MICROPROCESSORS: Sales of microprocessors, the chips that act as the brains for a range of computing devices, are one of the key yardsticks used to gauge an increase in demand for computer and networking equipment.

Therefore, the presence of semiconductor firms, such as Intel and Analog Devices, here should give Irish executives and staff working in the sector an early indication of when, and if, the much-anticipated recovery is coming.

Among the first signs of a recovery in corporate spending on technology goods are large orders placed with Intel and Analog, and an upsurge in activity at their large fabrication plants based in Limerick, and Leixlip in Kildare.

Intel's results this week suggest the worst may be over. The world's largest chip-maker reported first-quarter earnings down only slightly from a year ago, suggesting that its profit declines are nearing an end. But the firm also reported that forecasting future demand for chips was difficult, and the firm continued to be affected by weak IT spending in established markets such as Europe and the US.

Analysts attempting to evaluate the health of the semiconductor sector may find more answers by moving up the high-tech food chain to include a visit to a growing cluster of R&D centres in Cork, which specialise in integrated circuit design - the process used to develop the next generation of microprocessors.

Almost a dozen chip-design firms, and several related technology companies, have located in business parks near the National Microelectronics Research Centre in Cork. Most are currently dealing with the effects of reduced budgets following the sector's worst year in history, but the first tentative signs of renewed optimism are appearing.

Cypress, an US chip-design firm with its headquarters in San Jose, established its Cork design centre in 1998 with the promise of bringing 55 new jobs to Cork's burgeoning digital district. But like most firms in the chip sector, recruitment stalled at under 20 while the sector's sales plummeted about 37 per cent last year.

"Companies are not hiring, and a few have scaled back ... It's a cyclical downturn," says Mr Tony Blake, design centre manager at Cypress Semiconductor Ireland.

Although employees at the design and R&D arms of semiconductor firms mostly do not face the savage cuts that can occur in manufacturing divisions, a spate of bad news has affected this sector too.

Confidence among employees, graduates and school-leavers in the sector has fallen, says Mr Blake. Employees who tended to change jobs regularly during the boom years are now being more cautious about leaving a firm, and the downturn in school-leavers choosing science subjects at university is probably driven by the current downturn. But Mr Blake believes there is too much emphasis on bad news and at last there are signs of sector recovery.

"Assembly plants around the world have seen a dramatic upturn in bookings over the last few weeks and it seems that large inventories which had built up are finally being reduced," he says.

His colleague, Mr Liam Wall, programme manager for new product development at Cypress Ireland, is similarly upbeat about the future.

"New products are critical to drive growth; more than 50 per cent of our revenues comes from products released in the previous two years ... The product lifecycle may be 10 years but as products age the price also goes down."

A flurry of new job announcements last week by several international companies - Motorola, RF Integration, Dow Corning and GN ReSound Limited - tend to support this theory. Three new projects, and the one company expansion announced by IDA Ireland last week, will employ an additional 120 staff in Cork by 2007.

Mr John Quigley, director of Motorola's Ireland Design Centre in Cork, says in many ways it is much easier to grow now than four years ago during the boom. Motorola has already taken an option on leasing the ground floor of its current building and should expand next year, he says.

Motorola set up its semiconductor design facility in Cork in 1998 to design chip-based circuits for mobile phones. Recent work by Irish engineers has enabled Motorola to develop phones with dramatically fewer parts then previously possible, reducing manufacturing costs considerably.

The latest generation of cell phone, C330, using technology developed in the Republic, went on sale last week, says Mr Quigley. But the real driver of these types of technologies is China, where Motorola hopes to sell hundreds of millions of low-cost handsets.

The creation of high-value R&D jobs is a central goal of the IDA in Cork, a region that has suffered more than 1,500 job losses recently. Yet in the current economic climate it is the public sector that is signalling renewed confidence in the prospects for recovery and expansion in the technology sector.

The National Microelectronics Research Centre, which is linked to University College Cork, is planning to double the number of researchers to more than 400 if it can secure Government backing to expand from its present site. The centre, which has provided many of the staff who work in design firms in Cork, specialises in several technologies: nanotechnology, ICT/life sciences, optoelectronics and microelectronics.

It has recently stepped up a programme to encourage the commercialisation of research by taking equity stakes in spin-off firms and licensing patented technology to multinational and domestic firms.

"We are starting to develop an intellectual property platform at the centre and hopefully this will lead to an income stream in the future," says Dr Alan Mathewson, assistant director of the Silicon Technology Applications Group.

"I think the mistake that we made in the past is we didn't protect our intellectual property... Now we are protecting what we consider good IP for the future of the centre."

The expansion of the centre would encourage other semiconductor firms to locate in the Cork region. But this will also depend on the strength and timing of the recovery in the technology sector.