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Nov-04-2009Intel, chipmakers slip on Morgan Stanley downgrade(topic overview)
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Computerworld - Investment house Morgan Stanley unleashed a torrent of downgrades on the semiconductor industry today, taking some steam out of the idea that chip companies like Intel are leading an economic comeback. Morgan Stanley cut its rating on the semiconductor industry from "attractive" to "cautious," while also downgrading the likes of Intel. Corp., Nvidia Corp. and Micron Technology Inc. Morgan Stanley analysts Mark Lipacis and Sanjay Devgan wrote in a note that rising inventories and concerns about PC component sales is driving them to be more cautious about the industry. [1] NEW YORK, Nov. 3 (Xinhua) -- Morgan Stanley cut its rating on the semiconductor industry to cautious from attractive on Tuesday, warning the risk of an inventory buildup and growth peak. In a note to clients, the investment bank said the pace in the recovery in expectations for the group has been unprecedented and suggests selling the sector's stocks on their rallies.[2] NEW YORK (Dow Jones)--Morgan Stanley cut its rating on the semiconductor industry Tuesday, warning that fundamentals are peaking, inventories are "creeping up," and some manufacturers may have shipped ahead of orders last quarter. "The pace in the recovery in expectations for the group has been unprecedented," the firm wrote in a note to clients, saying it now recommends selling the sector's stocks on their rallies. It had previously rated the.[3]
The semiconductor sector was downgraded to cautious from attractive by Morgan Stanley, which said inventories are creeping up and a lot of good news is already baked into chip stocks. [4] SAN FRANCISCO — Some semiconductor stocks finished lower Tuesday after a Morgan Stanley analyst downgraded the sector and individual stocks including Intel Corp. on a prediction that a boom in their share prices is in its "final innings."[5] SAN FRANCISCO (Reuters) - Shares of Intel Corp (INTC.O: Quote, Profile, Research ) and other semiconductor makers slid on Tuesday after Morgan Stanley downgraded the sector, warning that inventory was creeping up and revenue growth could peak in early 2010.[6]
Some analysts continue to foresee revenue growth for chipmakers after stronger-than-expected back-to-school sales, holding out hope for renewed corporate spending on technology in the second half of next year. Others agreed with Morgan Stanley's more pessimistic assessment, warning that U.S. unemployment may soon rise above 10 percent, depressing consumer sentiment, which has held up well.[7] Certainly, it isn't a good sign. It reflects the reality of the economic conditions and not a unique weakness in the chip segment. Until IT spending comes back, or until a big technology change, like 4G, stirs up this market, we'll likely continue to see firms like Morgan Stanly take a conservative position." Dan Olds, an analyst with The Gabriel Consulting Group, said he thinks Morgan Stanley may be a bit off base with its downgrading.[1]
Morgan Stanley, which downgraded bellwether Intel to equal- weight from overweight, cast a shadow over growing optimism among investors and executives that a revival in corporate and consumer spending would prop up chip sales.[6] In some ways, the recession is actually helping semiconductor sales as companies use advanced technology to cut costs by automating operations. The short-term weakness is, I believe, mainly due to both consumers and businesses preserving cash, though they're postponing purchases rather than canceling plans." He added that technology remains near the top of most business and even consumer wish lists, so when the economic tide does turn, tech companies will feel early benefits as executives and individuals again open their wallets. "As for the Intel downgrade, it's hard to fathom in some ways. Intel executives are usually fairly conservative in their guidance and they were reasonably upbeat in their last release," said Olds. "Looks like all of Morgan Stanley got up on the pessimistic side of the bed this morning."[1] Lipacis knocked down ratings of stocks including microprocessor maker Intel, whose shares fell 51 cents, or 2.7 percent, to finish at $18.50; graphics chip maker Nvidia Corp., whose shares fell 6 cents to $12.01; and memory chip maker Micron Technology Inc., whose stock rose 7 cents to close at $6.65. Lipacis downgraded Intel, the world's No. 1 maker of microprocessors for personal computers and servers, because after two "blowout" quarters its earnings estimates have undergone "massive upward revisions," which has lifted the stock price. Lipacis wrote, however, that Wall Street may be underestimating Intel's potential to boost its gross profit margins.[5] Nvidia is the top maker of standalone graphics chips. Lipacis noted that Micron's stock has declined since its 52-week high of $9.13 on Oct. 12 because of profit-taking and anticipation of a seasonal decline in memory chip prices. He thinks it will likely stay down in the near term because of concerns that PC makers have built up big stockpiles of chips and won't need to buy as many new ones.[5]
