Why There May be Life in Chip Stocks

Gloom rules the semiconductor market this year, but growing demand for DVDs, video set-top boxes, and LANs could mean better days ahead

These are the times that try chipmakers' souls: Heavyweight Texas Instruments (TXN ) has seen its revenues decline and its shares halved, from more than $70 last August to about $34 recently. Stock of former Lucent property Agere (AGR.A ), which went public at the end of March, has nosedived from a high of $9.50 in May to nearly $5 a share. Worldwide, chip sales should top out around $175 billion this year, a 14% drop from 2000, according to the Semiconductor Industry Assn. (SIA). The reason? Sales of PCs and cell phones -- for which chips are a key component -- are "terrible," says Scott Hudson, analyst with technology consultancy IDC. He thinks things won't change much in either market for next year.

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