Electronics purchasers can expect lower prices for semiconductors, passive components and connectors in 2008, but price declines will not be as steep as previous years, especially for semiconductors.

While chip demand will remain strong in 2008, semiconductor suppliers have been slow to build new fabs and add more capacity. Instead they have been using chip foundries more when they need extra production. The lack of investment in new capacity will mean price erosion will ease in 2008.

While the overall average semiconductor price fell 5% in 2007, the average price will drop only 1% in 2008, according to researcher IC Insights. Longer-term, the average price will rise. In 2010 and 2011 the price will increase 2% each year, according to the researcher.

Buyers can expect 2-3% price erosion for passive components and 1–2% price declines for connectors in 2008. While component and connector demand will be strong, stiff competition among suppliers will drive down prices.

With supply tightening, it will be less of a buyer's market than 2008 for semiconductors, according to Brian Matas, vice president of research for IC Insights.

"Purchasing guys have had it pretty good for awhile," he says. "If you are a purchaser of memory ICs, you have been enjoying a buyer's market for a long time," he says.

Prices for double data rate 2 DRAM—the most widely used type of DRAM—fell 70% in the first half of 2007. DDR2 tags then increased in the third quarter, but fell again in the fourth quarter. For the full year, the average price for a DRAM, including DDR2, DDR, and other DRAM architectures, fell 35%.

Matas says there won't be as steep price drops for DRAM or any other semiconductor in 2008. "I get the sense the IC market is shifting. IC suppliers are beginning to wield a heavier stick in terms of how much they can charge and what they will get for their products," he says.

DRAM prices fell 35% in 2007, but will drop only 7% in 2008.

Microprocessor prices will still drop by about 6% in 2008 despite the cessation in the price war between Intel and AMD.

Buyers can expect prices for liquid crystal displays to fall in 2008 as suppliers are adding capacity.

While chip prices won't fall as much, they will still decline in 2008. The average DRAM price will drop about 7% in 2008. However, the bad news is DRAM tags will rise 7% in 2009, according to IC Insights.

Microprocessor prices fell 10% on average in 2007 and will still drop 6% in 2008. Flash memory prices fell 1% in 2007 and will drop 1% again in 2008. The average price of a digital signal processor (DSP) fell 14% in 2007 and will drop 7% in 2008.

Buyers can also expect prices for liquid crystal display (LCD) panels to fall in 2008 after rising in 2007. For instance, the average price of a 19-inch panel for a computer monitor will fall from $128 in the fourth quarter of 2007 to $114 in the fourth quarter of 2008, according to researcher iSuppli.

Passive devices and connectors will also see price erosion in 2008. Buyers can also expect 2–5% price declines for passives, although prices could be flat for some components depending on the size.

Increased competition among suppliers of higher capacitance multilayer ceramic chip capacitors will also drive down prices.

Buyers can also expect 1–2% price erosion for connectors. In most years prices fall 3–4%. The reason for less connector price erosion in 2008 is connector suppliers are resisting demand for lower prices citing higher material costs.