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Execs expect chip market to bounce back

The rapid growth of the Internet is expected to trigger an explosion in sales of telecommunications chips, while the outlook for consumer devices is less sanguine.

Semiconductor industry executives expect the chip market to bounce back over the next two years, according to a survey.

The rapid growth of the Internet is expected to trigger an explosion in sales of telecommunications chips, while the outlook for consumer devices is less sanguine.

The report comes after a bleak 1998 when sales were off more than 8 percent.

The survey from Ernst & Young found that 84 percent of the executives expect the industry to return to its historically high growth rate within two years while nearly half (49 percent) expect the market to bounce back in the next 12 months.

The semiconductor survey was developed by Ernst & Young's technology practice and conducted by the research firm Roper Starch Worldwide, which interviewed 312 senior-level executives across the United States by telephone.

"The survey shows that the semiconductor industry is on the rebound, a confirmation of what we have been expecting for next year," Stephen E. Almassy, national director of Ernst & Young's Technology, Communication & Entertainment practice, said in a statement.

Roughly 42 percent of the executives agree that technological innovation will drive growth. Twenty-two percent cited partnerships, while 19 percent said being first to market will spur greater revenues. Almost all executives surveyed said they feel there will be a demand for increased processing speed over the next five years, according to Ernst & Young.

The telecommunications industry is expected to be a driver of chip industry expansion over the next five years, according to 38 percent of the respondents. The Internet "is driving the evolution and growth of the telecommunications sector [which] will in turn drive explosive growth in semiconductor applications."

"It has been clear for some time that the Internet, data networks, and wireless technologies are experiencing hypergrowth," said Patrick Hyek, a semiconductor industry services partner at Ernst & Young.

"What our analysis has shown is that much of the future expansion will [be driven] by advances in semiconductor technology."

On the other hand, only 17 percent of the executives said that consumer and information appliances (such as DVD and digital phones) or industrial applications would push future growth, the report said.

Industry consolidation will also become increasingly prominent. "Fully 86 percent of the executives surveyed see industry consolidation increasing over the next five years, with more than four-in-ten expecting the consolidation to be significant," the survey stated.

"The marketplace is ripe for consolidation as companies seek innovative ways to participate in future high growth segments of the market and improve profitability," said Hyek. "The winners will be those companies that set themselves apart through product innovation, but that can also leverage strategic partnerships, and supply chain management to get ahead."

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