LONDON — Ever-bullish Malcolm Penn, founder and principal analyst with Future Horizons Ltd. (Sevenoaks, England) believes the market forces are at last moving into place to deliver a couple of years of booming growth for the semiconductor industry.

Penn gives three possible results for annual chip market growth in 2008, ranging from 7 percent at the low side up to 10 percent growth at the top end. He is convinced that, because of a lack of investment in semiconductor manufacturing capacity at present, prices will continue to rise, alongside units in 2009, giving rise to a market growth in the "high-teens" of percent.

This would be a return to glory days of the semiconductor; albeit one prompted by an unprecedented move away from chip manufacturing at the leading-edge by many of the major chip vendors.

But Penn is being bullish while the analysis forest remains full of bears. Others have expressed concern that a general economic slowdown could suppress demand in the second half of the year. Falling units with weak pricing is a recipe for a semiconductor market collapse. In contrast Penn believes that unit sales will hold up and when put together with increasing average selling prices (ASPs) will start to deliver strong overall chip market growth for the first time in many years.

"The second quarter sales were 2.3 percent above the first quarter whereas people had been predicting a flat second quarter," said Penn. "The numbers are consistently coming in at the high-end of expectations."

The second-half of the year is now when consumer-electronics dominated chip industry makes most of its sales and Penn is predicting Q3 to grow over Q2 by between 10 and 14 percent. Once most of the component buying is done for the gift giving season, sales typically slow in the fourth quarter and Penn sees sequential growth of between 3 and 6 percent.

As to pricing, Penn said; "Right now every number except memory is good. For the first five months of 2008 the market is up 4.9% and unit growth is up 9.2 percent."

He continued: "If you take memory out of the equation the first five months look even better. The market is up 12.3 percent and the units are up 7.2 percent. That shows the strengthening pricing away from memory."

And Penn has other data on his side. The global chip market in May 2008 was up 9.2 percent compared with the market in May 2007 driven by 17.5 percent equivalent growth in the AsiaPacific region. The global chip market in April had been up 5.5 percent compared with April 2007. So here is evidence of a strengthening market in line with Penn's prediction.

"Yes, the U.S. and the U.K. are going to struggle, but at the global level there is less of an impact. The IMF [International Monetary Fund] recently increased its forecast for global GDP growth for 2008 from 3.7 percent to 4.1 percent. That's a massive jump," said Penn.

Penn concluded that the question being asked in 2007; whether China, India and other emerging markets could compensate for recessionary tendencies in the Western hemisphere had been answered in the affirmative.

Nonetheless Penn expressed concern that one of the drivers of the current turnaround was the abandoning of leading-edge chip manufacturing by a significant swathe of the industry.

"Chip manufacturing capacity utilization is at 90 percent or more. Why are they spending less when the market is sold out? Unfortunately, the likes of TI, ST, NXP and Infineon have not got the stomach for manufacturing. They are all assuming they can go to TSMC, UMC and Chartered to get their leading-edge volume. Probably they can but it will cost them," said Penn.

Are the likes of Intel, Samsung and the foundries spending the required billions of dollars to bring on production at the leading-edge? "They are spending, but not enough," said Penn. "For four years TSMC has seen its price per wafer go down. Well no more."

But Penn has been bullish before and the market has not delivered what he has predicted. "That was mainly due to price wars in processors and memory. You cannot predict those and they distort the market. But we were always right on unit growth. Well only a fool would continue to deliver chips at lower and lower prices when they are effectively sold out."

The current lack of manufacturing investment and a consequent increase in price per wafer is the reason Penn gives for a sea-change in the market and even higher market growth in 2009. "It will be higher than this year. It has to be," he said.

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