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Chip slide may have hit bottom

A new report provides evidence that the chip sector soon may rebound, as shares in many of the market leaders gain ground.

The semiconductor industry got a break today from the Wall Street bruising that began Tuesday, as market leaders regained some ground while looking forward to a new report that provides evidence of a rebound.

National Semiconductor was the big winner yesterday, closing up nearly 17 percent at 13.875 on news that investment bank Donaldson Lufkin & Jenrette upgraded the chipmaker to a "top pick" rating from "buy." Today the company is up another 3 percent in midday trading. Dallas Semiconductor was up nearly 4 percent today, at 34.6875, and Advanced Micro Devices was more than 11 percent higher at 18.6250.

Cirrus Logic, Analog Devices, Cypress Semiconductor, LSI Logic, Micron Technology, Rambus, and Intel all gained ground today as well. (Intel is an investor in CNET: The Computer Network, publisher of News.com.)

Despite today's gains, this year largely has been a bust for the semiconductor industry, as the Asian flu, excess inventory, and pricing pressures affected chip makers across the board. Many have closed wafer fabrication plants or have been forced to impose layoffs.

Analysts remain divided over when the industry will rebound, but an article published yesterday by Semiconductor Fabtech concludes that the end of the long drought is in sight.

The article, part of a report on semiconductor sales forecasts between 1998 and 2002, contends that this year will be rock-bottom for the industry.

"Semiconductor industry growth has averaged 17 percent per year for over 30 years--through two oil crises, war, recession, the collapse of the Eastern bloc, the opening of China, and other convulsions," the article reads. "At some point, industry growth must slow to more closely match the rate of growth of electronic equipment sales--which averaged 10 percent per year during the past 30 years. But in the meantime, there is good reason to believe that growth will return soon."

The article was written by Bill McClean, president of IC Insights, a semiconductor market research firm, along with executives from Fisher-Holstein, a wafer fabrication cost-of-ownership consulting firm.

"When the computer market does well, the [integrated circuit] market does well," McClean said. "Typically, the lines follow each other pretty closely."

McClean pointed out that computer sales have been strong this year, while chip sales have slumped. Provided Asian economies don't take a turn for the worse, he argued, those increased computer sales soon will translate into semiconductor revenues.

"You can't always tell the turning point, but at some point it's going to take an uptick, and I think that's going to happen by the end of the year," he said.

Earlier in the year, many of the major PC makers had excess inventories in the distribution channel, causing them to cut back on microchip orders. McClean said most of those inventory issues have been cleared up now.

"Compaq is looking for a big second half, and a lot of the companies are gearing up for a big Christmas season because the $1,000 PC is in full force," McClean said. "Last year it was kind of a novelty, and Intel has helped legitimize it with the Celeron processor."

Some analysts agreed that the second half of the year will prove to be stronger for semiconductor sales. But for the most part, industry experts have a number of concerns and remain skeptical about when the market will rebound.

"We're not being contrary," said Danny Lam, director of Fisher-Holstein, and co-author of the report. "It's always when people say that there's no end in sight that it takes an upturn."