Two chip stocks that Lipacis upgraded were Maxim Integrated Products Inc. and Linear Technology Corp. Lipacis wrote that Maxim has strong revenue growth and that the benefits from a new distribution deal are in the early stages.[5]
Wall Street expects the technology bellwether to show fully reported earnings per share of $2.81 for fiscal 2010, compared with an estimated 81 cents for 2009, according to analysts polled by Thomson Reuters I/B/E/S. Berenbaum said he is more skeptical. His research showed corporate PCs to be newer than the oft-repeated four to five years old. That, he said, combined with continued concerns about unemployment, raised questions about growth.[7] Goldman Sachs downgraded shares of Affiliated Managers Group (NYSE: AMG ) from Buy to Neutral as the firm sees better opportunities in the sector. Analysts at the firm see better upside potential in asset managers like Blackrock (NYSE: BLK ) and the Blackstone Group (NYSE: BX ), both with Conviction Buy ratings at Goldman Sachs.[8] The Philadelphia Semiconductor Sector index fell 3.89, or 1.3 percent, to close at 293.48. Morgan Stanley analyst Mark Lipacis downgraded the sector from "Attractive" to "Cautious," saying the semiconductor index is up nearly 75 percent from its bottom but has started to underperform. "We expect continued underperformance and are sellers on rallies," he wrote.[5] This morning, Morgan Stanley downgraded the entire U.S. semiconductor sector to Cautious as the firm believes PC shipments are poised to fall on waning demand.[8]
The U.S. investment bank downgraded the U.S. semiconductor sector to cautious from attractive, saying expectations of a recovery and forecasts of above-seasonal growth may have already been factored into stock prices.[7]
Wedbush Securities analyst Betsy Van Hees also downgraded Micron's stock on signs that the supply of memory chips will likely be higher than demand in the first quarter, pressuring selling prices and profit margins.[5]
Analyst Mark Lipacis downgraded chip giant Intel Corp. to "equal weight" from "overweight," saying "expectations for 2010 have risk."[2] "A lot of good news has been baked in," wrote Morgan Stanley analyst Mark Lipacis.[7] While inventory levels have been at historically healthy levels, Morgan Stanley's note said that increased builds ahead of the holiday shopping season and release of Microsoft Corp's (MSFT.O: Quote, Profile, Research ) Windows 7 operating system have caused inventory levels to creep up. Lipacis wrote that the investment bank expects margins for semiconductor companies to hit their peak in the next year.[6] Morgan Stanley downgraded chipmakers Altera Corp (ALTR.O: Quote, Profile, Research ) and Xilinx Inc (XLNX.O: Quote, Profile, Research ) to equal-weight from overweight, mostly due to weaker-than-expected international demand, even though the two companies are expected to benefit from the recovery.[6]
In addition to the hurdles in the new markets, Morgan Stanley sees stronger competition from AMD ( AMD Quote ) and Intel ( INTC Quote ), as the PC processor duo aims at Nvidia's graphics processor sweet spot.[9] Nvidia ( NVDA Quote ) got one of the most negative rating cuts of the group. Morgan Stanley, forecasting greater challenges as the company shifts more of its business from PCs to portable and mobile devices, lowered its rating from neutral to sell.[9]
Morgan Stanley raised Linear Technology ( LLTC Quote ) and Maxim Integrated ( MXIM Quote ) to buy from neutral.[9]
NEW YORK ( TheStreet ) -- The chip sector got a big round of downgrades from Morgan Stanley on Tuesday on concerns that supplies are catching up with demand.[9] Morgan Stanley goes cautious on semiconductors, saying inventories are "creeping up," as measured in dollars, and notebook makers' Taiwan operations saw a "spike" in the same.[10]
