Chip stocks continued to slide Tuesday, extending Monday's dour start to 2005, but many investors aren't yet in panic mode.

The Philadelphia Semiconductor Index was recently down 3.3% Tuesday to 410, falling to levels not seen since late October.

The declines were broad-based with chips and chip-equipment stocks sharing the burden: Marvell Technology Group ( MRVL) and Teradyne ( TER) shed 6% each, while Altera ( ALTR), AMD ( AMD), National Semiconductor ( NSM) and Novellus Systems ( NVLS) lost 4% each.

"The last two days things have started to fall apart a little bit," said Jason Cooper, co-portfolio manager of the ( FMSPX) 1st Source Monogram Special Equity Small-Cap Fund . "We're seeing a huge amount of profit-taking at the start of the year that's causing a whirlwind through the entire market."

On Monday, chip stocks started their slide after industrywide sales data on Friday indicated a sales drop of 5% to 10% in the fourth quarter from the third quarter, compared with a normal increase of 10%.

Cooper said he is overweight semiconductor stocks and is keeping a close watch on the pullback.

But he didn't seem to think chip investors were bailing due to any nervousness stemming from the upcoming earnings season, but rather that the chip sector was being included in a wider market correction. The Dow Jones Industrial Average was down 79 points, or 0.7%, in recent trading.

However, it's also clear that fourth-quarter results and first-quarter expectations aren't expected to be outstanding. Further, stocks did run higher into the final month of 2004.

Moors and Cabot analyst Patrick Ho said uncertainty about the semiconductor environment is playing a part in the current retreat, but the gains logged during the previous few months also are playing a role.

Ho pointed to Varian Semiconductor ( VSEA), a maker of chip equipment that has nearly completed a round-trip from a mid-October level of $31, to $40 in early December, and currently near $33.50 following a 10% drop in the first two trading sessions of the year.

"There's nothing really irregular happening here," he said, adding that the sector's stocks should likely trade in a narrow range for the intermediate term.