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Tight Supply Buoys Chip Sales Forecast

A research firm sees sales growing 10% this year.

Worldwide chip sales are likely to increase nearly 10% this year, as tight inventory levels maintain a healthy demand for semiconductors, according to a new report.

Industry research firm Gartner forecast that worldwide semiconductor revenue would reach $257.7 billion in 2006, up 9.5% from the $235.3 billion in revenue for 2005.

"The supply of semiconductor devices is becoming more constrained, and the downward pressure on the average selling prices of devices seen in 2005 has eased," said Andrew Norwood, the vice president of Gartner's semiconductor research group in a statement.

Gartner's projections are somewhat more bullish than those of the Semiconductor Industry Association,

released earlier this month, which predicted that chip sales would increase 7.9% in 2006.

According to the Gartner report, the lean inventory of chips in the market will naturally lead to increased semiconductor production. But with many of the industry's chip fabrication facilities currently running near full capacity, chipmakers will need to invest more in equipment.

In January,

Intel

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announced that it would boost capital expenditures by 19%, to $6.9 billion in 2006. Last week

Toshiba

said it will add another $63 billion yen ($530.1 million) to its fiscal 2005 spending on chip-making facilities, bringing the total to 289 billion yen.

"Since our last capital spending forecast in December 2005, significant increases in spending for 2006 have been announced, suggesting growth in capital expenditures of about 10% this year," said Gartner's Norwood.

That's good news for companies that sell chip-making equipment.

Applied Materials

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, the No. 1 chip-equipment maker, said Wednesday that

it expects orders in the current quarter to jump 15% to 20% sequentially. About half of those orders will be for memory-chip-making equipment, particularly flash memory, the company said.