FSI International (FSII) is now a company that almost no one follows. But the latest results from the tiny Minneapolis-based semiconductor equipment firm offer a sobering snapshot of conditions in the industry.

For its fiscal second quarter ended February 28, FSI posted revenue of $8.6 million, which is down 60 percent–60 percent!–from the $21.4 million reported in the year-earlier quarter. That brings total first-half revenues to $20.9 million, down 52 percent from $43.9 million a year ago. For the quarter, the company lost $9.4 million, or 30 cents a share, including $2.8 million in severance costs and a $500,000 increase in its reserve for inventory obsolescence.

In a statement, CEO Don Mitchell gives the explanation you’d expect: “The global economic downturn is continuing to adversely impact credit availability, consumer confidence and technology spending,” which in turn has caused “low factory utilization levels” at most semiconductor manufacturing companies, resulting in reduced or delayed capital spending.

And despite some optimism on the Street, Mitchell does not see any early recovery. “Even though it is reported that several device producers have recently started to experience improved utilization levels, we anticipate that this situation will persist until at least early calendar 2010,” he says.

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Chip stocks are suddenly on a ferocious tear: the SMH, the semiconductor HOLDRs, have rallied 16 percent in six days. There’s a spreading view that semiconductor demand may have hit bottom.

But not everyone is convinced.

Auriga USA analyst Daniel Berenbaum this morning asserted in a research note that “the recent rush to call the bottom in semiconductor stocks is based largely on supply-side data that effectively ignores continued deterioration in demand.” Berenbaum thinks the SOX, the widely tracked semiconductor stock index, will eventually return to its November lows in the 170 range. The index closed today at 220.91.

Even Berenbaum concedes that data points from the supply chain are “incrementally positive,” with business in the semiconductor manufacturing chain improving sequentially in both February and March. But he contends that “this increased activity is being driven almost entirely by inventory restocking from low absolute levels, and not a pick-up in demand. ” He notes that there have been shortages in a few categories, in particular power management chips and LCD drivers, but adds that “even here, visibility seems to extend a few weeks at most.” Berenbaum notes that utilization at wafer fabs has picked up, but that one-third of foundry capacity remains idled.

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Carl Johnson, an underappreciated observer of the tech investing world and a long time analyst on the semiconductor equipment business, who can be found online at Infrastructure Wednesday afternoon, sent along an annotated version of a list of the Top 10 Tech Investing Rules, as set down in Institutional Investor magazine by J.P. Morgan chip analyst Christopher Danely.

Carl did two things to make Danely’s valuable list even better. One, he provided his own commentary on Danely’s thoughts. And two, he decided that what investors really need is a Baskin-Robbins length list of 31 rules. In Part 1 of this post, I offer up Danely’s list along with Carl’s commentary. And in Part 2, I tack on Carl’s additional rules. The result is a lot to read, but some extremely useful insights.

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Intel (INTC) certainly isn’t immune from the downturn in the economy–a decline which both IDC and Gartner today said will result in a big dropoff in 2009 semiconductor industry revenue.

But Barclays Capital analyst Tim Luke today asserted that Intel might not be hurt quite as badly as some other chipmakers.

Luke wrote in a research note that while PC and microprocessor demand during the second half 2009 is likely to be “muted,” he says that “channel and Asia checks” find “broadly in line” Q1 trends. He sees support for the stock from some restocking of inventory in Q2, troughing revenues and margins, a strong competitive position, robust cash generation and a 4.5 percent dividend.

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No part of the tech sector has been harder hit than the semiconductor equipment stocks. Makes you wonder how many of the players will simply disappear.

Carl Johnson, who runs the industry research boutique, Infrastructure, points out that there’s a host of smaller players in trouble:

IBIS Technology holders on Monday announced that the company’s holders have voted to liquidate. The stock on Tuesday closed at five cents. IBIS, which made implantation equipment, once traded as high as $125 a share.

Axcelis (ACLS) missed paying $85 million in notes in mid-January; it is holding talks with its lenders. An ion implant company, Johnson suggests it might be the next to go. Unless someone else files bankruptcy first. ACLS, which in 2000 traded north of $25, is now at 27 cents.

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There’s kind of a pattern to today’s very large batch of earnings from the semiconductor and semi equipment companies. The Q4 numbers in most cases were well telegraphed; many companies in the sector had already pre-announced rotten results. Many have cut heads, are cutting heads, or will cut heads. And the guidance for the March quarter is generally for double-digit sequential revenue declines.

