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Following on a humdinger of a year for semiconductor sales, the Semiconductor Industry Association (SIA) said Monday that it may boost its 2004 growth forecast above the 19.4% it

outlined in November, citing improving growth prospects for PCs and cell phones.

The SIA reported Monday that 2003 growth clocked in above its expectations, with a fat 18.3% gain to $166.4 billion. That's several percentage points above its forecast for 15.8% growth. Still, the industry trade group added that it doesn't have enough visibility yet to formally raise its estimate.

In the short term, the association added that chip companies are likely to see a better-than-normal first quarter, with overall sales in a range of down a percentage point to up a percentage point on a sequential basis. Only two times in the past decade have chip sales actually risen in the first quarter, the SIA said.

Separately on Monday, Bear Stearns hiked its semi sales outlook for 2004 from 19% to 22%, citing an improving outlook for wire-line infrastructure, a rise in prices for analog and digital signal processors (many of which end up in cell phones), a better unit sales outlook in the consumer and wireless end markets, and a continued fat-and-happy environment for PC semiconductors.

The increased optimism doesn't come as a total shock, given that big chipmakers such as


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offered generous first-quarter guidance, while


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outperformed on fourth-quarter gross margins.

Yet investors have reacted to the news by promptly dumping some of their chip holdings, evidence of Wall Street's time-honored contrary ways. Since Intel reported on Jan. 14, its shares slid nearly 9% through Friday's close. Similarly, the Philadelphia Stock Exchange Semiconductor Index has sunk about 5% in the same time frame. Shortly after 3 p.m. EST Monday, Intel was down 5 cents, or 0.2%, to $30.53 while the SOX was down 0.7% to 510.48.

One culprit for the recent selling is that investors are starting to wonder about the sustainability of the robust growth rates seen of late, making them uneasy about heady chip valuations.

Indeed, just as habitually cautious tech execs have started to acknowledge a full-fledged rebound, there's begun to be talk of a looming slowdown in the rate of recovery. At Banc of America, analyst Mark Fitzgerald predicts chip momentum will peak sometime in the middle of this year.

Meanwhile, Rick Bensignor, chief technical analyst at Morgan Stanley, wrote Monday that the SOX is "showing signs of growing tired" and faces important daily and weekly chart support in the 475 area. "Thus, we will keep our eyes closely on this sector over the next several weeks," Bensignor wrote.

Notably, the Semiconductor Industry Association echoed some fundamental analysts' concerns when it acknowledged sales momentum could start to slow by the middle of 2004. Furthermore, the semiconductor industry will start to run into tough year-on-year comparisons in the second half of the year.

Under its current forecast, the trade group expects a downturn to get under way by 2005, when chip sales are projected to shrink by about 6% after three years of growth.

While investors may be starting to feel antsy, the fundamental outlook remains solid for 2004 overall.

One sign that the rebound is under way: Chipmakers in the fourth quarter utilized an estimated 95% of their factory capacity, according to an estimate from San Jose, Calif., market research firm VLSI. Still, that utilization rate is expected to ebb a few percentage points in the first quarter.

Even so, capacity utilization would remain far above that seen in the downturn, when the industry fab utilization rate slumped to a low point of 63% in the cheerless third quarter of 2001.

But utilization rates will have to stay above 90% for a while before chipmakers start to regain pricing power, the SIA acknowledged in a conference call Monday.

In other comments on the 2004 outlook, the SIA said it believes computer unit sales could grow 13% to 15%. In 2003, PC unit growth bested the trade group's expectations, up 11% to 170 million units instead of the expected 8%.

PCs account for about 30% of the end market for semiconductors.

Cell-phone unit sales are expected to increase 10% to 15% this year, the SIA said. Last year, handsets grew 16%, better than the SIA's estimate for 10%. Meanwhile, handsets are expected to contain richer content of chips to help power color displays and cameras.

Cell phones currently account for about 12% of semiconductor consumption.