While the rest of the world is reeling from all the bad news in the technology industry, Taiwan's information technology (IT) sector is confident of a strong second half. Figures released on Wednesday from Taiwan's semi-government Market Intelligence Centre (MIC) point to a strong recovery in the overall IT industry. The IT hardware sector, the backbone of the island's IT industry, is predicted to see sales grow 15.4 per cent this year to hit US$43.35 billion, according to MIC. MIC predicts the sector will grow a further 8.8 per cent next year to US$53.59 billion. The tight IT market and weak outlook in the US are playing into the hands of Taiwanese companies, according to MIC director Victor Tsan Wen-nan. While the slow market and shrinking profits are forcing consolidation in the industry, such as the HP-Compaq merger, the trend is also forcing large brand-name vendors to outsource more design and production. Taiwanese companies' expertise and efficiency has helped them grab more of the production, with leverage of mainland production bases being a key aspect of the strategy. More than half of Taiwanese IT output is now made on the mainland. 'If leading companies want to release production for outsourcing, then Taiwanese have an advantage,' Mr Tsan said. While the outsourcing trend is boosting top-line figures for manufacturers, continued pressure on margins is limiting bottom-line growth. Intense competition between the new HP and Dell is exacerbating the problem. According to a confidence survey conducted by MIC in the past month, 57 per cent of companies expect moderate or strong growth in contracted orders for the third quarter, with that figure jumping to 81 per cent for the fourth quarter. MIC predicts IT growth of 3 per cent in the third quarter and 15 per cent in the fourth. Among the product categories predicted to grow this year, LCD panels and internet appliances (IA) top the list. From a relatively low base, IAs are expected to grow 140 per cent to a total production value of US$4.2 billion this year. Meanwhile, the new darling of the Taiwan IT industry, LCD panels, are estimated to grow 151 per cent to US$6.4 billion.