The leading trade group for the chip industry today quietly lowered its forecast for revenue growth in 2003 -- but even so, its projections continue to look wildly optimistic compared with most analysts.

The Semiconductor Industry Association today said it expects annual sales to grow between 10% and 15% in 2003, down from the forecast for 19% growth that it issued last November.

In explaining the uniquely sunny forecast, SIA President George Scalise said inventories are trending down. That conclusion runs contrary to the view of some analysts, who have speculated that inventories may have built up somewhat as companies stockpiled goods to avoid war-related interruptions.

Separately, the SIA forecast unit growth of 5% to 8% for both PCs and cell phone handsets, which together account for about half of semiconductor consumption.

Explaining how semiconductor sales growth will surpass expected growth in its end markets, Scalise said chip content is increasing in devices such as high-end cell phones. He added, there is "probably some room for improvement" in average selling prices in some areas of the semi market.

But analysts sounded skeptical. "A lot of things would have to go right to get to that point," says Woody Calleri of boutique investment firm Midwest Research, referring to the SIA's double-digit growth forecast. Calleri expects revenues to come in flat to up 5% this year.

He reckons the semiconductor outlook is likely to become clearer by June, as companies firm up their budget plans for the year. If the economic outlook doesn't improve by then, Calleri says his interviews with corporate sources suggest many may resort to further budget cuts and more layoffs.

Says one hedge fund analyst, "I think inventories have stabilized, but demand on the margins based on my own checks is weaker. And if it doesn't pick up, we will have too much inventory."

While the March quarter was "pretty good," with solid results for

Texas Instruments

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and

Broadcom

(BRCM)

and "reasonably good" numbers for

Intel

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, the analyst predicts the industry is still only likely to grow in the mid-single digits this year. "That's probably a realistic case assuming there's some recovery in the second half. If we end up with a disappointing second quarter, I think the low-single digits is more likely."

"The market seems to be pricing in something a lot bigger than we realistically see right now," adds the hedge fund analyst.

The SIA also reported today that first-quarter chip sales were up 13% from year-ago levels, with sales in March growing 2.6% from February levels.

While sales were up in absolute terms, growth measured on a three-month moving average has been slowing in recent months, points out Bear Stearns. "We continue to expect the year-on-year growth of three-month moving average revenue to fall and find a bottom in late third quarter," said the firm in a note.

The SIA also said today that capacity utilization for the most sophisticated kinds of chips, manufactured on very small line-widths, has risen to around 90%. Capacity utilization, a productivity measure, gauges how much of available factory capacity is being used to produce chips.

But utilization rates for older types of chips remain in the 70% range.