"The supply of semiconductor devices is becoming more constrained, and the downward pressure on the average selling prices of devices seen in 2005 has eased," said Andrew Norwood, research vice president for Gartner's semiconductor research group. "Any lengthening of device lead-times in coming months will be seen as further evidence of a tightening market."

Gartner's Andrew Norwood believes that more bullish projections for 2006 are over-estimating the tight capacity utilization rates and under-estimating new capacity coming online, especially in the commodity memory sector.

Norwood also pointed out that Average Selling Prices (ASP's) are not expected to rise overall, rather he is projecting "no fall in prices." This factor in his view further supports the more modest growth rates in 2006 than some other analysts.

The research firm has also raised its capital expenditure forecast for 2006.

"Low and declining inventory levels naturally lead to increased production to build inventories in anticipation of future demand, but in the face of elevated manufacturing capacity utilization rates, increased capital spending will be required to facilitate a rise in output," said Norwood. "Since our last capital spending forecast in December 2005, significant increases in spending for 2006 have been announced, suggesting growth in capital expenditures of about 10 percent this year."

Growth in 2007 however will slow to 7 percent as memory overcapacity and a ceiling being reached in some mainstream NAND Flash markets will see further price declines dampen overall revenue growth.