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To: FJB who wrote (1191)	7/28/2006 3:48:01 PM
From: niek	Read Replies (1) \| Respond to of 42822

Microchip stocks rally as investors sense bottom Friday July 28, 3:26 pm ET SAN FRANCISCO (Reuters) - Shares in companies that make microchips or supply tools for making them rose on Friday, as investors reckon the industry may have bottomed out after an extended slide. The sector's rise outpaced that in broader markets, which climbed on expectations that the U.S. Federal Reserve will not raise interest rates further in light of slower-than-expected economic growth and weak consumer demand. The Philadelphia Stock Exchange's semiconductor index was up 2.8 percent in mid-afternoon trade, led by a 3.7 percent gain in Intel Corp., the world's top chipmaker. "I'd liken it to a post-earnings sigh of relief," said Doug Freedman, an analyst with American Technology Research. "I think what you're seeing here is that we have finally hit a valuation trough." A raft of chip companies have reported quarterly financial results over the past two weeks. Highlights included giant wireless chip maker Texas Instruments Inc., which posted higher profits and shrugged off concern that the mobile telephone market could be slowing. Memory card maker SanDisk Corp. showed a profit that beat estimates, and KLA-Tencor Inc., a major supplier of equipment to make microchips, reported higher-than-expected revenue. On Thursday, Intel launched a new line of processors for desktop and notebook computers as part of the most significant overhaul of its product line in 6 years. Investors appear to be betting that the sector is poised to rise in the coming weeks. Traders snapped up some longer-dated calls on Novellus Systems Inc., Applied Materials Inc., Cypress Semiconductor Corp. and exchange-traded fund Semiconductor Holders Trust, said Frederic Ruffy, an analyst at Optionetics, an options education firm. "The rebound appears to be gathering some momentum and now players are positioning for further gains in the sector. Since they led the market on the way down, chip stocks are the logical leaders for the next move up," Ruffy said. Over the past year, the semiconductor index has fallen nearly 14 percent, and is down more than a quarter from its year-high in January. By comparison, the Standard & Poor's 500 Index is up 6 percent from a year earlier despite having lost 3 percent since hitting its 52-week high in May. "The stocks have been down a lot the previous couple of months, and a lot of investors had fears that the semiconductor companies would really slow down a lot during earnings," said Piper Jaffray analyst Tore Svanberg. "But they've realized that while they may have slowed, it's not as bad as they thought." Widespread concerns that chip companies were building too much inventory -- a sure sign of overcapacity, the industry's Achilles' Heel -- have been unfounded, at least so far. "When we looked at everyone's results ... their inventories out there are still quite lean. There's no supply issue going on right now," Svanberg said.