Chip sector jumps on strong Intel report and outlook

(Reuters) - Shares in semiconductor companies jumped on Friday in Europe and Japan after strong earnings report from sector bellwether Intel, the world's largest chipmaker, defied a slowdown in PC sales.

Shares in British chip designer ARM were up 6.5 percent at a 10-year high, while the wider European technology sector was up 0.2 percent.

Intel, whose microprocessors are the brains in the bulk of the world's PCs, posted market-beating revenue and margins for the fourth quarter, and also gave a rosy outlook for early 2011 overnight.

"Intel's numbers beat most expectations by around 10 percent and so we are seeing investors connect the dots from Intel's earnings to other similar tech stocks trading in Europe to which this may paint a similarly rosy picture," said Joshua Raymond, market strategist at City Index.

Earlier this week, research firms IDC and Gartner said weak consumer demand coupled with a surge of tablet market capped the growth in global personal computer shipments at 3 percent in the fourth quarter.

RBS Capital Markets analyst Nick Hyslop said Intel's guidance was very strong for first quarter and the company did slightly better than expected in the fourth quarter, given a growing perception that Intel's position in tablets was weak.

"People were relieved from an Intel standpoint," he said, adding a good first quarter for Intel implied a good performance from ARM "given that ARM is doing all the tablets."

On Friday, Intel's general manager for Asia-Pacific said he was positive about growth in PC sales in emerging Asia, particularly China and India.

"I look around and travel around and I see the emerging markets continuing to be quite good," Navin Shenoy told Reuters.

Shenoy declined to give growth forecasts but said he was comfortable with IDC's forecast of a 14 percent PC unit growth for the APAC area, excluding Japan, this year.

TONE FOR SECTOR

Intel was the first major technology company to report fourth-quarter results, and its upbeat numbers set a positive tone for the rest of the sector.

"Intel's good comments on server sales, coupled with the positive SAP statement late yesterday, indicate that corporations investment activity has been good in the fourth quarter," Pohjola Bank analyst Hannu Rauhala said.

German group SAP, Europe's biggest software maker, said on Thursday software sales jumped about a third in the fourth quarter.

"Strong fourth-quarter results show enterprise application spending is back," analysts at Jefferies said in a note.

In Japan, Tokyo Electron rose 3.2 percent, and Sumco added 0.7 percent.

Dutch semiconductor equipment vendors ASML and ASMI rose 2.4 percent and 3.8 percent respectively.

(Additional reporting by Atul Prakash in London, Christoph Steitz in Frankfurt and Li Baker in Taipei; Editing by Dan Lalor)