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Tickers in this Article: XSD, INTC, TSM, BRCM, ELX, TXN
Volatility can be expected in the semiconductor arena. Last year the sector was among the worst performers as the SPDR S&P Semiconductor ETF (NYSE: XSD) lost 48%. So far in 2009, the space has been a monster; XSD is up 43%, and it appears that the worst may be over.

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Building for the Future
On Wednesday, the industry association SEMI projected that global sales of semiconductor equipment will double next year. This change in fortune will follow what is expected to be a rough 2009, in which sales are expected to decline 56% on a year-over-year basis.

Major Players
Intel (Nasdaq: INTC) will be a driving force behind this turnaround. The chip maker has announced plans to sink $7 billion into upgrading its semiconductor plants over the next two years. Shares of Intel have risen 12% year-to-date after giving up 45% of their value last year.

Another major player in the semiconductor recovery will be Taiwan Semiconductor Manufacturing (NYSE: TSM) which said the worst is over for the global chip industry on Wednesday. The company has announced that it is hiring hundreds of new engineers to prepare for future business and recently booked its largest month for revenue in seven months, resulting from a revival in consumer demand.

Other Positive Signs
Other positive indicators for a recovery in this sector are evident in the forms of consolidation and forecast revisions to the upside. Broadcom (Nasdaq: BRCM) has made a $764 million hostile takeover bid for competitor Emulex (NYSE: ELX). The companies are presently engaged in a battle over the adequacy of the price of Broadcom's $9.25 per share offer. The unsolicited bid was brought to Emulex shareholders last month. Common shares of Emulex are currently trading around $10.50. (Be sure to read Analyzing An Acquisition Announcement to learn how these deals can make or break investors' returns.)

In terms of forecast revisions, on Monday, Texas Instruments (NYSE: TXN) upped its Q2 earnings and revenue guidance. The company said that all major product lines are growing, especially its analog business segment.

The Bottom Line
It looks like the semiconductor industry will continue to face some more adversity this year before finally turning the corner. Any resulting damage seems to be priced into semis, which are coming off of a horrendous 2008. Semi stocks should only get stronger from this point forward.

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