Semiconductor investors got a boost Wednesday when the industry's largest trade group boosted its growth forecast through 2006 due to ongoing strength in the economy and the growing use of chips in consumer electronics products, such as digital cameras and digital TVs.

"The robust long-term outlook for chip sales reflects the growing pervasiveness of semiconductors in a very broad range of products," said George Scalise, president of the trade group Semiconductor Industry Association, in a statement.

For 2005, the SIA is now forecasting industrywide global growth of 6% compared with a forecast for zero growth that was issued in November. The new target for 2006 is 8.8% growth vs. an earlier target of 6.3% growth.

"Our cautious forecast issued in November of 2004 was based on concerns that high energy prices and lingering excess inventories in a few segments of the industry would dampen sales in 2005," Scalise said. "Those fears have not materialized, and economic growth -- especially in the United States -- has remained strong."

The growth projection for 2007 was reduced to 10.9% from an earlier target of 14% and the SIA also predicted a single-digit compound annual growth rate (CAGR) of 9.8% from 2005 to 2008. In November, the SIA forecasted a CAGR of 11.8% from 2004 to 2007.

The reduction in the compound annual growth rate relates to a strong 2004 that doesn't get factored into the current CAGR. Using the SIA's new data, the industry's projected CAGR from 2004 to 2007 works out to 13.2% and the CAGR from 2004 to 2008 computes at 13.1%. The chip industry surged in 2004, logging growth of 28% from 2003.

The new, more robust data from the SIA follows a month of

heady gains in the stocks of many semiconductor companies. The Philadelphia Semiconductor Index began June at a three-month high of 440, with

Intel

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, the world's largest chipmaker, leading the charge and briefly touching $28, a one-year high.

Semiconductor investors have gained more confidence in demand prospects for the back half of the year following a slew of financial reports last month. Chip-equipment companies, which depend on the optimism of semiconductor manufacturers, could also get a benefit in the coming weeks from an updated industrywide growth forecast that will be issued at Semicon West, the industry's largest trade show, which will be held in the second week of July.

On Wednesday, the Philadelphia Semiconductor Index added 1% to 432, with all but one of the index's 18 components advancing.

Applied Materials

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,

STMicroelectronics

(STM) - Get Report

,

Teradyne

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and

Texas Instruments

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each booked gains of more than 2%.

Applied Materials continued to gain momentum from a product announcement on Monday, Teradyne benefited from the sale of a business unit,

Texas Instruments was helped by a midquarter update and STMicro shares rose due to an update about previously announced cost cuts.