Semiconductor shares were feeling pressure Friday after the industry's biggest contract manufacturer, Taiwan Semiconductor ( TSM), scaled back expansion plans amid fears of a capacity glut.

The Philadelphia Semiconductor Index was down about 1.2% after Taiwan Semi forecast just $1 billion to $2 billion in 2005 -- roughly half what it will spend this year. Shares were recently off 20 cents, or 1.9%, to $10.18. Its competitor United Microelectronics ( UMC) was 9 cents, or 1.6%, to $5.42.

A company spokesman told Reuters that TSM's chief executive currently expects semiconductor industry growth to slow from 25% this year to just 10% next year. In light of a big foundry buildout in China, the company chose to trim its capital expenditures budget.

Among names seeing better-than-2% hits Friday morning were Lattice ( LSCC), National Semiconductor ( NSM) and equipment maker KLA-Tencor ( KLAC). Intel ( INTC), Applied Materials ( AMAT) and Cisco ( CSCO) were also marginally lower.

On Thursday, Morgan Stanley argued in a research note that chip demand should stay robust through 2004 and recommended clients overweight the sector following a recent 20%-25% price pullback.

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