According to market research firm iSuppli Corp. (El Segundo, Calif.), fourth-quarter chip revenue is expected to be $60.4 billion, up 10.6 percent compared to $54.5 billion in the fourth quarter of 2008.

ISuppli is hardly alone in predicting year-to-year growth in the fourth quarter. As the downturn set in, semiconductor revenues dropped off a cliff in the fourth quarter of 2008, falling by 21 percent compared to the previous quarter, according to iSuppli's data. Nearly all observers expect the industry to show year-to-year growth in the fourth quarter, now that business conditions have improved.

IC Insights Inc., for example, predicts that fourth-quarter revenue will be up 24 percent compared to the fourth quarter of 2008.

Gartner Inc. has been saying since May that the fourth quarter would bring the first year-to-year growth seen for chip revenue in 2009. According to Bryan Lewis, vice president and chief analyst for semiconductors at Gartner, the question now is the magnitude of the fourth quarter improvement, considering that the market seems to improve each month. Fourth quarter revenue could be up by as much as 24 percent compared to 2008, according to Lewis.

Dale Ford, iSuppli's senior vice president of market intelligence, said in a statement that the seeds of the current industry recovery were sown in the second quarter, when manufacturers began to report positive book-to-bill ratios, signaling future revenue growth. Revenue increased again sequentially in the third quarter, Ford noted.

Chip inventories returned to more normal levels in the third quarter, after chip suppliers shed stockpiles by slashing costs, Ford said.

ISuppli last month revised its 2009 semiconductor industry forecast, predicting that revenue would be down 16.5 percent compared to 2008. The firm had earlier predicted that the industry would contract by 23 percent this year. Industry revenue declined by 5.4 percent in 2008, according to the firm.

ISuppli projects that Industry revenue in 2010 is will be up 13.8 percent compared to 2009. IC Insights, meanwhile, projects growth of 15 percent next year.

Despite the year-to-year growth predicted for the fourth quarter and throughout 2010, iSuppli continues to forecast that semiconductor industry revenue will not return to pre-recessionary levels until 2011 or 2012, the firm said.

ISuppli also noted that some worrisome economic indicators remain, including the climbing of the U.S. unemployment rate, which reached 9.7 in August and is projected to peak at more than 10 percent. Also worrisome are the struggling credit and banking markets as well as the rising number of foreclosures in the U.S. housing market, clouding the overall economic outlook, iSuppli said. Collectively, these factors have served to constrain consumer spending, according to the firm. These conflicting elements have led to "tempered optimism" in the latest version of iSuppli's Application Market Forecast Tool, the firm said.

ISuppli's current forecast calls for chip revenue in the first two quarter of 2010 to be down slightly compared to the fourth quarter of this year. The market is expected to once again improve strongly in the second half of next year, the firm said.