Worldwide chip sales will grow 9.8% this year and see double-digit growth for the next two years, according to the Semiconductor Industry Association, which lifted its initial forecast for the industry Wednesday.

Buoyed by strong demand for feature-rich cell phones, the fastest growing end market for chips, semiconductor sales will total $249.6 billion in 2006. The industry group's initial forecast, issued in November 2005, called for only 7.9% growth, for a total of $245 billion this year.

In 2005, chip sales grew 6.8%.

"Despite sharply higher energy prices, consumer demand for a wide variety of electronic products continues to fuel growth of the semiconductor industry," said SIA president George Scalise in a statement.

He projected that roughly one billion cell phones will be sold in 2006, with an average semiconductor content of $41 a unit. Only personal computers now have higher chip content than cell phones, according to the SIA.

The bullish forecast had little effect on the

Philadelphia Semiconductor Sector Index

, which was off slightly in midday trading. The index is down more than 13% since the beginning of May.

Many investors are concerned that the chip industry could be nearing a slowdown as a result of rising chip inventories, a widening federal inquiry into stock-option accounting practices and a variety of macroeconomic factors, such as rising energy prices and interest rates.

Scalise said that inventory and manufacturing capacity are in balance, and that conditions are favorable for continued semiconductor industry growth. The SIA projected that chip sales will grow 11% in 2007 and 12% in 2008 before falling to 4% in 2009.

The latest report underscores the evolving nature of the semiconductor industry, which for years has been largely driven by corporate computer sales.

According to the SIA, sales of microprocessors, the brains of personal computers, will grow only 4.3% by revenue this year and 7.1% in 2007.

By contrast, chips at the heart of new consumer-electronics devices, such as digital signal processors and analog chips, are slated to post sales growth this year of 18.5% and 17.3%, respectively.

Flash memory, which is used to store data in MP3 players, digital cameras and cell phones, will grow by 20% to $22.3 billion in 2006.

Standard & Poor's semiconductor analyst Tom Smith said the low microprocessor figures could indicate the severity of price discounting occurring with that market.

"I'm guessing that maybe shipments are in line, but something is happening to

average selling prices as

Intel

(INTC) - Get Report

tries to regain share," said Smith. He noted that the SIA's projections for sales of the DRAM memory used in PCs are 9.1% this year, suggesting that there's not necessarily a drop-off in the number of PCs being sold.

The SIA's bullish view of the cell phone segment could bode well for

Texas Instruments

(TXN) - Get Report

, the largest supplier of chips to cell phones, which is due to provide a mid-quarter update after Thursday's market close.

Shares of TI were up 0.2%, or 5 cents, at $31.48 in midday trading.