“Economists and securities analysts are beginning to see faint signs that the beleaguered semiconductor sector has finally hit bottom after one of the worst downturns in industry history,” writes Jon Hilsenrath in today’s Wall Street Journal.

“Yet many agree that any recovery will proceed in an uncharacteristically plodding fashion as the industry works off mountains of excess capacity in the months ahead.”

“The Semiconductor Industry Association, or SIA, is forecasting a 4.7% increase in chip sales in the fourth quarter from the third quarter. Sales typically pick up at this time of year, yet it would still be the first quarterly improvement in more than 12 months. Meanwhile, prices for low-end memory chips have risen more than 40% since last month, after collapsing during the past 12 months. And some companies are becoming more upbeat in their comments, contributing to large gains in their stock prices.”

“Earlier this week, for example, Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, raised its pretax profit forecast for 2001 by 55% from its September estimates. The company is seeing a pickup in orders from consumer-electronics and communications-gear makers, said Morris Chang, its chairman.”

“At Intel Corp., after cutting its forecasts for much of the year, Chief Financial Officer Andy Bryant said he is increasingly comfortable with his fourth-quarter sales forecast, made in October — though he said it is still unclear when the economic downturn will end. Intel’s share price is up 64% from its low in September and is now at its highest level since April.”

“In the overall industry, “orders have bottomed and are re-accelerating from the deepest drop they’ve had in probably 30 years,” says Jonathan Joseph, a chip analyst with Salomon Smith Barney Inc.”

“Indeed, the SIA predicts that sales will rise next year by 6% after declining 31% in 2001. The real recovery, though, won’t begin until 2003, when sales are expected to increase 21%.”

“An end to the bleeding in the semiconductor sector could mark an important milestone for the U.S. economy and for certain U.S. trading partners, like Japan, Taiwan and Korea.”

“Semiconductor chips are the building blocks of the technology sector and go into everything from cars to computers to mobile telephones. What’s more, chips are a major export in Asia. In Japan, for example, the sector accounts for about a third of all corporate profits outside of the financial arena, according to Salomon Smith Barney. It is nearly a $30 billion industry in Europe.”

” ‘People feel that if the semiconductor business were to turn up in terms of sales or profit margins, that might be interpreted as a leading indicator that the broader technology sector has maybe hit bottom,’ says Stuart Hoffman, chief economist at PNC Financial Services Group.”