Semiconductor Stocks Up On Encouraging Comments

Semiconductor stocks rallied Wednesday following encouraging comments in the sector and ahead of earnings from giants such as Intel Corp. (INTC) and Texas Instruments Inc. (TXN).

Positive commentary from analog chip maker Linear Technology Corp. (LLTC), manufacturer Taiwan Semiconductor Manufacturing Co. (TSM, 2330.TW) and semiconductor-equipment maker ASML Holding NV (AMSL, ASML.AE) stood in contrast to recent guidance cuts from other companies in the industry. Analysts said the news boosted hopes that the chip sector may soon rebound following a few quarters of tepid results.

"While we continue to expect estimate cuts for the group, investor confidence in shortly reaching an end to the current inventory correction has likely been boosted," Canaccord Genuity analyst Bobby Burleson noted.

The news helped to push the Philadelphia SOX Semiconductor Index to its highest level since July. The index recently rose 4.8% to 403.68. Among the index's biggest gainers Wednesday were Linear, Altera Corp. (ALTR), Texas Instruments, Micron Technology Inc. (MU) and STMicroelectronics N.V. (STM).

Semiconductor companies in general have posted softer results in recent quarters because of weakening demand. Customers, worried about an economic slowdown, have pared back orders as they work through their inventory levels, but some observers have been hoping the market had reached its low point.

The market will gain more clarity when some of the companies start to report quarterly results. Intel is on tap for its fourth-quarter results Thursday, followed by Texas Instruments on Monday. Both Intel and Texas Instruments lowered their guidance for the current period, with Intel citing the impact that severe flooding in Thailand has had on the personal-computer industry and Texas Instruments blaming broad-based lower demand.

On Tuesday, Linear, which makes analog chips that take real-world signals, such as sound and light, and convert them to digital signals, said it had reached an inflection point in its business. It provided better-than-expected guidance for the current period and said bookings improved in December and January.

Chief Financial Officer Paul Coghlan, speaking during a conference call Wednesday, said customers remain concerned about the global macroeconomic environment, but there are indications business it turning around.

"Customers, although cautious, appear to want to stop reducing inventory and invest modestly in demand," Coghlan said.

J.P. Morgan analyst Chris Danely noted that Linear was the first semiconductor company to talk about higher bookings. He said he expects that strength to spread across the sector in the first half of the year, with inventory in the channel depleted almost to the levels of the 2008 to 2009 downturn. Danely added that it is "time to buy semis aggressively."

Linear shares, down 8.7% over the past 12 months, recently were up 10% to $33. Its analog rivals were among the biggest gainers, with Fairchild Semiconductor International Inc. (FCS) up 10% to $14.34 and Analog Devices Inc. (ADI) ahead 5.6% to $39.13. Both Texas Instruments and Intersil Corp. (ISIL) grew about 7%.

Meanwhile, Taiwan Semiconductor Manufacturing Co., which makes chips for U.S. companies such as Qualcomm Inc. (QCOM), Nvidia Corp. (NVDA) and Texas Instruments, sounded a slightly upbeat note about its prospects for the first quarter. The company said it expects revenue to be largely flat compared to the fourth quarter, instead of lower as is the seasonal norm, as some customers are expected to replenish their inventories after holding off from doing so for months due to the dour global economic outlook.

But all wasn't rosy. The company said ongoing lower demand for computer chips, which resulted in a decline in its fourth-quarter net profit, has led it to cut planned capital expenditures by 18% this year. Taiwan Semiconductor Manufacturing shares recently were up 2.8% to $13.84.

Still, Dutch semiconductor equipment maker ASML Holding which counts Intel and Samsung Electronics Co. (SSNHY, 005930.SE) among its customers, said Wednesday that it expects a healthy start to 2012, as its customers invest in chip production to drive faster and more powerful smartphones and tablet computers.

"It's too early to provide a full-year outlook, but the prospects for the first six months, based on the expectations of our clients, are good," Chief Financial Officer Peter Wennink said.

ASML shares slid 1.2% to $42.07.

-By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com

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