Chip Investors Skip Town

Although Berger says investor concerns over inventory levels are well founded, he says inventory is actually just getting replenished to normal historical levels after a stronger-than-expected holiday season.

Berger also says that advances in supply chain-management software mean that chipmakers are much better able to gauge the true demand for the products today than they were in the past, lessening the risk of an inventory glut.

Still, he says it's hard to predict the second half of the year, and with the industry entering the "summer doldrums," there's a dearth of near-term catalysts to turn things around for chip stocks.

This explains investors' cautious attitude, despite the increasingly attractive price points and multiples of many chip stocks at the moment. "We're kind of picking our spots, setting our limits and taking little nibbles," says J&W Seligman semiconductor analyst Sangeeth Peruri.

"I can't say we're loading up the truck, because there is uncertainty about the sector. We're heading into the summer season, which tends to be a fairly weak time for stocks," he says.

Peruri notes that many of the issues spooking investors today, like inventory levels and interest rates, existed four months ago yet had little impact on the rising prices of chip stocks at the time.

Expectations about the chip sector are now resetting from the overly exuberant levels of earlier in the year, Perururi says. And now that investor sentiment has turned, various issues are taking on greater, and more ominous, significance.

"It's really more symptomatic of the overall tape," says Peruri. "When people are bearish, everything's an issue."

And with a widening stock-option controversy hanging over the tech industry like a dark cloud, there's no telling when investors might turn positive on chips again.

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