Intel plan draws yawn from chip-tools stocks

SAN FRANCISCO (MarketWatch) � Intel Corp.�s plan to increase capital spending sparked a rally in shares of chip-tools companies when the semiconductor maker unveiled it late Thursday, but the momentum didn�t carry into Friday.

Shares of Applied Materials Inc. AMAT �gained 1.3% to close at $12.47, while KLA-Tencor KLAC �traded up 0.9% to close at $51.50.

On the downside, shares of Lam Research Corp. LRCX �slipped 0.2% to close at $42.23, and Novellus Systems Inc. �fell 0.3% to close at $46.63. Compare that with bigger gains last year after Intel also expanded its capital spending.

Click to Play You�ll pay more for AT&T service

Greg Bensinger joins the News Hub to discuss plans by AT&T to hike data-service plan prices by as much as 33%. (Photo: AP)

Part of the reason the rally fizzled is Intel�s INTC �clarification: The increase will be mostly for building construction, not chip-making gear.

One analyst argued it�s a sign that, despite the chip sector�s recent gains, investors remain cautious about that market. �There are a lot of investors who are concerned about the health of the chip sector,� said J.P. Morgan analyst Christopher Blansett in an interview.

�We�re in a market situation where people don�t want to buy in early,� he added. �Many investors are very much willing to let these stocks run a little bit and make sure the trend is there. I think a lot of investors are still waiting for a broader set of data that confirm a structural improvement in industry fundamentals.�

Intel, shares of which gained 2.9% to close at $26.38, beat Wall Street estimates when it reported fourth-quarter earnings. The company also surprised investors by increasing its capital-spending outlook for this year to $12.5 billion, plus or minus $400 million. Read more about Intel beating targets, ramping up spending.

�These are very large numbers,� according to Blansett, who had expected a budget of only $7.7 billion. �We�re in record capex levels on an absolute basis.�

Nevertheless, the analyst estimated that a third of the budget will be for building new factories: �Spending on equipment will be down, but not that down.� Blansett said Intel is �spending ahead,� building facilities where it will install future state-of-the-art manufacturing equipment.

Caris & Co.�s Ben Pang estimated that actual equipment spending for 2012 will be �flattish� compared with last year. But he also said Intel�s plan is �good longer-term for everyone, but near-term [it�s] benign.�

Meanwhile, Needham analyst Edwin Mok reaffirmed a buy rating on Lam Research, which is in the process of merging with Novellus. �Since Lam�s merger partner, Novellus, has good exposure to Intel, Lam no longer suffers from a lack of exposure to Intel,� he wrote.

/quotes/zigman/1468249 SOX 360.50, +7.81, +2.21%

Overall, after a dismal year, chip stocks have posted gains recently. The Philadelphia Semiconductor Index SOX �has risen more than 13% since the beginning of the year.

The advance is mostly based on the view that manufacturers have no choice but to replenish dwindling inventories to meet existing demand. But the health of the market this year remains the big question. �We don�t have a very robust outlook for sales of things like PCs right now which is Intel�s core market,� J.P. Morgan�s Blansett said.

Bernstein Research analyst Stacy Rasgon wrote in a note that Intel�s full-year, top-line guidance of high single-digit growth �appears, to our mind, extremely bullish.�

Still, Blansett put out a note predicting, despite the uncertainty, that semi-equipment stocks will �outperform the market over the next few months.�

�There is still time to load up on semicap stocks,� he wrote. �Although semicap stocks have already started to move up in anticipation of an improving outlook, we believe there is still time for investors to take long positions.