Investors continue to hope that chipmakers will finally see respectable growth this year, but sales results from the kickoff month of January show that the industry remains in slow recovery mode.

Monthly chip sales of $10.8 billion were 20% above the levels of a year earlier, but the gain isn't cause for much excitement, since it is an easy comparison. Last year at this time the industry was struggling off its 2001 bottom.

"Year-to-year revenues are up, but the issue for the industry is that while units have recovered reasonably well, because capacity utilization is still very low by historical standards, there's very limited or no pricing leverage," says UBS Warburg's Thomas Thornhill.

He predicts chip sales will grow by only 4% this year, following last year's meager 1.3% gain. "In an environment where semi companies don't have much pricing leverage, and we're not seeing dramatic changes in the physical amount of silicon per end unit, it will be very hard for the industry to grow faster than its end-market unit growth," says Thornhill.

UBS Warburg expects muted growth for the two biggest chip end-markets, forecasting that PCs will grow 5% and handsets around 10% in 2003.

Measured on a month-to-month basis, January chip revenue fell off a little more steeply than usual in the post-Christmas season, down 20% compared with an average decline of 17% over the past 10 years.

Tech vendors themselves have stayed cautious lately, noting they don't yet see any signs of a near-term pickup in demand.

Intel

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, which is scheduled to deliver a midquarter update on Thursday, has forecast that its sales will decline 3% to 10% sequentially in the first quarter, to a range of $6.5 billion to $7 billion.

Analysts remain divided on what the company will say in its update. Lehman's Dan Niles predicted last week that Intel may raise the lower end of its guidance to $6.7 billion, on the basis of strength overseas, better selling prices and market-share gains.

But Sanford Bernstein's Adam Parker recently suggested it's "improbable" that the company will raise guidance, saying he expects Intel to "deflect questions about the current quarter as usual, while focusing on new product introductions and potential catalysts for growth in the back half of 2003."

In midafternoon trading, the Philadelphia Stock Exchange Semiconductor Index was down 4% to 286.