Sector Snap: Chip stocks up, inventory trends seen improving

The chip sector, as measured by the Philadelphia Semiconductor Index, rose 1.81 points or 0.46 percent to 399.44 in afternoon trading.

Citigroup analyst Jim Suva said that overall inventory levels look "benign" and "not as bloated as in prior cycles."

Electronic manufactures' chip inventory levels are a key demand indicator, as manufacturers with high inventory levels are less likely to order more product.

However, Suva said that consumer demand remains the big question as the economy remains uncertain.

He said he continued to favor Intel Corp. and memory chip maker Micron Corp. in the personal computer market and logic chip maker Altera Corp. in the commercial market.

Shares of Santa Clara, Calif.-based Intel rose 28 cents to $23.45 in afternoon trading while Boise, Idaho-based Micron rose 2 cents to $8.21. Shares of San Jose, Calif.-based Altera rose 18 cents to $22.53.

In the same note, Citigroup analyst Craig A. Ellis said memory chip maker SanDisk Corp. should benefit from market trends in the second half of the year and said inventories are positive for NAND chips. SanDisk is one of the world's largest makers of NAND Flash memory chips, which are found in iPods, digital cameras and other portable devices.

SanDisk shares rose 5 cents to $29.33 in afternoon trading.

It wasn't all good news or chip testing companies.

Friedman Billings Ramsey analyst Mehdi Hosseini said that a legal dispute with competitor Amkor Technology Inc. is keeping down share prices for chip testing company Tessera Technologies Inc.

Despite some positive fundamentals, the legal issues are the most important catalyst in the near term and are weighing heavily on the stock, he said.

He said he would remain on the sidelines until there is more information available. He lowered his 2008 profit estimate to 80 cents per share from $1.15 per share but raised his sales estimate to $235.5 million from $225 million.

Shares of the San Jose, Calif.-based company fell 14 cents to $18.60 in afternoon trading.