According to industry experts and analysts, the semiconductor sector is bouncing back as demand for the latest smartphones and portable computers grows. Archibald Preushcat and Maarten van Tartwijk for The Wall Street Journal report that the European tech stocks rose this week as semiconductor firms suggested a recovery is in the offing.

The uptrend is the result of a combination of factors, including re-stocking, seasonality and growing demand from Asia and the United States. The previous quarters of low inventory have somewhat helped fuel the rally, but is not the sole cause.

Meanwhile, BBC News reports that chip-making heavyweight Samsung is staying cautious despite signs of improvement. The largest chip-maker said the semiconductor sector was performing better than expected because of government help.

• iShares S&P GSTI Semiconductor (NYSEArca: IGW): up 60.6% year-to-date



• SPDR S&P Semiconductor (NYSEArca: XSD): up 74.5% year-to-date



• Semiconductor HOLDRs (NYSEArca: SMH): up 47.3% year-to-date

For more stories about semiconductors, visit our semiconductor category.

Semiconductor heavyweight Intel (INTC) reported its first loss in 22 years, primarily because of  a hefty fine from the European Union. Second-quarter sales beat analysts’ estimates, thanks to rebounding demand, reports Ian King for Bloomberg. Intel was fined $1.45 billion in May for using what the EU said was illegal rebates to stifle competition. Intel is appealing the decision.

Numbers in the semiconductor industry overall are still lower than 2008, however, the sales are up for the month of May against the month before, according to The Semiconductor Industry Association. New Mexico Business Weekly reports that the sales of $16.5 billion in May, up from $15.6 billion in April, based upon a three-month rolling average.

The second half of 2009 is predicted to be a better environment for the sector, however, cutbacks and demand are down overall for the industry right now. iStock Analyst reports that tech companies are lowering their forecasts.

Worldwide, electronic equipment revenue is expected to drop 9.8% to $1. 38 trillion, according to ISuppli data.

• SPDR S&P Semiconductors (XSD): up 40.4%year-to-date

• PowerShares Dynamic Semiconductors (PSI): up 17.7% year-to-date

• iShares S&P North American Tech Semiconductors (IGW): up 30.4% year-to-date

For more stories about semiconductors, visit our semiconductor category.

According to The Semiconductor Association, chip sales are expected to drop 21% this year, as the demand is a result of slow business. Consumer related business is down, leaving several quarters of production in chip sales flat, explains Tess Stynes for The Wall Street Journal.

The industry group now expects 2009 sales of $195.6 billion for the year, not the $248.6 billion seen seven months ago. Meanwhile, Intel (INTC) is trying to build a software business, as they agreed to buy Wind River Systems Inc. for $884 million, says Don Clark for The Wall Street Journal.

This transaction will take the Intel company into a new market, and substantially allow them into the software business. Intel, whose chips serve as calculating engines in computers, has been trying to use a low-end chip called Atom to move into pocket-sized devices, consumer electronics gear as well as embedded applications. Software is a key part of that strategy.

• SPDR S&P Semiconductor (XSD): up 40.2% year-to-date

• PowerShares Dynamic Semiconductors (PSI): up 16.7% year-to-date

• iShares S&P North American Tech Semiconductors (IGW): up 30% year-to-date

According to the same report, today we use the same technologies used in 1976, and estimate that the entire family of semiconductor-enabled technologies generated a net savings of about 775 billion kilowatt-hours (kWh) of electricity in the year 2006 alone.

The Philadelphia Semiconductor Index or SOX, the tech industry at large is in a tailspin, due to the drop in this index. Bill Luby for Seeking Alpha reports that the SOX has long been considered a leading indicator, not just for technology firms but also for the market in general.

The health of the semiconductor industry affects the tech cycle and is an early indicator of what is in store for tech.

• PowerShares Dynamic Semiconductors Portfolio (PSI): up 5.1% year-to-date

• iShares S&P GSTI Semiconductor Index Fund (IGW): up 14.3% year-to-date

The semiconductor sector looks to be climbing out of its bottom and the industry is showing bullish signs, remarks Tom Brennan for CNBC.

Growing demand for chips, especially as a result of China’s 3G wireless build-out, has many tech companies feeling better. Xilinix (XLNX) is seeing increased orders and inventories shrinking, which should result in higher prices and revenue for its products. The company provides a multiuse PLD that allows for adaptability in a cost-effective manner.

In the S&P 500, the technology sector stood out, especially when compared to financials. The main reason would be that the tech sector is market-capitalization based, or heavily weighted with a few large stocks, writes Ivan Martchev for The Motely Fool. So if a couple of big names, such as IBM (IBM), Cisco Systems (CSCO) or Microsoft (MSFT), do well then the whole sector will appear healthy.

The tech sector is seen to be playing a defensive game nowadays. Companies are seen holding large wads of cash. It has been shown that in deflationary times, value of debt remains constant, but value of assets declines. So the tech companies with good balance sheets and heaps of cash will endure.

Tech companies are also change the face of their businesses. Hewlett Packard (HPQ) and IBM are seeing better returns through their service revenues. It may not be that exotic but being a service company is paying off fore these companies.

• iShares S&P North Amer Tech-Semicondctrs (IGW): up 8.9% in the last week; up 10.2% in the last month; up 1.8% in the last three months; holdings of 5.01% in XLNX

• PowerShares QQQ (QQQQ): up 7.3% in the last week; up 0.4% in the last month; down 2.7% in the last three months; holdings of 3.0 in CSCO; MSFT is 4.9%

Max Chen contributed to this article.

The semiconductor industry and the exchange traded funds (ETFs) that track the sector aren’t any more immune to the affects of a decline in consumer demand, tight credit markets and a global recession than any other major sector. But this could also be good for the consumer in the long run. How?

• Most companies in the sector have invested heavily into new facilities and infrastructure to support a spike in consumer demand, which has tumbled just as fast as the global economy. 
• Experts state that spending is expected to decline as much as 50% from its 2007 peaks, which is putting many in a rut looking for help to cover the expenses that came with expanding and improving infrastructure, states Jim Farrish of Green Faucet.
• Several semiconductor companies in Asia have been forced to turn to their governments for bailout help, which could produce a glut as companies continue to produce despite government support. 
• To make it even worse, there is no incentive for these companies to cut back production because 70% of their costs are fixed. 
• Lastly, the fall in demand has had little influence as production remains steady and inventories continue to rise.  In fact, inventories have ballooned from $3.8 billion in September to $10.2 billion in December, a 168% increase. 

From a consumer perspective, this may be a good thing as it may spark the innovation of new products, but from an investors point of view, one should definitely be mindful of what’s going on with these companies and the sector and really do his homework if considering to add it to a portfolio.

 Take a look at the iShares S&P North American Technology Semiconductor (IGW), which is down 4% over the past month.

Sales for the newest iPhone topped one million in just three days, reports the Associated Press. If you were within a one-mile radius of an AT&T store on Friday, you probably aren’t surprised.

The phone was simultaneously launched in 21 countries. The launch of the new App Store also saw more than 10 million applications downloaded. Of the 800 applications, a quarter of them are free while most of the rest cost $10.

Some technology ETFs that hold Apple were flat so far today, but perhaps the continued run on new Apple toys will help them down the line:

• iShares Dow Jones US Technology (IYW): down 15.4% year-to-date; Apple is 5.7%
• iShares S&P GSTI Technology (IGM): down 14.6% year-to-date; Apple is 5.2%
• PowerShares QQQ (QQQQ): down 12.9% year-to-date; Apple is 10.4%