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STMicroelectronics on Wednesday predicted sales growth in the semiconductor market would return to double digits by next year, injecting some optimism into a sector hit by Intel’s disappointing earnings last week.

“This year, the market will grow in the range of 7-10 per cent. We think ST will continue to gain market share and do better than the market,” said Carlo Bozotti, chairman and chief executive. “We expect the market to return to double-digit growth in 2007.”

The Franco-Italian chipmaker said full-year net profit dropped to $266m from $601m in 2004, partly due to restructuring charges.

Sales rose 1.4 per cent to $8.9bn, driven by growth in wireless applications, meaning the company has overtaken Infineon of Germany as Europe’s largest chipmaker by sales.

STMicro forecast first- quarter sales of $2.2bn-$2.4bn, compared with $2.1bn in the same period last year.

The company expects to benefit from increased sales of set top-boxes and digital TVs, for which STMicro makes components, in the run-up to the football World Cup in June.

STMicro said 2006 should also see the long-awaited take-off of 3G wireless technology, where it is well-positioned.

“We have not yet harvested the benefits of this switch to 3G,” said Philippe Geyres, head of the consumer division.

The company said capital expenditure should increase from $1.5bn to $1.8bn, mainly to purchase new equipment for advanced technologies.

Citigroup said over-investing in capacity was a risk, as was any downturn in the performance of Nokia – the mobile handset maker that accounts for about 18 per cent of STMicro’s sales – and fluctuations in commodities markets.

Mr Bozotti said he was in a “concrete discussion to have partnerships or ventures on memory products”.

However, responding to speculation of of a merger with Philips’ semiconductor unit, he stressed his focus was on organic growth and smaller acquisitions that had a good geographic fit.

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