Chip-equipment stocks lift hardware sector

Chip-equipment stocks Applied Materials and KLA-Tencor were both upgraded by BancBoston Robertson Stephens, helping lead a healthy rally in the hardware sector Tuesday.

Applied Materials Inc. (Nasdaq: AMAT) moved up 3 5/16 to 79 5/16 after analyst Sue Billat bumped it from a "buy" to a "strong buy" recommendation. She also raised KLA-Tencor Corp. (Nasdaq: KLAC), up 2 13/16 to 69 5/8, from a "buy" to a "strong buy."

"We believe that KLA-Tencor's outlook for both (the) short term and long term is very strong as chipmakers focus on yield-improvement strategies for the transition to 0.18-micron process technology and for new materials," Billat said in a research report.

Warburg Dillon Read analyst Byron Walker reiterated his "buy" recommendation on KLA-Tencor and raised his 12-month price target from $70 to $80 a share, citing strong demand across all product lines.

Among other chip-equipment stocks Tuesday, Teradyne Corp. (NYSE: TER) rose 2 5/16 to 40 5/16; Kulicke & Soffa Industries Inc. (Nasdaq: KLIC) inched up 3/4 to 23 5/16 and Novellus Systems Inc. (Nasdaq: NVLS) picked up 2 13/16 to 64 3/4.

Investors jumped into hardware stocks with a passion Tuesday. Qualcomm (Nasdaq: QCOM) stormed up 10 1/4 to 163 5/8 after announcing it will meet or beat estimates in its fourth quarter.

Applied Materials rolled past analysts' estimates in its third quarter, earning $244 million, or 61 cents a share, on sales of $1.43 billion.

First Call consensus expects it to earn 64 cents a share in the fourth quarter.

Applied Materials shares rose to a 52-week high of 80 1/8 earlier this year after falling to a low of 21 9/16 in October.

Thirty of the 33 analysts following the stock maintain either a "buy" or "strong buy" recommendation.