SAN FRANCISCO -- The financial analyst who was one of the first to predict the current semiconductor turbulence has reversed his recommendation, saying that current data "suggests a fundamental bottom is only months away."

Analyst Jonathan Joseph of Salomon Smith Barney upgraded the semiconductor sector from "neutral" to "outperform," because "we believe the sector hit a cyclical bottom in unit shipments in February, orders in July, and dollar shipments in August," he wrote in a report issued today.

"In addition, capital spending is being cut back by 30-35% in 2001, while tighter inventories in the personal computer market should soon spread to wireless and wireline communications."

Joseph caused a storm of controversy last summer when he predicted the chip market would soon run into problems, a forecast that proved to be very accurate.

In his report today, he wrote, "Never in our experience have we heard stories of prominent semiconductor makers reporting no net bookings in the quarter, shipments for good, if not great, component suppliers falling 50% quarter on quarter, and distributors reporting a 65% sequential decline in demand."

Joseph wrote that demand "is really ugly out there. Conditions at many of our companies are the worst that even old-timers, who been through scores of downturns, have ever seen. If it cannot get worse, it will get better."

The analyst is forecasting personal computer growth of 5-7% this year, its slowest showing since 1985; "next year, whatever the growth rate, will almost certainly be better.

"We believe overall inventories in the personal computer channel are under control far sooner than we would have forecast. Some of that was reflected yesterday in PC motherboard data out of Taiwan, which surprised consensus estimates to the upside for the third month in a row."

Joseph predicted that by the second half of the year, "supply will move from severe excess in many segments to in-line and then, by 1H 2002, relative firming." He warned, however that "there are still areas of tremendous excess demand that will have to be worked off: Flash memory, discretes, and wafer foundry are all areas that are seeing severe excess supply that may not be absorbed until early 2002."

He also cautioned that, "There is a material chance that the worldwide economy could fall into a deep and sustained recession in coming quarters. This would result in a push-out of the seasonal recovery we expect in 2H, ending in further weak performance by the semiconductor group through this year."

The analyst upgraded seven stocks from to "buy" from "outperform": Intel, Micron, Texas Instruments, STMicro, Infineon, Altera, and Xilinx. He upgraded AMCC to "buy, speculative" from "outperform, high risk."