The rash afflicting software has understandably prompted some nervous head-scratching among hardware investors.

The big worry isn't so much about forthcoming second-quarter results but that third-quarter guidance from computer and chipmakers could be a letdown now that major software plays PeopleSoft ( PSFT), Siebel ( SEBL) and Veritas ( VRTS) have flagged disappointing business spending.

Everyone knew the double-digit growth rates that enthralled techland for the past few quarters couldn't last forever. But what's troubling many investors is a sense that corporate expenditures are not picking up the slack from consumers, whose spending is expected to slow in conjunction with the Fed's tightening cycle.

None of the big hardware companies joined the bad-news chorus, but shortfalls at a slew of smaller players in the electronic food chain suggest trouble may be afoot. Among those preannouncing to the downside were Amkor ( AMRK) -- a barometer of semiconductor health, because it packages chips for the industry -- PC board and materials makers Merix ( MERX) and Park Electrochemical ( PEK), storage outfit Emulex ( ELX) and hard-disk drive maker Maxtor ( MXO).

"In our view, these are too many data points to be brushed aside as company-specific issues," Harris Nesbitt analyst Ambrish Srivastava wrote Thursday in a note downgrading the chip sector.

"My nervousness quotient has risen a fair amount over the past week," said buysider Chuck Jones of Stein Roe Investment Counsel, who expects sales and earnings guidance for the third quarter to be "rather conservative" for the hardware sector.

The slew of preannouncements "does have to give you a little bit of pause, especially given that some of the economic data have been a little weaker than expected," agreed Bob Lee, manager of the ( SNTNX) Sentinel Midcap Growth and ( SCOAX) Flexcap Opportunities funds, pointing to wobbly jobs-growth numbers last week and Thursday's underwhelming same-store sales reports. He said he'll look to Friday's earnings report from General Electric ( GE) and next week's results from Intel ( INTC) for a better tell on the broader economy.

But Lee already pared back his holdings in the semiconductor group earlier this year and is now slightly underweight chips. "Semiconductors are leveraged to the economy. We were very overweighted when we thought economic growth numbers would exceed expectations, and now that doesn't seem as clear. We're in wait-and-see mode," he said, noting year-over-year comparisons for chip stocks will also get tougher during the second half of the year.

Lots of investors have followed his example, judging by the 13% year-to-date decline in the Philadelphia Stock Exchange Semiconductor Index. The S&P computer hardware index is likewise in negative territory, down 4% year to date.

The decline comes as analysts are starting to factor in a growth drop-off in 2005. Harris Nesbitt's Srivastava said he expects PC shipments to rise 12% this year but retreat to 9% growth in 2005, while growth in wireless-handset shipments should fall from 16% to 8% in the same period.

In 2005, he expects chip revenue to rise only around 9%, down from sturdy growth of 23% this year. At the same time demand hits a wall, he points out, chip supply will increase as foundries bring on a hefty amount of capacity towards the end of this year and the beginning of 2005. That, in turn, will pressure selling prices.

Though chip names already have tumbled year to date, he thinks some could fall another 15% to 20% as investors price in weaker expectations.

"It's hard to see these chip stocks really work, knowing that next year's numbers will not be as robust," Srivastava said in an interview. "My sense is not that we'll have huge estimate cuts in the near term, but I do believe expectations will be ratcheted down."

More optimistic is Jack Holden, manager of the ( TVPBX) Touchstone Value Plus fund, who owns Intel, IBM ( IBM) and Hewlett-Packard ( HPQ) as plays on an economic pickup.

Though the software warnings are a little unnerving, Holden said it's a mistake to assume the problems in software will translate to the hardware side. "The reason I'm not ready to say it blows over into hardware is that software is more of a big-ticket item," he said. "I think it's easier for a company to say, 'I don't want to buy a million-dollar software project,' whereas they might still buy smaller hardware like PCs or laptops."

Partly reflecting Wall Street's show-me attitude on the IT market revival, both IBM and H-P currently trade at below market multiples -- Holden calls it a "conglomerate discount." Based on Thursday's close of $83.65, IBM changes hands at 15 times the consensus earnings estimate for fiscal year 2005, while H-P, which closed at $19.99, goes for 12 times the 2005 estimate vs. over 16 times for the S&P 500.

Though some investors are skeptical, tech management and analysts alike have sounded convinced that increased enterprise spending would boost hardware sales this year.

For the past two quarters, IBM Chief Financial Officer John Joyce has talked up the prospects for an enterprise IT pickup in 2004, although the company's last batch of financial results left investors awaiting more evidence. And research houses IDC and Gartner said strong first-quarter PC sales offered some evidence that companies have started replacing outdated computers.

Notwithstanding the sudden slowdown in business spending on software, Holden still expects to see that pickup in capital spending in the second half of the year.

"Clearly we need that, though," he said, acknowledging how the bullish scenario has swung from inexorable to the 'Missouri' phase.