• The SOX remains in a 14-month slump
• Chipmakers are dealing with both inventory and demand issues
• Analysts are cutting forecasts on many semiconductor stocks
• Highlighted stocks include AMD, INTC, MU, RBCN, and TXN

The Philadelphia Semiconductor Index (aka "the SOX") is trading at levels not seen in 5 years. Problems within the industry have caused the index to remain in a 14-month slump.

Too Much DRAM

An ongoing glut of DRAM continues to cast a cloud over the entire industry. (DRAM is the most commonly used memory in PCs and workstations.) Many industry observers had hoped that demand would improve this year, but that has not happened. At the same time, foundries have not curtailed production enough. Therefore, DRAM prices remain weak.

One of the largest manufacturers of DRAM is Micron Technology (MU). MU is scheduled to report fiscal fourth-quarter results on Oct 1, and brokerage analysts are not optimistic. Within the past few weeks, 4 analysts have lowered their expectations, pulling the consensus estimate down to a loss of 21 cents. MU is a Zacks #4 Rank ("sell") stock.

Perhaps more telling is the outlook for fiscal 2009. The consensus estimate calls for a loss of 33 cents per share, reflecting negative revisions by 6 brokerage analysts. Just 30 days ago, the average forecast had called for a loss of 13 cents per share.

Vista Is Not Helping

Adding to the negative sentiment are worries about slowing demand for PCs and laptops. Various news reports have suggested that factories in Asia are seeing smaller orders.

Some of the blame can be placed on the global economic slump. However, the blame also needs to be placed on Microsoft's (MSFT) Vista. Though the sales numbers for the operating system look good on the surface, they mask the fact that most sales reflect the purchase of new PCs with Vista already installed. More importantly, many corporations have yet to upgrade from the older XP operating system, including PC-maker Lenovo.