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Industry Sees Chips Cooling

After record-setting sales of an estimated $214 billion this year, the worldwide semiconductor industry should stall and see zero growth in 2005, the lead chip trade group predicted today.

The Semiconductor Industry Association said it's gearing for sales in 2004 to rise 29% from last year's levels, sticking with the prediction it made last June in one of its biannual forecasts.

The group, however, expects chip revenue to stay flat in 2005, a slightly worse outlook than it was expecting as of June. At the time, the SIA thought chip sales would be able to eke out 4% growth next year.

Seconding that view, market research firm IDC said late Wednesday that it believes the chip industry will suffer a revenue decline of 2% in 2005, partly because it expects the effects of an inventory buildup, which got under way last summer, to last through the second quarter of the year. Earlier, it forecast revenue growth close to 8% in 2005.

The more humble outlook issued Wednesday fits with what top chip executives have recently outlined. On Oct. 27, Taiwan Semiconductor (TSM - Get Report) CEO Morris Chang said he expected "almost flat" growth in 2005 instead of the nearly 10% growth he predicted as recently as July.

On a similar note, in late September, Scott McGregor, the outgoing CEO of Philips Electronics' (PHG - Get Report) chip division, said the industry would likely grow only in the single digits next year.

But the industry's lackluster near-term prospects appear to have already been digested by investors. The benchmark Philadelphia Stock Exchange Semiconductor Index, which started the year at 508, ebbed as low as 352 on Sept. 8, marking a year-to-date decline of 31%.

The SOX has since rebounded to 410 as of Wednesday's close, reflecting that many investors have already priced in a good portion of the bad news.

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