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A report on the state of the semiconductor industry provided some moderately optimistic data, showing that while demand remains weak, sales are stabilizing.

The Semiconductor Industry Association reported that worldwide chip sales rose to $12.68 billion in November, a 1.3% increase from October's $12.51 billion in sales. The latest data represented a 19.6% year-over-year gain, a trend of improving numbers going back to the fourth quarter of 2001.

"The November sales of the global chip industry underscores the healthy recovery that has been building throughout the year," stated SIA President George Scalise. The SIA's Global Sales Report, a three month moving average of sales activity, showed that unit shipments grew 23%.

Shares of semiconductor and semiconductor equipment companies got an initial boost from the report but have since drifted lower.

Applied Materials

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is down 8 cents to $13.44, shares of

KLA-Tencor

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are off 27 cents at $35.93 and

Intel

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is down 3 cents to $16.37.

Increased demand in the wireless sector for flash and digital processors underpinned the strengthening sales picture. The computer segment, with DRAM sales increasing 5.8%, also contributed to improved growth. Sales in Europe and Asia grew 1.3% offsetting a 0.8% decline in the Americas.

While the report gives hope that things aren't getting worse, few found reason for unbridled optimism. "We think this is the start of a period of stammering year-over-year growth comparisons," predicted Charles Boucher, an analyst with Bear Stearns. He is expecting seasonal weakness to result in a decline in revenues and unit growth rates over the next six months.

Boucher feels that with increasingly difficult comparisons coming up that "semiconductor stocks have capped upside potential."