Nail-biting optimism might be the best way to describe the mood of the U.S. electronics industry this summer. "We have modest expectations in the intermediate term," said Rich Templeton, the chief operating officer at Texas Instruments Inc. (Dallas), a statement that summed up the views at some of the major semiconductor operations in the United States.

But "what could derail the industry is a retrenchment in consumer confidence," said Ray Burgess, director of strategy for Motorola's Semiconductor Products Sector, who noted that consumer debt is still on the rise in the United States.

Templeton said semiconductor sales growth at TI remains "pretty steady," with the 10 percent sequential growth recorded in the second quarter expected to repeat itself in the third. As a result, TI is upping capacity at its new 300-millimeter fab, DMOS 6, from 6,000 to 10,000 wafers per month.

Growth potential is strong in digital consumer markets, Templeton said, especially the portable video and audio formats, wireless LANs and "broadband to the home and through the home."

Broadband penetration in the United States remains in the "mid-single digits," he said. Pointing to South Korea, where broadband services are available in more than 40 percent of homes, Templeton said densely populated Asian cities may have some "inherent advantages compared with the United States, where people are spread out. But that doesn't account for all of the difference, and there are ongoing discussions about regulations, unbundling and monthly rates for broadband."

Templeton predicted that at some point, broadband will explode just as digital cellular did in the 1990s. "It reminds me of the 1994-95 debate about whether the cellular phone industry would remain an analog world. The same thing could happen with broadband [in terms of sudden uptake] if we can make the data services compelling," he said. Ditto for third-generation cellular. "The plumbing-whether it is 2.5 G or 3G-doesn't matter to the user. It's the services that count."

At Motorola, Burgess said the company is sticking by its midyear forecast of 5 to 10 percent year-on-year growth in semiconductors, excluding memories and discretes. The U.S. market will be somewhat weaker than that, and Asia-Pacific somewhat stronger, he said. Motorola's prediction roughly jibes with the 3 to 4 percent growth forecasts by World Semiconductor Trade Statistics and many analysts.

Next year, Motorola's semiconductor growth could reach "the high 20s because of momentum," Burgess said, with an underlying assumption of 10 to 15 percent growth in wireless handsets. "Right now growth is more muted than some had hoped, partly because networking is not really coming back yet. Our networking sales are down 50 percent, but that compares favorably with some other companies. Networking companies still have not gotten to the stage where they are buying again.

"Wireless is doing OK," Burgess went on. "Last year 370 million to 380 million handsets were sold, and even if only 410 million phones are sold this year, that is reasonable growth. The big difference is that the industry does not have six weeks of inventory to get rid of [as it did] at the beginning of last year."

While chip inventories are relatively low, Burgess said Motorola is still getting a handle on "written-off inventories"-that is, product deemed worthless but still in the channel.

Burgess said most wireless handsets are being shipped as General Packet Radio Service-enabled, a trend that is helping silicon vendors. By year's end, Motorola expects that 80 percent of phones shipped will be GPRS-capable. "The service providers care about ARPU [average revenue per user], and they would rather spend more money to issue a GPRS phone and then figure out how they can turn on one in five, or one in 10, people to value-add services that require GPRS."

Sumit Sadana, director of strategy for IBM Corp.'s Microelectronics Division, said the current environment is particularly difficult to understand. "No one has a crystal ball. The industry clearly is struggling, nudging along the bottom."

Factoring out DRAMs, the chip industry may contract by as much as 5 to 8 percent this year, Sadana said. "We do expect the second half to be better than the first half, but only moderately."

Asked whether the accounting scandals would upset the U.S. economy, Sadana replied, "How cynical the mood has become! With all of the recent scandals, the mood in this country is pretty bad now. But the business infrastructure in the United States is very robust, and the economy is going to come back. The gloomy mood now may be caused by short-term events and may not be applicable to a discussion of the long-term future."

Sadana said IBM Microelectronics is looking at "a shallow recovery in the second half, and more momentum in 2003 and 2004, with double-digit growth." Some semiconductor vendors are seeing an inventory bounce, but Sadana said that is being offset by the fact that "business capital investments are very weak," with a commensurate impact on IT spending.

Consumer spending has remained surprisingly strong this year thus far, as reflected in strong consumption of silicon for consumer applications. "Game machines and DVD players are growing at a fairly healthy clip," Sadana said, with some strength in storage networking.

Business capital investments may lag until profits pick up, probably in 2003, he said. "We need to see some improvement in profits over the next couple of quarters. Data processing is going to have a better year in '03, and for the communications suppliers, for wireline telecommunications, we expect to see some level of growth in '04. For the Qwests and the other Baby Bells, next year will be one of continued difficulty."

The wireless segment also is under pressure, with price wars causing problems for wireless service providers, Sadana said. Wireless handsets will show flat to 5 percent growth this year, he believes, but GPRS will fuel sales in 2003 and 2004.

Dean McCarron, principal analyst at Mercury Research (Phoenix), reported that the PC sector saw an "unusually strong first quarter, which appears to have resulted in inventory growth of finished system and PC components. As a result of borrowing sales from future quarters, second-quarter component sales will be down significantly, and evidence suggests that the third quarter will only offer a slight improvement."

While games and game-related graphics technologies may stimulate consumer demand in the fourth quarter, McCarron doesn't expect significant market recovery until second-half 2003.

Radu Andrei, an analyst at Webfeet Research (San Diego), is among the more bullish analysts, predicting 7 percent growth for the chip industry this year, to $148 billion. By the end of 2003, revenue will hit $179 billion, Andrei said.

"Chip market growth over the next six to 18 months will be slow, steady and selective," he said.