Analysis: Is chip industry leading U.S. out of recession?

Gartner predicts semiconductor industry rebound in 2010

Is the semiconductor industry leading an economic rebound in the U.S.?

Maybe, but it all depends on which week you ask that question.

Those with confidence in the future of the chip industry got some good news this morning, when analyst firm Gartner Inc. pointed to a rebound in global semiconductor revenue next year. That's the good news. The bad news is that revenue is off 11.4% this year compared to 2008.

Gartner expects worldwide chip revenue to total $226 billion in 2009, a drop from from 2008 when revenue totaled $255 billion. That's still not as bad as Gartner had originally expected. (In its third-quarter projections, Gartner forecast semiconductor revenue would fall 17% this year.)

And next year, the analyst firm predicts revenue will be back up to $255 billion - a 13% increase from this year and essentially where the market was in 2008.

That upbeat outlook comes on the heels of a torrent of downgrades unleashed by investment house Morgan Stanley on the semiconductor industry, taking some steam out of the idea that chip companies like Intel Corp. are leading an economic comeback.

In something of a surprise to those who have been tracking signs that the semiconductor industry is rising from the financial mire affecting the economy at large, Morgan Stanley this month cut its rating for the industry from "attractive" to "cautious," while also downgrading the likes of Intel, Nvidia Corp. and Micron Technology Inc.

Morgan Stanley analysts Mark Lipacis and Sanjay Devgan wrote in a note at the time that rising inventories and concerns about PC component sales makes them to be more cautious about the industry. But the move flew in the face of many who have been saying for months that the chip industry was stabilizing and about to lead the tech economy out of trouble.

In October, Intel Corp. President and CEO Paul Otellini said the economy has already hit bottom and -- with a slew of aging PCs on their company desks -- executives will soon have to open their wallets and invest in new computers.

Otellini's comments came just weeks after Intel posted strong third-quarter earnings that beat analyst expectations and were buoyed by what the company called "momentum" in the economy.

In mid-October, the chip maker reported third-quarter revenue of $9.39 billion, topping a $9.04 billion estimate from analysts polled by Thomson Reuters. Intel also was confident going into the fourth quarter, predicting increased revenue of about $10.1 billion.

Otellini has said that strong netbook and mobile sales will lead the way for the chip industry.

Copyright © 2009 IDG Communications, Inc.

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