The semiconductor industry is looking at first signs of recovery as it struggles to clear inventories of unsold chips stemming from a slowdown in consumer spending, industry executives said on Thursday.

The industry hit a slump as demand for consumer gadgets has slowed in Europe and elsewhere due to economic uncertainties at a time when vendors have invested heavily in the new production gear.

Chip designer ARM said it was optimistic that reductions in inventory by device makers, which is dampening demand for semiconductors, would be short-lived.

We are seeing some ARM licensees looking beyond that and the body language is more positive than a quarter ago, Chief Executive Warren East said on Thursday.

French chipmaker STMicroelectronics said it expects to return to normal business conditions in the second quarter of 2012 after inventory is cleared, its chief executive told an investor conference in Barcelona.

Comments of STMicroelectronics echoed research firm Gartner, which said it expected the inventory correction to continue to dampen sales prospects for at least the reminder of the year before sequential growth can return in 2012.

U.S. microcontroller maker Microchip called the bottom of the cycle when it reported third-quarter results earlier this month.

Microchip, often seen as a canary in the coal mine for the chip industry, said it expects the inventory burn-off to be largely over by the end of 2011 and anticipates the December quarter to mark the bottom of this industry cycle.

While STMicroelectronics forecast a continued slowdown in fourth-quarter sales when reporting weak results last month, CEO Carlo Bozotti said the company had seen an uptick.

For a few weeks we have seen bookings increasing again, Bozotti said, adding the orders were still at a low level and it was not clear how sustainable the trend was.

SMARTPHONES TO HELP FRAGILE RECOVERY

ARM, whose processor blueprints are licensed by chipmakers such as Texas Instruments and Samsung Electronics, said royalties would grow faster than the market in 2012, driven by hot smartphone products such as Apple's iPhone 4S, which is powered by its designs.

We expect next year to be another year of significant growth for smartphones, East told the Morgan Stanley technology, media and telecom conference in Barcelona.

He said, however, that the number shipped would undoubtedly be affected by economic conditions.

In Taipei, ARM President Tudor Brown said he expected the semiconductor industry to grow a few percent in 2012.

Research firm IHS iSuppli on Thursday cut its forecast for growth of global semiconductor market in 2011 to just 1.2 percent from 2.9 percent growth it had forecast earlier.

IHS iSuppli said the weak economy would continue to depress consumer spending in 2012, the foremost driver of electronics and semiconductor market demand, leading to an anemic 3.2 percent for the chip industry.

A return to stronger growth will not begin until 2013. However, any forecast for growth is cautious in nature as a number of factors threaten to drive the economy back into recession, which would push the semiconductor market into a double dip, the researcher said.

(Editing by Maureen Bavdek)

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