By Benjamin Pimentel

SAN FRANCISCO (Dow Jones) - Investors betting on a sharp snapback in chip demand were clearly disappointed by Intel Corp. which boldly called a bottom for personal computers, but did so with a strong hint of hesitation.

This much was evident Wednesday morning when shares of Intel (INTC) and major chip and chip-tools makers tumbled, even after the semiconductor giant issued better-than-expected first-quarter results.

The declines sent Philadelphia Semiconductor Index (SOXX) down 2.7%, falling further than the Nasdaq Composite Index (SOXX) which was down 1%.

In the first major report for one of the most widely anticipated tech earnings season in years, Intel posted lower profit and sales, but also exceeded Wall Street expectations. In a stunning move, Chief Executive Paul Otellini also called a bottom for the battered PC market.

But the Santa Clara, Calif.-based company also again held back in giving a formal guidance which led some analysts to wonder if Intel was just being prudent - or things may not be as rosy as the tech behemoth was trying to portray.

Intel's report was "a wrinkle in the sharp snapback thesis," JP Morgan analyst Shawn Webster told clients in a research note, adding that the company's results were "perhaps not good enough for those hoping for a sharp snapback."

Intel said it expected second-quarter sales to be roughly flat from the first quarter, which actually would be an improvement for a typically seasonally down period. The projection of $7 billion in sales also was in line with the official consensus, but it fell short of the "whisper" expectation of a sequential jump.

"We believe investor expectations for stocks with PC exposure such as Nvidia Corp. (NVDA), Marvell Technology (MRVL) and Intersil Corp. (ISIL) are high for second-quarter revenue growth given the improving news flow from the PC/foundry food chain in Asia over the last two months," Webster said.

He added, "As a result, we believe the flat outlook from Intel could be a disappointment to those expecting a more robust recovery, and negatively impact a range of PC chips stocks short term."

True enough, Nvidia was down 5.3% Wednesday, while Marvell was off about 0.7% and Intersil was behind 5.7%.

Concerns about near-term demand for semiconductors inevitably also hurt Intel's arch-rival Advanced Micro Devices (AMD), the second biggest maker of PC chips, whose shares fell 4.7%.

"Well, soft for Intel should mean softer for AMD," analyst Brian Piccioni of BMO Capital Markets said in an e-mail interview.

Intel's statement that its capital spending will be slightly down in 2009 also was bad news of makers of semiconductor manufacturing equipment. Shares of Applied Materials Inc. (AMAT) and Novellus Systems (NVLS) were down more than 4%, while and KLA-Tencor (KLAC) was off 3%.

Some analysts are closely watching the semiconductor sector since chip companies are often seen as indicators, as they must build their products ahead of any upswing in demand for end-customer goods.

Reports of a rising demand in Asia had prompted some analysts to believe that the market was picking up, although analysts say this is still largely a response to an overcorrection in inventory.

"Given Intel's size and market share, we believe the firm is a proxy for the bottoming process that is likely occurring across most consumer and enterprise markets," Stifel Nicolaus analyst Cody Acree told clients in a research note . "We believe the troughing is more a function of excess inventories finally being depleted than a dramatic improvement in the trajectory of sell-through."

Still, some analysts are convinced of a brightening picture for the chip sector and the tech industry in general, highlighted by Otellini who told analysts in Tuesday's call, "I believe the worst is now behind us from an inventory correction and demand level adjustment perspective."

Analyst Craig Berger of Friedman, Billings, Ramsey & Co. said he remains positive on chip stocks "over the next two to three quarters, as the inventory replenishment trade gives way to the reflation trade, and eventually, to the demand recovery trade."

He said investors "should prepare for the possibility of a sell-off this spring or summer, but plan on buying in this dip to be positioned for another round of improved chip fundamentals coming later this summer as the holiday build begins to ramp."