Consumer Coattails Give Chips a Nice Ride

The sector moves higher amid this week's consumer electronics buzz.
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The chip sector rose to new highs Friday, as the Consumer Electronics Show and its parade of new products in Las Vegas continued to hold investors' attention.

The

Philadelphia Semiconductor Index

surged to a new 52-week high, while the

Semiconductor HOLDRs

(SMH) - Get Report

exchange-traded fund, another important gauge for the chip sector, also set a 52-week high Friday, hitting $39.61.

The gains underscore to what extent the fortunes of chip companies are now tied to the consumer electronics market rather than to the corporate information technology market.

The Labor Department's upward revision of November job growth figures from 215,000 to 305,000 -- despite also reporting lower-than-expected December job growth -- probably didn't hurt, either.

In Las Vegas, the deluge of product announcements and press releases continued unabated.

Intel

(INTC) - Get Report

officially unveiled its new Viiv home entertainment platform Thursday evening when CEO Paul Otellini delivered a keynote speech. With the Viiv platform -- a combination of Intel's latest microprocessors, chipset, networking capabilities and software -- people will be able to connect their PCs to a television and use a remote control to access a vast archive of digital content.

Intel has enlisted more than 50 content firms to aid in the effort, including the NBC television network, which will let consumers with Viiv products access an exclusive archive of high-definition footage from the upcoming winter Olympics in Italy.

Meanwhile, a note to investors from J.P. Morgan forecast that

Apple Computer

(AAPL) - Get Report

would introduce its new Intel-based PCs next week at the MacWorld event, with shipments to begin this quarter.

A slew of tech firms showed off all manner of gadgets that rely on various kinds of chips at CES, including handheld audio-video devices and notebook PCs with integrated high-speed cellular connections.

Sandisk

(SNDK)

debuted a new 6-GB MP3 player in hopes of grabbing a piece of the market that Apple has dominated. Shares of Sandisk were up 7.5%, or $5.18, at $74.21, setting a new 52-week high in midday trading Friday.

Even before CES, however, the outlook for semiconductor companies was improving, says Fred Weiss of Atlantic Trust Stein Roe.

"Basically, business has been getting better," Weiss says.

The cautious outlook that led many chip customers to maintain lean inventories over the past year or so means that they now need to place more orders with chipmakers to replenish inventories, says Weiss.

A number of companies raised their estimates during their midquarter updates in December. And on Wednesday

Xilinx

(XLNX) - Get Report

boosted its guidance a second time, forecasting sequential revenue growth of 11% to 12%, vs. its initial forecast of 1% to 5% sales growth.

And although

Wal-Mart

(WMT) - Get Report

reported disappointing holiday sales on Thursday, two of the big electronic retailers came out with positive holiday reports Friday. Sales at

Best Buy

(BBY) - Get Report

stores jumped 12%, to $5.7 billion in December.

Circuit City Stores

(CC) - Get Report

sales also increased by 12% in December, thanks in part to strong sales of flat-panel televisions.