NEW YORK (CNNfn) - Internet stocks got some much-needed relief Wednesday after bellwether Yahoo! turned in a better-than-expected earnings report, renewing some investors' faith in dot.coms.
Semiconductor issues also rose sharply, lifted in part by news of a $2.3 billion merger between chipmakers PMC-Sierra and Quantum Effect Devices.
Yahoo! (YHOO: Research, Estimates) shares climbed 20-9/64, or 19.09 percent, to 125-41/64 after the Internet media company turned in second-quarter earnings of $74 million, or 12 cents per diluted share, beating Wall Street estimates by 2 cents on sales of $270 million, also well-above estimates.
The news spurred bullish comments from several Wall Street analysts, who noted that the company's higher revenue should quell fears about a slowdown in Yahoo!'s business. Prior to the earnings release, there had been some concerns that the failure of many small dot.com companies would harm Yahoo!'s advertising sales.
Mary Meeker at Morgan Stanley repeated her "outperform" rating on Yahoo! and raised earnings-per-share estimates for 2000 to 47 cents from 44 cents and for 2001 to 60 cents from 54 cents.
"Yahoo!'s financial model shows great flexibility, in our view," Meeker said in a research note. "Yahoo! should be a core holding for growth investors. The company has one of the best financial models we have ever seen and we consider it to be one of the world's most powerful brands."
Merrill Lynch's Henry Blodget maintained his "buy" rating on Yahoo!, saying that the results should assuage most concerns about the impact of weakness in dot.com ad spending.
Blodget said he remains confident in Yahoo!'s competitive position and continued strong growth, but added that its shares are likely to continue to be volatile throughout the summer. Blodget raised his 2000 revenue estimate to $1.08 billion from $1.04 billion and 2001 to $1.41 billion from $1.35 billion. He boosted his 2000 earnings estimate to 48 cents per share from 44 cents and 2001 to 59 cents per share from 54 cents.
Analysts at UBS Warburg repeated their "buy" rating on Yahoo!, but sliced their price target to $165 from $215, based mostly on sector valuation, though they said the stock should rebound nicely.
Chase Hambrecht & Quist analyst Paul Noglows reiterated his "buy" rating on Yahoo!, saying its strong performance, "bodes well for the industry, sending a positive message, especially for the other leading Internet media companies."
Jamie Kiggen at DLJ also joined the bulls, reiterating his "buy" rating and price target of $250. "Yahoo! should be a core Internet holding," Kiggen said in a research note. "Management echoed our thesis that online advertising spending will continue to consolidate around the largest platforms and Yahoo! should be a primary beneficiary of this consolidation."
Lehman Brothers analyst Holly Becker, however, was not as excited about Yahoo! She still rates the stock "neutral."
"We believe the second quarter was the tail-end of an era in which the 'easy money' was available to online portals, and investors will closely monitor the softening online advertising market," Becker said in a research note. "An extremely high valuation in the face of an increasingly challenging online advertising environment keep us neutral on the stock," Becker said.
Nevertheless, the Internet segment as a whole headed higher. The Dow Jones composite Internet index ended the session 56.57 higher at 10783.76, a 0.53 percent gain on the day.
 Other big-name dot.coms heading higher Wednesday included: Amazon (AMZN: Research, Estimates), up 1-7/8, or 5.66 percent, at 35; America Online (AOL: Research, Estimates), which added 1-1/2 to close 2.68 percent higher at 57-1/2; Internet incubator CMGI (CMGI: Research, Estimates), up 6-15/16, or 19.01 percent, at 43-7/16; online auctioneer eBay (EBAY: Research, Estimates), which rose 8-11/16 to 52-5/8, a 19.77 percent advance on the day; and Web advertising firm DoubleClick (DCLK: Research, Estimates), which gained 3 to finish 10.53 percent higher at 31-1/2.
Exodus Communications (EXDS: Research, Estimates) shares rose 4-15/16, or 13.34 percent, to 41-15/16 amid reports that the company is in discussions with Global Crossing (GBLX: Research, Estimates) to buy its GlobalCenter Web-hosting business. Global crossing shares rose 2-15/16 to 32-1/16, a 10.09 percent gain on the day.
Global Crossing also said Wednesday that it is selling its U.S. local telephone business, which it purchased in a $9 billion acquisition of Frontier Corp., to local phone company Citizens Communications for $3.65 billion in cash.
Shares of Intermedia (ICIX: Research, Estimates) recovered an earlier loss, finishing 1-3/16 higher at 24-9/16. The company which provides data and voice communications services and Web hosting, warned investors that its revenue will be 10 percent to 15 percent lower than analysts' expectations for the second quarter and the full fiscal year. The company now forecasts revenue of $245 million to $247 million.
