However, the SIA forecast does not attempt to grapple with the possible impact of a war between Iraq and the United States and its allies.

Scalise, in a conference call Monday (Feb. 3rd) said the industry will have to deal with conflicts in Iraq and North Korea "as they unfold," adding that geopolitical conflicts are "out of the industry's control."

The SIA reported that global semiconductor sales reached $12.5 billion in December 2002, bringing total revenue for the year to $140.7 billion, a 1.3 percent increase from the 2001 level of $138.9 billion. If the strong growth predicted for 2003 and 2004 become realities, the chip industry will have revenues of $206 billion next year, Scalise said.

Will Strauss, president of Forward Concepts (Phoenix) said the SIA appears to be "a little bit on the optimistic side." Forward Concepts predicts a 15 percent increase this year in the face of a weak U.S. economy, but a very strong 2004, with 30 percent predicted growth as the U.S. economy gains traction.

Scalise said the SIA forecast depends on some growth in the traditionally weak first quarter, and then sequential growth of 5 percent or more, quarter-to-quarter, over the final three quarters of 2003.

The SIA looks to wireless for much of the growth. WiFi (802.11) networks will growth by 35 percent on a compound annual growth rate basis for several years. Scalise said data-capable cellular handsets will add "ten to 15 dollars of value per set."

And personal computers will rebound, with higher memory content per unit. Personal computers continue to account for 30 percent of total semiconductor demand.

Overall, the chip industry's annual growth rate is moderating somewhat. The historical growth of 15 - 17 percent annually, on average, will slow to about 10 percent, he said.

Scalise said the SIA believes that capacity is coming into balance, despite recent warnings by the major Taiwan foundries that customers are being relatively cautios about moving to leading-edge processes of 0.13-micron and below.

In response to a question about capacity utilization, Scalise "we do have a new phenomenon that is exacerbating the situation. In the past, almost all of the industry's capacity was in the IDMs (integrated device manufacturers). Now there are a number of new foundries coming on stream that are all trying to gain market share as they begin to deal with the depreciation of their equipment."

After noting that the new 300-mm fabs can produce at least twice as many chips as the previous 200-mm factories, Scalise said the SIA "thinks we are pretty much in balance" in terms of supply and demand.

Strauss, at Forward Concepts, said recent signs are not so optimistic. Intel is trying to reduce its operating expenses by dumping underperforming operations.

Intel recently sold companies that it had acquired during the telecom boom for several hundreds of millions, such as Ziatech and Trillium, for a few million dollars each, which Strauss said was an effort by Intel "to reduce its burn rate."

"The people I talk to are not that optimistic right now. Frankly, the economy is weak. We see this being just an average year, which is about 15 percent, certainly not an above average year," Strauss said.

Forward Concepts, which closesly tracks the DSP and wireless systems markets, predicts that WiFi clients will enjoy an 85 percent CAGR through 2006, growing from $364 million in revenues in 2002 to $1.86 billion in 2006.

The proliferation of WiFi hotspots will have collateral impacts, Strauss noted. "Bill Gates' vision of tablet PCs" may happen as people tote lightweight computers around. Also, digital subscriber line (DSL) will gain a boost. In order to set up a WiFi hotspot somewhere, a DSL line and DSL modem is needed to supply an Internet link to the WiFi network.

"There are whole new markets that will open up because of WiFi," Strauss predicted.

The picture is slightly less clear in the U.S. market for wireless phones, partly because the third generation cellular standard may run up against competition from WiFi connectivity. Cellular phones with 802.11b "WiFi" chip sets will come to the market next year, Strauss noted.

Rather than connect to a relatively expensive 3G cellular network, people may roam to a WiFi hotspot, such as a coffee shop or subway station, and connect to the Internet there at higher connection speeds, he said.

"China is moving from 2G to 2.5G, and Europe is moving from 2.5G to 3G. But in the United States, there is some debate about whether we need 3G with all of the WiFi hotspots that are popping up."

And while Asian teenagers may regularly transmit snapshots of their friends over wireless networks, Strauss said that may not prove to be a big source of revenue in the United States. "The service providers are all scratching their heads trying to figure out what will make 3G go in the United States," he said.