Recent High Notes Aside, Chips' Tune Still Downbeat

How lame does a recovery have to be before it stops sounding like a recovery? Check out the chip sector for an uninspiring example. So far, signs suggesting a hoped-for holiday uptick didn't translate into much -- if anything -- for semiconductor outfits, based on this week's miserable results from Micron MU and weak reports on PC buying from the likes of Best Buy BBY.

That's why investors should be ultra-cautious when the market cheers potential signs of recovery. Despite some signs that the chip business is stabilizing, amid three straight quarters of industry revenue growth, there remain as many reasons to tread lightly as there are to be optimistic.

Amid growing recognition of that fact, the benchmark chip index has quietly edged down from its near-term high of 382 on Nov. 27, sliding 22% as of Thursday's close.

Fingers on the Trigger

Yet everyone's clearly itching for the turnaround to start. Just last week, Wilfred Corrigan, head of LSI Logic LSI, issued a bullish pronouncement on '03, telling Reuters, "The industry and the customer base are trying to get up from the bottom and that's going to happen next year. I'm sure of it." LSI makes silicon for storage and communications markets.

Earlier this month, investors bid up IntelINTC in the week leading up to its December midquarter update, betting correctly it would raise sales guidance (though it's worth noting that the new outlook for growth of 5% to 8% remains well below the double-digit growth typical for this time of year).

In other upbeat news welcomed in an industry plagued by harsh price declines, Intel said it plans to hike prices of some types of flash, a kind of silicon used in wireless and digital camera applications, as much as 40% next year.

One more bit of incremental cheer: Wednesday a report showed that the November book-to-bill ratio for chip equipment, a favored measure of industry health, came in flat after five months of declines -- a likely indication that business has finally stopped deteriorating.