Merrill Lynch issued moderately bullish research on the semiconductor industry Tuesday, saying it expects the sector's revenue to rise at a slightly higher clip than previously believed in 2003 and 2004, thanks mainly to general economic trends.

Merrill now sees industry revenue growing at 12% this year instead of its old estimate of 10%; rising 18% next year instead of 15%; and rising 19% to 23% in 2005. It's the first time the brokerage has estimated 2005 semiconductor industry growth.

"These estimates anticipate a semiconductor upturn, but a much more muted one than the last three up-cycles," Merrill wrote, adding that its long-term growth rate for the industry remains about 10%.

Merrill also raised its estimate for semiconductor industry capital spending growth in 2005 to 27% from 25%, including a 30% gain in spending on capital equipment.

"Our demand side study indicates that capital spending should continue to accelerate in 2005 if the semiconductor unit demand grows at the rate initially forecast by our semiconductor team," Merrill said. "Thus, our first cut at 2005 estimates calls for 33% year-over-year spending growth and nearly 40% growth in equipment."