Countering widely discussed worries about a second-quarter inventory buildup in semiconductors, Gartner said Tuesday that such concerns may be overstated.

The market research firm also slightly adjusted its annual semiconductor sales forecast for the next two years, slightly lifting its outlook for 2004 while lowering it for next year.

Gartner bumped up its outlook for chip sales growth in 2004 to 27% from an earlier prediction of 25%, but said it now expects 2005 revenue growth of only 9% instead of 14%.

Gartner analyst Richard Gordon also downplayed concerns about burgeoning second-quarter inventories at semiconductor vendors and distributors. In the second-quarter earnings season, chipmakers from

Intel

(INTC) - Get Report

to

Broadcom

(BRCM)

acknowledged their inventories had grown faster than the usual seasonal pace.

However, Gordon said his firm's proprietary inventory index, which is compiled every quarter based on analysis of chipmaker and distributor balance sheets, showed inventories in the supply chain now stand at the low end of the "caution" zone.

The index currently measures 1.1, compared with a normalized level of 1. Measurements between 0.95 and 1.1 are considered to be within normal range, Gordon said.

Industry inventory levels peaked at 1.6 back in the late 1990s boom era and proceeded to trend down until the first half of 2004, when they began moving upward again. "But that's what you'd expect when the industry is moving up. There's been quite a lot of press coverage on inventories and I think it's a little bit overdone," Gordon said in a phone interview.

He said the hangover from the tech bust of 2001 still lingers, with industry executives already girding for the next downturn. "The classic signs of an approaching peak in the market -- such as increased channel inventory, increased capital spending forecasts, reducing device pricing and lead times -- which in the past would have been treated lightly at this stage in the cycle, are causing executives to be nervous," Gordon was quoted saying in a press release from Gartner.

Before the tech downturn of the early 2000s, semiconductor companies would often issue an annual forecast on demand, which would be subsequently revised on a quarterly basis. However, as chip investors have gloomily come to acknowledge, the balance of power has since shifted away from the supply side and resides with chip purchasers.

Even amid the current industry rebound, chipmakers have only one or possibly two quarters of visibility into their business outlook, Gordon noted.