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Chipmakers Signaling Bottom as Stocks Rebound
26 Jan 2012 EST - CNBC.com
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Several chipmakers this quarter turned in tepid earnings reports and weak outlooks, but some strategists say the industry may be nearing a bottom and there's still further room for upside in the stocks.

Many chip stocks have been rallying as the economy has improved and investors put new money to work in the new year.

But the chip industry has been plagued by problems. Flooding in Thailand last year created a hard-disk drives shortage, forcing PC manufacturers to decrease their production and in turn, causing them to cut back on demand for semiconductors.

Adding to woes, chip demand also suffered in the latter part of 2011 due to the volatile economic environment.

Earnings estimates for the industry were slashed by 30 percent and the sectors' stocks lagged the S&P 500 by 12 percent last year.

Investors though have been bargain hunting in the group, driving some names sharply higher. The Philadelphia semiconductor index, SOX has gained nearly 15 percent year-to-date.

“The positive stock momentum will likely continue a bit longer, but in the next few months, investors will see that the growth trajectory off of the bottom will be a bit more muted than hoped," said CJ Muse, analyst at Barclays Capital. "And at that point, they’ll have to focus more on stock selection and relative value."

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