Chip Equipment Sector Lags

Someone forgot to tell the chip equipment sector that there’s an economic recovery going on.

Applied Materials and KLA-Tencor slumped more than 1% each Thursday on a weaker than expected chip equipment book-to-bill ratio.

SEMI’s August book-to-bill ratio came in at 0.91, 8 points below analyst estimates, and the previous base was also revised lower.

Goldman Sachs said the data suggests that the sector’s fundamentals are gradually improving, but that expectations are outpacing reality. Until a firm recovery in the sector catches hold, the stocks are vulnerable to a 10-15% correction, the firm said.

The broader market shook off the report and surged on a Merrill Lynch upgrade of Citigroup , a drop in weekly jobless claims, and stronger than expected Philadelphia region manufacturing orders.

The Nasdaq soared 26 to 1909, the S&P 500 rose 13 to 1039, and the Dow surged 113 to 9659. Volume rose to 1.49 billion shares on the NYSE, and 2 billion on the Nasdaq. Advancers led 21-11 on the NYSE, and 19-12 on the Nasdaq. Upside volume was 77% on the NYSE, and 73% on the Nasdaq. New highs-new lows were 281-9 on the NYSE, and 373-5 on the Nasdaq.

After the close, Palm blew away earnings estimates, but revenues came in light. 3Com and Red Hat also beat estimates, Jabil met estimates, and Solectron reaffirmed guidance.

During the day, Time Warner officially dropped AOL from its name and will soon trade under the symbol TWX.

IBM and Microsoft rose on a Web services pact.

United Online soared 10% to a new all-time high on a USB Piper Jaffray upgrade based on strong subscriber momentum.

Intel rose after selling off an assembly plant.

HP rose 3% on an ambitious plan for small and medium businesses.

Symbol Tech fell 7% after losing a court ruling.

Sprint and Lucent rose on European telecom deals.

And the partnership between Siebert and Intuit soured.

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