 8.6% to reach $36.9 billion in 2007. The primary reason behind the reduction is a plunge in DRAM average selling prices as available supplies increase. Memory suppliers are shifting capacity to DRAM and away from less-profitable NAND-type flash in 2007.

Previously, iSuppli predicted 13% growth in DRAM revenue in 2007. With DRAM expected to account for 13.1% of overall semiconductor revenue in 2007, a 4.4 percentage-point reduction in the outlook makes a significant impact on the overall chip market.

Adding to the memory market's woes, the overall flash market is expected to decline by approximately 3.3% this year.