At least one analyst predicts double-digit growth for the global semiconductor market next year. Malcolm Penn, chief executive of Future Horizons (Sevenoaks, England), forecasts 10 to 16 percent growth, mainly because of rising average prices for ICs in 2007.

Penn said he's not surprised at the fourth-quarter downturn. "What you build in Q4 is for the first quarter of the next year," he said. "There are negative indicators in the U.S. economy, but that is not what is driving the electronics economy anymore. The developing economies are now more than 50 percent of the global economy. China is still growing at 10 percent, India at 8 percent, Russia at 8 percent."

Penn listed Sony's Playstation 3, Nintendo's Wii and Microsoft's Windows Vista operating system as products that would drive growth in 2007. "The DRAM market is looking very strong for next year," he said.

Penn also dismissed worries about inventory overbuild. "There are signs that the inventory problem has been overstated," he said. "Inventory hangover is inevitable, and each year it will happen in Q1 because that is equivalent to the morning after the night before."

Thus, the Semiconductor Industry Association's Semiconductor International Capacity Statistics numbers for the fourth quarter will bear watching, he said. Manufacturing-capacity utilization in the semiconductor industry dropped to 88.6 percent in the third quarter, and Penn said he believes it has likely bottomed out in the fourth, at about 85 percent. If the number should drop below 80 percent, however, that would be an indicator that the inventory excess is more serious.

But Penn is mainly encouraged by what he sees as returning average-selling-price increases. "If we have a 10 percent unit increase and ASPs are up on top of that, then things start to look very healthy," said Penn. "ASP strength has been what's missing over the last two years. It seems to be coming back a year late."

Penn speculated that "the problems with 130-nanometer process introduction effectively caused manufacturers to miss out on a year of higher-priced product introductions." Now, he said, "The smooth introduction of the 90-nm and 65-nm process nodes is allowing them to rejuvenate the product mix and get ASPs back up."