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) 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) 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.

After warming to semiconductors earlier this year amid surging unit growth, investors' affections began cooling in August on emerging evidence that semiconductor customers had been overly optimistic about demand levels through the first half of the year, which led to a broad-based inventory buildup of chips.

The inventory correction proved a heavy drag on revenue in the third quarter, sideswiping big companies such as Broadcom ( BRCM) and Texas Instruments ( TXN).

The industry has continued to decelerate since last summer, when some industry watchers believe it had hit its cyclical peak. Chip unit growth in September was up only 7% from last year's levels, down from 25% in August and 35% in July.

The lingering effects of inventory surplus have muddled the outlook for the chip industry in the near term, with many companies predicting growth below analysts' expectations in the final quarter of this year.

Analysts remain divided about whether the weaker outlook is due entirely to the inventory problems, or whether it partly owes to softer underlying demand for consumer electronics. The answer, which should become clearer when fourth-quarter earnings are reported, will likely clarify questions about how demand will shape up in 2005.

SIA estimates that in 2005, shipments of PCs, which consume 43% of all chips sold, will rise 11%; within consumer electronics, the end market for 19% of semiconductors, shipments of digital cameras and digital televisions should increase 6% and 50%, respectively; and finally, cell phones and related telecom infrastructure should see unit growth of 8%.

Also on Wednesday, the SIA forecast that semiconductor sales would grow 6.3% in 2006, then surge another 14.2% in 2007. Between 2004 and 2007, the industry should see compound annual sales growth of 11.8%, the association also said.

That's slightly above the long-term growth rate of 8% to 10% that SIA said two years ago likely would be the norm going forward . Historically, the industry saw revenue growth of around 16% a year.