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Intel buoys tech sector, but some preach caution

US tech stocks sprang higher on Wednesday after better-than-expected results and forecasts from bellwether Intel Corp galvanized investors' hopes that an industry recovery was underway. Investors scrutinizing the battered tech sector for signs of a sustained rebound in demand after a debilitating recession took heart from Intel's forecasting revenue and margins well in excess of Wall Street expectations on Tuesday.

Intel closed up 1.66% at $20.83 on Nasdaq, after climbing as much as 4%.

Other sector heavyweights also gained as Wall Street breached the 10,000-point watermark for the first time in a year on earnings optimism. Microsoft Corp and Dell Inc both rose as much as 2% before Microsoft gave up some of the gains. Chip makers Advanced Micro Devices Inc and Nvidia Corp led the early rally, leaping as much as 4% before giving up some of the gains.

“My expectation is that the Ciscos, Dells, Hewletts, etc., the OEMs and the EMS companies like Flextronics, will have decent numbers,” said Miller Tabak & Co analyst Brendan Furlong.

“That's going to help momentum in the technology space continue. It's a sign that end demand has returned.”

Worldwide PC shipments rose 2.3% year-on-year to 78.1 million units in the third quarter, reversing declines in the first half of 2009, according to tracker IDC.

“(Intel) sets the tone. It sets the pace for semiconductor companies, particularly those with PC exposure,” said Oppenheimer & Co analyst Rick Schafer.

Despite Intel's results, analysts said investors remained on tenterhooks following a tumultuous year for tech and the market in general. While many analysts, including Robert W. Baird & Co's Tristan Gerra raised their price targets for Intel, Gerra reiterated his neutral rating.

Others warned that a recovery in hardware and software depends on a resurgence in corporate IT spending, which is unlikely until the middle of 2010.

Specialized chipmaker Xilinx Inc on Wednesday exceeded Wall Street targets, but its CFO said it was too early to call a return to normal sales patterns.

“You might not see as much of a rebound (in sales) as you have seen in the last one or two quarters,” said Needham & Co analyst Edwin Mok, foreshadowing a possible slowing of growth for chip companies. (Reuters)