"Did 2009 feel good enough to you that Intel revenue should only be down 8 percent?" said Auriga analyst Daniel Berenbaum. "There is an assumption both among investors and at semiconductor companies that the U.S. consumer will continue to be OK," he added. "That's a bad assumption." [7] "Realize that we are getting really mixed signals at the moment with regard to the market recovery and that is making the financial community very nervous and conservative at the moment." Enderle, however, said this doesn't seem to be a direct reflection of what analysts think of companies like Intel and Nvidia. "I think this is more a reflection on the global economy and continuing concerns that IT spending doesn't appear to be increasing yet," he added.[1] "We can't help but think that PC component suppliers will have a difficult time beating expectations for over the next several quarters." He added: "On the demand side, we've argued that the financial crisis motivated companies to stop spending on IT hardware and there is now pent-up demand for IT equipment."[6]
Intel (INTC), the chip giant, expects corporate spending on PCs to rise in '10, CEO Paul Otellini said at a news conference in India. He provided no specific forecast.[4]
With the sector downgrade, the firm also downgraded technology bellweather Intel (NASDAQ: INTC ) from Overweight to Equal Weight. [8] Downgrades Intel, Micron Technology (MU), Altera (ALTR), and Xilinx to equal weight from overweight, and cuts ArvinMeritor, Nvidia and ON Semi to underweight from equal weight. Firm upgrades Maxim and Linear Tech to outperform "for their defensive characteristics."[10]
Nvidia shares were downgraded on fears that cheaper products from Intel will erode Nvidia's chipset market share. [5] In morning trading, shares of Intel were trading lower, off more than three and a half percent so far.[8] In morning trading, shares of Affiliated Managers Group fell by about three and a half percent following the move by Goldman Sachs.[8] Shares of SanDisk were falling in morning trading, off more than three and a half percent following the downgrade.[8]
Intel shares sank 51 cents, or 2.68 percent, to 18.5 U.S. dollars as Tuesday's closing.[2]
Wedbush Morgan downgraded shares of SanDisk (NASDAQ: SNDK ) from Neutral to Underperform as recent channel checks have shown supply outpacing demand.[8] The firm is concerned that ballooning inventories could impact margins and have reduced the price target from $24 per share down to $17.[8] The stock most recently traded at $77.44, down 1.6% from yesterday's closing price. Colgate-Palmolive Company, together with its subsidiaries, manufactures and markets consumer products worldwide.[11]
Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms.[7]
"The average desktop is five years old, a laptop is four years old. They have to be replaced. They're out of warranty. It's more expensive to keep the old ones than to buy new ones.[1] Deutsche Bank downgrades UBS AG (NYSE: UBS ) from Buy to Hold. UBS AG, a financial services firm, serves an international client base through its wealth management, investment banking, and asset management businesses with presence in various financial centers worldwide.[11] Hearing that Argus Research has issued an intraday downgrade on shares of Colgate-Palmolive (NYSE: CL ).[11]
The downgrades and lack of enthusiasm about the chip industry came as a bit of a surprise to some who have been tracking signs that the semiconductor industry has been rising from the financial mire that's affected the economy at large.[1] As of today, there's more pessimism in the air. "I think it shows a concern that the industry may have overbuilt for the fourth quarter and that economic conditions simply aren't where they need to be to consume the existing inventory," said Rob Enderle, an analyst with The Enderle Group.[1] RealMoney Silver: The genius of Doug Kass + 5 Premium Services = an unrivaled group of expert fundamental analysts, technical analysts, and Wall Street observers.[9] From time to time, we will send you e-mail announcements on new features and special offers from The Wall Street Journal Online.[3]
SOURCES
1. Morgan Stanley downgrades take shine off semiconductor industry
2. Morgan Stanley downgrades semiconductor industry_English_Xinhua
3. Morgan Stanley Goes Cautious On Semiconductor Stocks - WSJ.com
4. Investors.com - Chip firms cut on inventory rise
5. The Associated Press: Intel, chipmakers slip on Morgan Stanley downgrade
6. Intel, chip stocks slide after M.Stanley downgrade | Reuters
7. UPDATE 2-Intel, chip stocks slide after M.Stanley downgrade | Reuters
8. Downgrades: INTC, SNDK, AMG | Market News Video
9. Nvidia Taken Down a Notch at Morgan | Technology | Financial Articles & Investing News | TheStreet.com
10. Morgan Stanley Cautious on Chips - MarketBeat - WSJ
11. StreetInsider.com
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