Tech Stocks: Tech stocks weighed down by chip sector

SAN FRANCISCO (MarketWatch) � Technology stocks were weighed down by selling pressure in the chip sector on Wednesday, after a J.P. Morgan analyst sounded a bearish tone on the group.

/quotes/zigman/1468249 SOX 365.55, -13.10, -3.46%

The Nasdaq COMP � slipped nearly 1% to close at 2,874.

The Philadelphia Semiconductor IndexSOX slipped 1.7% as the Morgan Stanley High-Tech Index MSH �fell by 1.3%.

Among makers of semiconductor manufacturing tools, KLA-Tencor KLAC , Lam Research LRCX �and Novellus �were each down 5%. Lam and Novellus are in the process of merging.

Christopher Blansett of J.P. Morgan downgraded the three stocks to underweight, or the equivalent of sell. In a note to clients, the analyst predicted �a downtick� in capital expenditures by chip foundries in the second half of the year, and that capital spending in the memory and logic sectors of the business will be lower than many investors expect.

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�At this time demand momentum for semi equipment appears to be slowing, and we think news flow associated with semi capex is likely to turn negative as we head into the summer,� Blansett wrote.

He maintained his neutral rating on sector leader Applied Materials AMAT �, which reports second fiscal quarter results on Thursday afternoon. He noted that the stock�s recent losses has priced in much of the weakness he expects for the sector. Applied shares fell 1.4% to close at $10.66.

Offsetting the declines somewhat for the chip group was Micron Technology MU �, which was up 2% closing at $6.15 after some brokers issued positive notes on the company�s expected merger with bankrupt Japanese chip maker Elpida, which is currently in negotiations.

Apple AAPL �shares fell 1.3% to close at $546.08, adding to losses that have brought the stock down about 3.6% so far for the week. In a note to clients, Scott Craig of Bank of America/Merrill Lynch said investors have become �overly focused� on concerns about falling smartphone subsidies from wireless carriers, and how that might affect the companies flagship iPhone business.

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�In our opinion, the carrier risk is minor, and the iPhone expectation risk is likely most in the stock,� he wrote.

Facebook Inc. FB �raised the share count for its initial public offering, expected for later this week. Several insiders added shares to the offering a day after the company raised its expected price range to $34-$38 per share. Read IPO Report on Facebook.

Peers in the social networking space saw a strong morning. LinkedIn Inc.LNKD �was up 2.7% closing at $113.49 while Groupon Inc.GRPN �rose 7.2% to close at $13.05 and Yelp Inc. YELP �added nearly 4% to close at $21.60.

On the other hand, Zynga Inc. ZNGA �lost 4% to close at $8.22.

Wedbush analyst Michael Pachter affirmed what�s been described as the �Facebook halo.�

�People are excited about how oversubscribed the deal is, and are excited that the price range was increased. I think investors are looking for ancillary ways to play the Facebook demand, so shares of other companies are up as a result,� he said in comments via email.