Doubts about the economy and sluggish PC sales are clouding the second-half outlook for Intel and other chip makers as they prepare to unveil quarterly earnings this week.

High U.S. unemployment and the risk of a financial crisis in Europe are hurting demand for consumer electronics, and some investors worry high chip inventories could cause a slowdown in new orders later in 2011.

Those concerns are exacerbating the summertime blues semiconductor stocks sometimes face mid-year, as demand for chips drops off before picking up again during the back-to-school and holiday seasons.

The Philadelphia Semiconductor Index has dropped 15 percent since the end of April, worse than a 4 percent dip in the Dow Jones industrial average.

Top PC chipmaker Intel is in a standoff against investors who believe high U.S. unemployment and a growing preference for Apple's iPad 2 are hobbling demand for consumer laptops.

A quarter ago, Intel handily beat earnings expectations and said it expects 2011 worldwide PC sales to grow in the low double digits, well above consensus, saying independent forecasters were missing millions of PCs now being built by small manufacturers in China and other emerging markets.

But investors remain skeptical and believe Intel, whose stock is trading at just 9 times expected earnings, will be forced to humbly reduce its PC growth outlook by around half -- if not when it reports on Wednesday, then later this year.

Intel typically forecasts revenue for the coming quarter and the full year when it releases quarterly profit.

Even if they end up hitting that bullish guidance, we're in a condition where the market doesn't believe it, said Gleacher & Company analyst Doug Freedman. Everyone says it's just a matter of time before Intel cuts numbers, so they're not going to buy this stock until expectations are low.

Intel's revenue in the current quarter is seen increasing about 5 percent over the second quarter, according to Thomson Reuters I/B/E/S, less than normal growth of around 8 percent for this time of year.

The numbers are probably a little too high, said Hampton Adams, a portfolio manager at Gamble Jones Investment Counsel in Pasadena, California. A lot of the demand in the near term has been for tablets, wireless devices -- and that's hurt PCs.

FEWER JAPAN WORRIES

Underscoring worries in the tech sector, Dutch chip gear maker ASML Holding warned last week that tough economic times were hurting demand for PCs and smartphones. It and other equipment makers said their foundry and memory customers were rethinking plans to expand capacity and order new gear.

After the devastating earthquake and tsunami in Japan last March, electronics companies, worried about shortages, rushed to stock up on components.

But with manufacturers now less concerned with Japan-related shortages than with persistent U.S. unemployment and the risk of a financial crisis in Europe, high inventories have become a concern and purchasing managers may be ordering fewer new chips.

Some analysts, while cautious about risks in the economy, said relatively high inventories of many kinds of chips are not alarming given the industry's recent strong growth and recovery from a deep recession.

Tech in 10 of the last 10 years has traded down through the summer. People like to pour salt in the wounds of seasonality. said JMP Securities analyst Alex Gauna.

These macro concerns are real but as far as secular drivers go, in terms of demand for tablets and smartphones, the real business case for cloud computing and the need for bandwidth to make all this work, absolutely I'm constructive, he said.

Investors will be watching this week for comments about inventories and the economy from programmable chip makers Altera and Xilinx, embedded chipmaker Freescale, memory maker SanDisk and Intel rival Advanced Micro Devices as they report their earnings.

Investors are more upbeat about Qualcomm, which reports at the same time as Intel and may have won some new business with the expected launch of a new Apple iPhone using its baseband chips.

(Reporting by Noel Randewich)

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