Intermedia also said it has hired an investment banking firm to explore strategic alternatives for Digex, a Web-hosting service provider in which Intermedia own a 62 percent stake. Shares of Digex (DIGX: Research, Estimates), which also were added to the Russell 3000 stock index, rose 4-3/16 to 75-11/16, a 5.86 percent gain on the day.
Semiconductors shares surge
Word of a $2.3 billion merger between PMC-Sierra and Quantum Effect Devices sent both companies shares higher and gave a lift to the semiconductor segment Wednesday.
PMC-Sierra (PMCS: Research, Estimates) rose 11-5/8, or 5.92 percent, to 208-1/16. Quantum (QEDI: Research, Estimates) shares soared 18-7/16, or 30.48 percent, to 78-15/16.
 In a conference call Wednesday morning, Bob Bailey, PMC-Sierra's chief executive, said he expects QED "can be a billion-dollar a year business for us within five years." He also said the deal should have no impact on PMC-Sierra's earnings this year.
During the fiscal year ended June 1999, Quantum had $15.3 million in gross revenue and posted a net loss of $11.7 million.
PMC-Sierra is set to report its quarterly earnings after Thursday's market close. Analysts polled by earnings tracker First Call expect a profit of 19 cents per share.
 Other chip stocks rose in sympathy Wednesday. The Philadelphia Stock Exchange's semiconductor index, or Soxx, finished 36.72 higher at 1158.77, a 3.27 percent gain on the day.
Companies that make the equipment used to manufacture semiconductors posted particularly strong results. Applied Materials (AMAT: Research, Estimates), the largest chip-equipment maker, ended 2 higher, or 2.30 percent at 89. Novellus (NVLS: Research, Estimates) shares rose 3-13/16 to 61-1/8, a 6.65 percent gain on the day. Asyst Technologies (ASYT: Research, Estimates) finished 1-39/64 higher at 35-7/8. Cymer (CYMI: Research, Estimates) rose 1-11/16, or 3.66 percent, to 47-3/4.
Among chipmakers: National Semiconductor (NSM: Research, Estimates) rose 1-15/16 to finish 3.88 percent higher at 51-15/16. Linear Technology (LLTC: Research, Estimates) gained 4-7/16, or 7.01 percent, to 67-3/4. Micrel (MCRL: Research, Estimates) shares finished 2-5/8 higher at 52-5/8, a 5.25 percent gain.
Intel (INTC: Research, Estimates) shares finished 2-3/8 higher at 141-3/16, a 1.71 percent advance on the day. Advanced Micro Devices (AMD: Research, Estimates) rose 5/16, or 0.37 percent, to 83-13/16.
Computer equipment makers headed higher as well. The Goldman Sachs computer hardware index finished up 17.52 at 598.95, a 3.01 percent gain on the day.
Shares of Silicon Graphics (SGI: Research, Estimates), which makes servers, supercomputers and visual workstations, rose 9/16 to 4-1/16, even after the company late Tuesday said it expected to report a larger-than-expected quarterly loss, the latest in a string of earnings disappointments.
Blaming component supply constraints, multiple product transitions and a slowdown in spending on supercomputers ahead of a new product release, the company said revenues should be in the $525 to $535 million range, compared with $829 million in the prior-year period.
Though the company did not provide details, it said earnings would fall short of the 8 cents per share analysts polled by First Call had expected.
Elsewhere among computer equipment makers, Compaq (CPQ: Research, Estimates) added 1-5/16, or 5.15 percent, to 26-13/16. Dell (DELL: Research, Estimates) rose 1-5/16 to 52-1/16, a 2.59 percent gain on the day. Gateway (GTW: Research, Estimates) ended 3-9/16 higher at 70-15/16, a 5.29 percent advance.
Wireless shares see gains ahead of reports
In the wireless communications segment, shares of Motorola (MOT: Research, Estimates) rose 2-7/16 to 36 ahead of that company's quarterly earnings report. Analysts expect the company to turn in a profit of 23 cents per share.
Qualcomm (QCOM: Research, Estimates) shares added 8 to 61, a 15.09 percent gain on the day. That advance came in spite of a report that wireless handset sales plunged in June in Korea after the nation eliminated government subsidies.
The San Diego-based company had already acknowledged that its orders from South Korea may slow as a result of the elimination of the subsidies.
Credit Suisse First Boston analyst Marc Cabi said in a research note that the decline in handset sales could be even more severe than previously anticipated.
"We expect a potentially heavy impact on Qualcomm, especially for second-quarter results," Cabi said. "We estimate that Qualcomm would have derived more than 25 percent of its revenue from Korea this year. We remain cautious on Qualcomm shares."
Elsewhere in the wireless world Wednesday, shares of Ericsson (ERICY: Research, Estimates) added 1 to 21-13/16 while Nokia (NOK: Research, Estimates) slipped 3/8 to 52-1/8. 
--from staff and wire reports
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