JP Morgan Sees A Silver Lining

Chip equipment spending has been lagging the broader economic and technology recovery, but JP Morgan sees a silver lining to that.

The Wall Street firm said Wednesday it is bullish on the chip equipment sector because historically low capital spending ratios over the last few years suggest that spending is too low, which could mean tight utilization ratios well into next year and higher than expected earnings for the sector.

Burned by the overspending of the late 1990s, chip companies have been cautious thus far in the recovery. JP Morgan’s view that this could be a longer-term positive is an encouraging one for the sector, but the risk remains that the chip cycle could peak before equipment spending picks up.

Investors greeted JP Morgan’s call with skepticism, sending leading equipment stocks like Applied Materials , KLA-Tencor and Novellus lower by more than 2% on the day.

The market was mixed Wednesday on a weaker than expected services sector report and a positive Fed Beige Book summary of economic conditions.

The Nasdaq lost 6 to 2033, the S&P 500 gained 1 to 1151, and the Dow added 1 to 10,593. Volume declined to 1.33 billion shares on the NYSE, and 1.81 billion on the Nasdaq. Decliners led by a few issues on the NYSE and Nasdaq. Downside volume was 51% on the NYSE, and 53% on the Nasdaq. New highs-new lows were 224-5 on the NYSE, and 141-9 on the Nasdaq.

SCO Group tumbled 14% as the company got more aggressive with its Linux lawsuits.

Seagate and Xilinx declined on warnings. followed Tuesday’s 150% gain by tacking on another 26%, but the stock finished well off its high for the day.

SeaChange plunged 22% after beating estimates but getting hit by a downgrade.

Netsmart fell 12% after missing estimates. jumped 13% after receiving financing.

HP edged higher on an acquisition.

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