Semiconductor stocks entered Friday poised to advance beyond month-old high-water marks, thanks to two weeks of quiet gains and a

positive financial report from

Dell

(DELL) - Get Report

.

The brighter prospects have traders looking at this as the possible start of a second-half rally in chips.

"If a move in semis happens, it will happen quickly," says Kim Arthur, managing director with Main Management in San Francisco.

Chip stocks have struggled this year amid a lingering inventory correction and muted demand expected this year and next. The fits and starts for semiconductor stocks in previous months have mostly seemed to

hinge on expectations for demand increases in the second half of 2005.

After the latest round of financial reports, which largely reflected ongoing caution and continued hope for a stronger second half, industry stocks have been slowly picking up steam.

On Thursday, these increases culminated in some notable levels nearly being surpassed for the first time in a month: The Philadelphia Semiconductor Index closed just below 400, the

Semiconductor HOLDRs

(SMH) - Get Report

ended above $32 and traded near $32.50 intraday, and

Intel

TST Recommends

(INTC) - Get Report

, the world's largest chipmaker, challenged its

intermediate-term barrier of $25.

"We saw the brakes put on with the Chinese New Year and then, after a lag, things have picked up," says Arthur. "A lot of companies didn't jump up and down saying things are great, but they also didn't say 'there's another disaster in front of us.' That alone might have given investors a little relief."

Arthur made his comments before Dell announced a solid first quarter late Thursday and an outlook for the second quarter that provided some opportunity of upside. "We're still confident that the market is healthy," said Dell CEO Kevin Rollins. "It's not explosive and it's not trailing off."

Conventional wisdom holds that chip stocks move ahead of fundamentals. If investor faith begins to solidify around the second half of the year and if that in turn leads to a more robust view of 2006, then stocks could respond positively.

Chip stocks have another factor working in their favor, says Sam Olesky, principal of hedge fund Olesky Capital Management in Mill Valley, Calif. He sees the recent uptick in tech levels as the start of a rebound from the year's underperformance. A ratio comparing the

Nasdaq 100

with the

S&P 500

shows the former index lagging at a level in April not seen since August, when tech stocks bottomed and rallied into December.

"If it looks like consumer demand is holding up and corporate demand is relatively strong, that may allay fears, and people might look at them as a relative bargain," says Olesky.

However, chip-industry growth is forecast to increase only moderately this year and next. The amount that investors feel comfortable boosting stocks in the face of muted growth likely won't be extensive.

Main's Arthur isn't expecting a strong breakout akin to what typically occurs in a major up cycle, but he notes that current momentum could be a good start. Arthur posits that the semi HOLDRs could bounce to $37 from $32 over the course of a few months but doesn't expect a jump up to $45, as happened in early 2004. "These stocks aren't on their butts, but they're not ridiculously expensive either."

Shares of Dell gained 95 cents to $37.56 Thursday in after-hours trading.