At some point soon, the Street is going to start looking further out, to June quarter results. And right now, there is not a whole lot to go on. Barring a sudden pick-up in the economy–and I’m not sure why you’d be expecting to see that–you could see another round of estimate cuts as we move through the first quarter.

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Citigroup’s Glen Yeung this morning turned positive on the chip sector, asserting that the sector has reach the right point in the cycle to jump in for the next upturn.

Yeung uses the 1990-91 downturn as a model for the current period, and concludes that “the risk/reward has now become favorable” for select names in the group. “It is optimal to invest ahead of the report of [the] first quarter of year-over-year GDP growth,” he writes, adding that current valuations are near 1990 troughs.” In a research note this morning, Yeung also contends that “estimate capitulation has occurred.” His bottom line: now is the right time to invest in semi names.

In connection with the call, he upgrades Integrated Device Technology (IDTI), Nvidia (NVDA) and STMicro (STM) to Buy from Hold. Yeung’s colleague, Craig Ellis, who covers specialty semis, raised Fairchild (FCS) to Hold from Sell, and National Semi (NSM) to Buy from Hold.

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It’s been a rough day for highly-leveraged semiconductor stocks.

In a research note this morning, Citigroup’s Glen Yeung provided a review of the credit liabilities of the chip companies Citi has under coverage. He notes that Advance Micro Devices (AMD), Spansion (SPSN), Infineon (IFX) and Qimonda (QI) all have debt coming due in the next 15 months. “In each instance, we point out that an already difficult financial position is compromised by the current credit market,” Yeung noted.

He also noted that AMD, MU and QI also rank among the chip companies with the worst interest coverage ratio.

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In case you happen to think that Toshiba is going to outbid Samsung for SanDisk (SNDK), you ought to take note of the company’s currently grim view of the NAND flash memory market.

In fact, as Bloomberg reports, Toshiba today cut its full-year net income forecast for the March 31, 2009, fiscal year by 46 percent to 70 billion yen, which would be a four-year low. The company also cut its sales projection by 3.8 percent to 7.7 trillion yen, and its operating profit forecast by 48 percent to 105 billion yen.

Toshiba is the world’s second-largest producer of NAND flash memory chips. The company said its semiconductor division will lose 65 billion yen for the year due to weak NAND pricing.

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Here’s a cheery item on the chip sector that I missed while I was off at this morning’s Apple (AAPL)-sponsored Jack Johnson concert in San Francisco. Christopher Danely, semiconductor analyst at J.P. Morgan, asserted in a research note this morning that “deteriorating demand will bring about a correction in semiconductor estimates and stocks over the next four to six weeks.”

Wrote Danely: “We expect almost every semiconductor company we cover to lower estimates as a result of the correction.”

Danely does say that a fourth-quarter rally in the group is likely after the bad news comes out during October earnings season; he points out that the SOXX and the Nasdaq have gained ground in the fourth quarter in five of the last six years.

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At Intel Corp.’s big developer conference this week, the chip giant was extolling the virtues of its newest little chip, called the Atom. The Atom has surprised both company executives and analysts with its popularity among hardware makers. The chip was introduced in March and is aimed at an emerging market of very low-cost mobile devices, especially in developing countries.

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In the latest indication of the deep downturn in the semiconductor capital equipment industry, Netherlands-based ASML Holding (ASML) warned that its 2008 revenues could be down 20 percent from 2007.

The company posted second-quarter sales of 844 million Euros, down from 919 million in the first quarter, and from 930 million a year ago. Second-quarter net income was 192 million, including a tax credit of 70 million, compared to 145 million in the first quarter, and 160 million in the year-ago quarter. Bookings in the quarter totaled 632 million Euros, boosting backlog to 1.1 billion Euros.

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We often cover semiconductors that require less energy, but we rarely talk to the companies behind those chips to find out what else they might be doing to reduce their power consumption. However, Norm Fjeldheim, chief information officer for Qualcomm, recently shared a few tidbits about what the cellphone chip maker is doing to keep corporate consumption down–and it all starts with information technology (not everyone is jumping ship to build “cleantech” firms).

While it was some 20 years that the Qualcomm IT department instigated a recycling effort that’s still in effect on the Qualcomm campus today, it is within the last five years that Qualcomm has made its biggest strides. In 2004 it began construction on a new corporate building and attached a data center to the corporate offices.

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