By Benjamin Pimentel

Broadpoint AmTech downgraded the semiconductor sector on Wednesday, saying investors "should take a more measured approach to semiconductor investing and play a little defense at this time of year."

Broadpoint AmTech analysts, led by Doug Freedman, also downgraded shares of Advanced Micro Devices Inc. (AMD), Nvidia Corp. (NVDA) and Analog Devices Inc. (ADI) to neutral from buy.

In recent trading, shares of AMD fell 1.5%, while Nvidia was down 3.3% and Analog Devices was off 3.1%. The Philadelphia Semiconductor Index was up a fraction.

In downgrading the sector to equal weight from overweight, Broadpoint AmTech said it was responding to "a faster than expected recovery to demand levels in both the PC [personal computer] and [telephone] handset space."

Many makers of semiconductors have seen sequential gains in sales recently due mainly to what analysts say was an inventory correction following the economic downturn as manufacturers scaled back chip supplies to levels below real demand.

Over the past months, chip companies have seen business rebound as manufacturers worked to match semiconductor supplies with end demand.

"The semiconductor market is likely to continue to recover and may see better than expected September and December results - likely driven by supply chain balancing as there are now spot shortages causing buyers to rebuild depleted inventories and increase the order rates (potentially above demand levels)," Broadpoint AmTech said.

But it added that, "Given the volatility of the semiconductor sector and early cycle multiples being applied, we believe there is a good risk of inflated expectations (and slower than expected growth - maybe even pronounced seasonality) as a result of order adjustments required to match sell-through rates."

Meanwhile, memory chip maker SanDisk Corp. (SNDK) got upgraded to buy by Broadpoint AmTech analyst Dinesh Moorjani, who said that "the Street's under-appreciation of SanDisk's earnings recovery is difficult to ignore."

The semiconductor market has been reeling from an oversupply of memory chip products such as NAND Flash processors, used for such devices as MP3 music players, and DRAM processors, used for personal computers, which has led to declining average selling prices.

But Moorjani said "NAND pricing has moved higher in the spot and contract markets recently, driven by strength in demand from the handset and MP3 player markets."

Shares of SanDisk were recently ahead 2.4%.

-By Benjamin Pimentel; 415-439-6400; AskNewswires@dowjones.com