The chip sector rose higher than the wider technology market Wednesday, helped by an Oppenheimer & Co. analyst who sees improving international demand for microchips.
The chip sector, as measured by the Philadelphia Semiconductor Index, rose 6.48 points or 1.63 percent to 413.05.
Oppenheimer analyst Rick Schafer said he sees positive signs after meetings with major Taiwan chip makers and electronics manufacturers. The health of Taiwan's chip business is particularly important for U.S-traded stocks, as many chip companies rely on the country to produce their chips.
Schafer said that over the first two days of his second-quarter channel check, he found Taiwanese chip suppliers, electronics manufacturers and chip component makers to have a "notably improved tone" despite signs of U.S. economic weakness.
Second-quarter order trends are tracking in-line to slightly better than expected and the improved climate bodes well for the third quarter, Schafer said.
"Order trends have shown definite signs of weakness in the U.S. — particularly U.S. corporate demand, but this has largely been offset by strength in emerging markets, Europe and China," he added.
He favors stocks with strong growth potential such as those who make chips for notebook personal computers and cell phones. Shares of major notebook chip supplier, Santa Clara, Calif.-based Intel Corp., rose 49 cents or 2.1 percent to $24.25 in midday trading.
In the analog chip market, Schafer favors Irvine, Calif.-based Microsemi Corp., shares of which rose 2 cents to $27 in midday trading and San Jose, Calif.-based Monolithic Power Systems Inc., which rose 76 cents or 3 percent to $25.81. He also favors Intersil Corp. The stock rose 57 cents or 2 percent to $28.53.
Anadigics Inc., which makes chips for cable television and wireless communication, fell after its shares were downgraded to "Perform" from "Outperform" by Oppenheimer analyst George Iwanyc, who said positive factors have already been factored into its share price.
Shares of Warren, N.J.-based Anadigics fell 28 cents or 2.4 percent to $11.73 in midday trading.
Meanwhile, Lehman Brothers analysts Tim Luke said that while he remains concerned about the industry's macroeconomic backdrop and is selective on stock picks, he thinks top picks in the sector are Nvidia Corp. in graphics, Intel Corp. in microprocessors, Cypress Semiconductor ahead of solar spin and Qualcomm in wireless.
Nvidia shares rose $1.05, or 4.9 percent, to $22.49, while Cypress Semi gaied $1.65, or 5.8 percent, to $30.22. Qualcomm shares dipped 5 cents to $44.52.