Chips: Hoping for a Surge

-- Upgrades of PCs and servers will drive sales of microprocessors

-- The ongoing wireless revolution will bring a lift to communications chips

Willem P. Roelandts heads the Semiconductor Industry Assn.'s statistics unit. But he's surprisingly coy about forecasting chip sales in 2003. The SIA's official line is that worldwide chip sales will climb 19.8%, to $169 billion. However, Roelandts is also CEO of chip designer Xilinx Inc. (XLNX ) And when he's wearing that hat, he's still haunted by the SIA's off-the-mark prediction of a sharp recovery in 2001. "We'll see some growth next year," he says, "but how much is anybody's guess."

Time is on the chip industry's side because many computers and electronic systems are due for replacement. The last PC splurge was in 1999, to head off Y2K troubles. Today, some 500 million PCs worldwide sport relatively slow microprocessors with speeds of 700 megahertz or less. Even with replacements, though, the desktop- and mobile-PC semiconductor market will rise just 8.9% in 2003, to $39.4 billion, market researcher IDC predicts. As these chips make up just a third or so of the total market, hefty double-digit growth probably isn't in the cards.

To tempt buyers, Intel Corp. (INTC ) plans to boost microprocessor speeds to 4.5 gigahertz by late 2003. In addition, the chip giant will launch its Banias low-power chip for notebooks, throwing wireless networking technology into the mix. This year will also see the debut of a new breed of high-performance chip for PCs and servers from Advanced Micro Devices Inc. (AMD )

Outside of the PC industry, the biggest challenge will be exploiting the "pockets of growth" within the maturing high-tech sector, says IDC analyst Shane Rau. In wireless markets, for instance, Texas Instruments (TXN ), Motorola (MOT ), and Taiwan Semiconductor Manufacturing Co. (TSM ) hope for a boom in wireless phones, handhelds, and wireless broadband networking gear. It all adds up to a chip rebound. But beware of those rosy predictions.

By Cliff Edwards in San Mateo, Calif.

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