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US chip companies forecast piecemeal recovery

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CIOL Bureau
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FRANCISCO:Semiconductor companies, battered by declining revenue and

shrinking profits in the past year, are starting to forecast the

return of modest growth, suggesting that some sectors of the

beleaguered industry are rebounding.



Chip companies

that reported quarterly results in the past week met Wall Street

expectations. More importantly, analysts and executives said, many

forecast sales growth of as much as 20 percent for the current

quarter from the prior one.



But while last

year's recession flattened every segment of the semiconductor

industry and knocked some $83 billion out of global sales, the

recovery is emerging a patch at a time, and more slowly for those

that depend on the PC industry, like leader Intel Corp., analysts

said.



"It's

sectors of the semiconductor business that are coming back now, not

the industry as a whole," said Arun Veerappan, an analyst at

Robertson Stephens.



One example of

strength, Veerappan said, is the market for analog and mixed signal

chips, used in everything from cell phones to battery chargers to

industrial gauges. "It's a space that doesn't grow out of

proportion when times are good and doesn't decline too much when

times are bad," he said.



Communications

chip makers clamber back


Specialty communications chip makers

have also reported signs of a recovery, and perhaps as a result,
delivered a more upbeat view of the state of the $139 billion

industry.



"The

semiconductor industry overall clearly is in a recovery mode,"

Dwight Decker, chief executive of Conexant Systems Inc., said last

week in an interview. Newport Beach, California-based Conexant, which

makes chips for cellular phones, high-speed Internet modems, video

game consoles and television set-top boxes, reported on Wednesday a

narrower-than-expected loss in its fiscal second quarter on higher

growth in all of its business.



Conexant, which

is spinning off three divisions, also said it expects revenue in the

current quarter to rise 3 percent to 5 percent over the $241 million

reported in its second quarter. Communications and networking

semiconductor designer Broadcom Corp. also forecast sequential

revenue growth for the next two quarters as customers resume ordering

chips that they had overstocked throughout much of last year and said

its ability to gauge future revenue levels has improved.



"We have a

reasonable level of visibility on our businesses," Bill Ruehle,

Broadcom's chief financial officer said in an interview. Similarly,

PMC-Sierra Inc., a leader in specialty chips for metro area networks

used to link nearby offices to long-haul data links, forecast a 10

percent to 20 percent rise in networking revenue in the second

quarter from $42.4 million in the first.



"Strong

sequential growth, strong off of a modest base, is what we can

expect," John Sullivan, PMC-Sierra's chief financial officer

said in an interview.



Free fall and

then bounce

For all of last year, the semiconductor business,

had been in a free fall, tumbling more than 30 percent in its
biggest-ever revenue decline -- year over year.



Slowing global

economies, weak corporate investment in technology and a glut of

chips, most notably in telecommunications, ripped through the

industry, causing hundreds of millions of dollars in losses and tens

of thousands of layoffs.



But for this

year, the Semiconductor Industry Association is calling for a modest

recovery, with global chip sales set to rise about 6 percent. The

trade group sees things taking off in 2003, with growth of more than

20 percent.



Even so, some of

the bigger names won't be arriving at the return-of-revenue-growth

party until later this year, if at all. Intel, the world's biggest

semiconductor manufacturer that derives about 80 percent of its

revenue from the personal computer business, played it safe when it

issued guidance for its second quarter.



The No. 1

chipmaker forecast second-quarter revenue of $6.4 billion to $7

billion, implying a decrease of almost 6 percent or an increase of a

bit more than 3 percent from first-quarter revenue of $6.78 billion.



Advanced Micro

Devices Inc., Intel's principal competitor in the market for

microprocessors, noted that it expects a decline in second-quarter

revenue of 5 percent to 10 percent from the $902.1 million it had in

the first period.



But those

forecasts are in line with historical patterns in the notoriously

cyclical PC industry; industry revenues typically decline in the

second quarter from the first. Still, Intel's guidance offers

optimists the hope that revenue will rise, at least a little bit. In

the past five years, Intel's second-quarter revenue has declined by

an average of 3 percent from the first quarter.



"Intel's

visibility for an economic recovery is still limited but is still

expecting a normal seasonal (second half), wrote Dan Niles, an

analyst at Lehman Brothers. "We continue to believe the recovery

will be stretched toward the late part of 2002."

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