By Benjamin Pimentel, MarketWatch SAN FRANCISCO (MarketWatch) -- Technology stocks were mostly lower Wednesday morning, with chip shares leading the retreat on renewed worries of excess inventory. The declines offset sharp gains in shares of IBM Corp. (IBM) following the tech giant's upbeat results. IBM saw its shares jump 3% to $154.90 as Big Blue posted a 10% profit based on strong mainframe computer sales. "We believe IBM's stock has upside potential as it executes against the large datacenter opportunity with a well-positioned portfolio of software, hardware, and services assets," Wells Fargo analyst Jason Maynard said in a note. Meanwhile, Apple traded flat as the company reported strong earnings and an upbeat forecast that exceeded Wall Street's projections, a double play that quickly overshadowed grim news about Chief Executive Steve Jobs' health issues. The stock was up a fraction at last check. "Despite Monday's news regarding Steve Jobs's medical leave of absence, we believe it will be difficult to keep Apple's stock from reaching new highs given the much stronger than expected quarter and outlook reported by the company last night," Ticonderoga analyst Brian White said in a note. IBM's gains weren't enough to counteract declines in the chip sector. The Philadelphia Semiconductor Index (SOX) was off more than 1% in early trading. The Nasdaq Composite Index (RIXF) was off 0.4% to 2,754, while the Morgan Stanley High Tech 35 Index (MSH) was behind 0.2%. One factor appears to be a weaker-than-expected outlook, despite a stronger-than-anticipated quarterly results at Western Digital Corp. (WDC) shares of which were down 2.1%. "Guidance was set below Street estimates due to what management believes was excess inventory with the PC manufacturers," Wedbush analyst Kaushik Roy said in a note. "Management noted that while demand in the commercial segment was good, there was weakness in the overall consumer market." The outlook was seen as bad news for some chip makers. "Remember, some inventory risks still exist for chip firms," FBR Capital analyst Craig Berger said in a note. "While we remain constructive on chip demand trends and overall inventories as this semiconductor super-cycle transitions into a soft landing, we do think that many chip firms are still shipping above end-consumption rates." Berger specifically cited Marvell Technology (MRVL) which makes chips for hard disk drives. Marvell was down 2%. "We think the PC market's sluggishness is being felt at Marvell too, with calendar fourth-quarter revenue trends likely muted and first-quarter 2011 revenue trends possibly seasonal or slightly better," he wrote.
