NEW YORK (CNN/Money) - Thanks for nothing, Intel.

An in-line job report wasn't enough to save tech stocks from a nasty pummeling Friday morning. The Nasdaq sunk more than 1.5 percent following the sub-par mid-quarter update from semiconductor kingpin Intel after the closing bell Thursday.

Chip stocks got the worst of it. All 18 stocks in the Philadelphia Semiconductor index were in the red. The SOX was down nearly 5 percent Friday and hit a new low point for the year.

Semiconductor stocks were further hurt by reduced sales outlooks from chipmakers Altera and Integrated Device Technology on Thursday as well a lower revenue forecast from Cypress Semiconductor Friday. That makes it harder to pass off Intel's woes as being company specific.

The fact that Intel pointed to softening consumer demand for PCs and communications devices (i.e. cell phones) is particularly not a good sign.

"Between PCs and handsets you've got about 35 percent of total semiconductor consumption. This is going to impact everybody in the chip sector. Nobody is outside the scope of slowing growth in those two markets," said Kevin Rottinghaus, an analyst with FTN Midwest Research.

It has become clear that Intel's inventory build-up during the first and second quarters of this year was a gamble that failed. Intel will now be faced with a glut of chips that it will likely have to lower prices on in order to sell. It's either that, or Intel will be forced to take a charge to write-down the cost of these additional components.

Neither option is an appealing one for investors.

Chip stocks have had a brutal year.

"Obviously there's a slowdown for tech," said Robert Burleson, an analyst with J.B. Hanauer. "There will be a lot of choppiness because of the inventory correction."

Another cause for concern was Intel's characterization of the recent slowdown in demand as being "global."

Ambrish Srivastava, an analyst with Harris Nesbitt, said that China has become a more important market for Intel and other tech companies during the past few years. But the Chinese government has taken some steps to cool down its hot economy and that could be hurting Intel and other techs.

"China is becoming a bigger part of the puzzle so tech is not immune to a slowdown there," Srivastava said.

There is still some faint hope that Texas Instruments, a leading supplier of chips used in cell phones, digital televisions, personal computers and many industrial products, could wind up calming investors -- its mid-quarter update is scheduled for next Wednesday. TI, although smaller than Intel, has a broader customer base.

"Texas Instruments is a better bellwether for tech demand since it is in so many different markets," said Burleson.

Looking ahead to 2005, Srivastava fears that there more is reason for worry. He thinks chip companies' profit margins could dip further as emerging markets become larger contributors to sales.

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"Countries like China and India will show some good long-term demand but there's no need for consumers to buy the latest products on the market. That will add to downward pressure on average selling prices of chips," he said.

And even though many chip stocks have fallen so far this year that many now appear to sport reasonable valuations is not enough to get Wall Street excited. Intel, for example, trades at less than 15 times 2005 consensus earnings estimates.

Analysts said it's difficult to make the argument that chip stocks are bargains because earnings estimates are likely to keep declining.

In fact, Burleson said his favorite semiconductor stocks actually trade at premium valuations. He likes analog chip firms Linear Technology and Maxim Integrated Products, which are both valued at more than 20 times next year's earnings estimates, because he thinks they are unlikely to lower their sales outlooks for the current quarter since they aren't as exposed to the PC and cell phone markets.

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When push comes to shove, the semiconductor business is highly cyclical. So investors don't tend to care as much about stocks appearing to be overvalued when things are going well. Likewise, the market doesn't tend to treat the stocks as compelling value plays during an industry trough.

And with evidence growing by the day that points to a peak for this latest cycle, it's tough to see how stock prices will head higher in the immediate future.

"Fundamentals still look like they're going to get worse before they get better and that's what keeps us on the sideline," said Rottinghaus.

Analysts quoted in this story do not own shares of the companies mentioned and their firms have no investment banking ties to the companies.