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Industry group sees start of chip rebound

Semiconductor sales are expected to show a modest recovery this year, according to a report from the trade group Semiconductor Industry Association.

Semiconductor sales are expected to show a modest recovery this year, according to a report released Wednesday by the trade group Semiconductor Industry Association.

In its mid-year forecast, the group predicted that chip sales will grow by 3.1 percent this year, followed by 23.2 percent growth in 2003 and 20.9 percent in 2004.

The forecast should be welcome relief for chipmakers, which have suffered through one of the industry's worst slumps, with worldwide chip sales down 31 percent year-over-year in 2001, to $141 billion.

"So far this year, we have seen a significant decline in excess inventory and manufacturing capacity, and the industry has resumed modest sequential growth, indicating that we are in the initial stages of a recovery," Dwight W. Decker, CEO of communications chipmaker Conexant Systems and a member of the SIA board, said in a statement. "Our expectation is that the recovery will gain momentum in the second half of the year and continue with strong growth through 2003 and 2004."

Doug Andrey, principal industry analyst for the SIA, said one of the biggest factors for the overall semiconductor industry has been getting supply and demand back in balance. "We've already burned off about $13 billion worth of excess inventory," he said.

Key drivers include steadily growing sales of mobile phones and rebounding PC sales, according to the report.

Chip sectors likely to profit most from the rebound include the notoriously cyclical dynamic random access memory (DRAM) market. DRAM sales are expected to grow 39 percent this year and next, on track to reach $31 billion in sales by 2004.

Andrey said DRAM prices increased four- or fivefold in the last quarter of 2001, after dropping just as precipitously a year earlier owing to inventory gluts. "The supply-and-demand equation finally evened out in the fourth quarter," he said.

Microprocessors are also expected to rebound nicely, with sales increasing 14 percent to $27 billion this year. But the market for flash memory, used in devices such as mobile phones and handheld computers, will have to wait. Flash sales are expected to decline 2 percent, to $7 billion, this year, before showing 45 percent growth in 2003.