LONDON — Semiconductor fab utilization rates are expected to bounce back during the second quarter of the year, with rises for the first time in a year to 60 percent compared with the low of just 49 percent during the first quarter, according to market research group iSuppli.

The move signals that the industry has entered into the "recovery phase" and more solid chip pricing, said Len Jelinek, director and chief analyst, semiconductor manufacturing for iSuppli.

"Semiconductor suppliers already have cut their fab workforces and have shut down pieces of manufacturing equipment that they have identified as excess gear that is not needed to serve the present low level of demand. These actions are paying off, boosting utilization rates at these fabs," said Jelinek.

Because of these headcount reductions and equipment shutdowns, total semiconductor manufacturing capacity declined to 732 million square inches of silicon in the first quarter of 2009, down from 756 million square inches of silicon in the fourth quarter of 2008, says iSuppli.

Looking further ahead, the researchers anticipate utilization rates will reach 75 percent in the third quarter of 2009 before experiencing a modest decline to 72 percent in the fourth quarter. After remaining flat in the first quarter of 2010, utilization is predicted to resume a sequential increase reaching 82 percent by the fourth quarter of 2010.

iSuppli adds that on the demand side, semiconductor manufacturers reported minor improvements in order rates during the first quarter of the year.

This, Jelinek says will lead to improving margins for semiconductor Integrated Device Manufacturers (IDMs) and pure-play foundries in the second quarter.

"Depending on how effectively they have cut costs and adjusted to reduced demand, companies will be able to show their investors solid financial improvements, especially in terms of cash flow."