Chip industry gets its groove back

The global semiconductor industry appears to be well on the mend after several months in the doldrums, with some major companies raising their forecasts for the current quarter, mainly because people are buying more notebook computers and mobile phones.

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Over the past few days, chip heavyweights Intel, Texas Instruments, and Taiwan Semiconductor Manufacturing Co. have all said business is better than they thought it would be during the current quarter.

The revisions show growing confidence that the chip industry will be healthier than expected this year, and that the IT sector overall should remain strong. For users, a better year for the industry could mean shortages of some components, but it should also mean that vendors will have enough confidence and cash to bring out new technologies.

"This upswing isn't just a few companies. I think across the board, chip makers are seeing an upturn in production momentum," said Kishore Suratkal, head of regional technology coverage at Macquarie Securities in Hong Kong. He added DVD recorders to the list of electronics people are buying.

The global chip industry should hit record sales of $226 billion in 2005, up six percent from last year, the Semiconductor Industry Association (SIA) said Wednesday. That's a lot more optimistic than the organization's previous forecast, which called for almost no growth for chips this year.

"Our cautious forecast issued in November of 2004 was based on concerns that high energy prices and lingering excess (chip) inventories in a few segments of the industry would dampen sales in 2005. Those fears have not materialized, and economic growth, especially in the U.S., has remained strong," George Scalise, the president of SIA, said in a statement.

Mobile gear such as handsets, along with wireless-enabled notebook computers and consumer electronics including DVD recorders, are behind stronger demand, Suratkal said.

Mobile phone chip giant Texas Instruments kicked off the spate of revisions early in the week by slightly raising its revenue expectations to between $3.12 billion and $3.24 billion, from an earlier prediction of $3.0 billion to $3.24 billion, thanks to growing demand across a broad range of its semiconductor products as well as growth in educational calculators, the company said.

Intel, the world's largest chip maker, on Thursday raised its revenue forecast for the second quarter due to strong demand for laptop computers. The company said sales could reach between $9.1 billion and $9.3 billion for its fiscal quarter ending July 2, up from a previous forecast of $8.6 billion to $9.2 billion.

But the stronger sales have come at a cost to some consumers. Some Intel chip sets, the pair of chips inside a PC that regulate the flow of data between the central processor and other vital chips, have been in short supply due to the spike in demand, the company said.

TSMC, considered a bellwether for the global electronics industry due to the wide range of products its chips go into, also on Thursday raised its forecast for second quarter chip shipments. The world's biggest contract chip maker noted that strong demand from its customers indicated the chip inventory glut has been cleared.

The chip industry went into a downturn in the middle of last year amid a glut, after companies built up chip stocks on hopes for strong consumer demand that did not materialize. So far, the opposite has been true this year, with demand outpacing expectations, leading to sales and forecast revisions.