Chip investors, take heart in some mildly good news: Third-quarter global semiconductor sales grew 21% from last year's levels, according to a leading industry trade group.

The bad news is that while the industry has recovered from its bottom levels, growth is expected to stall out for the quarter under way. Lending support to that outlook, the Semiconductor Industry Association reported demand slumped at the tail end of the third quarter. Sales grew a mere 3% in the month of September, based on a three-month moving average.

Overall third-quarter demand grew 8.2% sequentially, to $36.9 billion, the SIA said.

The latest quarterly results fit with this week's

GDP news, which showed that business spending on capital equipment and software rose a respectable 6.5% in the third quarter. The growth in spending marked the second increase in a row, following six back-to-back declines.

Some analysts have seized on signs that business is stabilizing. Pointing to data that showed third-quarter U.S. business investments grew 9% over last year's levels, up from 1% in the second quarter, analyst Dan Niles said in a note today, "The recovery in the U.S. may not be great, but it is occurring."

Partly on the strength of those hopes, the Philadelphia Stock Exchange Semiconductor Index has zoomed 36% from its low on October 9, based on Friday's close.

But in the meantime, some of the biggest tech outfits have issued worse-than-expected guidance for the fourth quarter, with some citing a noticeable dropoff in demand towards the end of the third.

In the third-quarter earnings season,

Texas Instruments

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stunned the market by forecasting revenues would shrink 10%, while

Intel

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gave guidance of flat to up 6%, a far cry from its usual double-digit outlook.

In light of the dimming outlook, the SIA is expected to revise down its 2003 forecast for semiconductor revenue growth, which now stands at over 20%, when it updates its projections on November 6. In the past couple months, many investment banks have tamped down their '03 growth outlooks from 20%-plus to the low double digits.

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Within chips, the SIA said wireless markets saw the best growth, a trend it attributes to new consumers in Asian markets and cell-phone upgrades to 2.5/3G handsets. Flash and digital signal processors, both types of silicon used in cell phones, posted double-digit growth in the September quarter.

PC-related chips were weaker: DRAMs saw revenue growth of 4.9%, followed by 4.6% gains for microprocessors.