Thursday November 19, 03:40 PM
UPDATE 3-BofA Merrill downgrades chipmakers, shares fall
* BofA Merrill downgrades Intel (NASDAQ: INTC - news) , LSI (NYSE: LSI - news) , Marvell, ASML
* Intel, AMD (NYSE: AMD - news) drop 5 percent; chip index down 4 percent
(Recasts; adds analyst comments, background)
Nov 19 (Reuters) - BofA Merrill Lynch lowered its 2010 growth forecast for global semiconductor industry and downgraded ten chipmakers, including Intel Corp, turning more cautious on the group on expectations of a modest overshoot in global supply chain inventories.
Shares of chipmakers across the industry fell on the news. Bellwether Intel and rival AMD dropped 5 percent to $19.04 and $6.98, respectively.
Other chipmakers followed suit. Nvidia dropped 5 percent to $12.87; Micron was down 7 percent at $6.97; and RF Micro was down 5 percent at $4.42. The Philadelphia Semiconductor Index was down 4 percent at 309.37.
'While we believe the correction will likely prove short and shallow, we think any hint of a correction in the supply chain could punish (semiconductor) stocks,' BofA Merrill wrote in a note to clients.
The brokerage downgraded Intel, the world's largest chipmaker, to 'neutral' from 'buy,' and made similar rating changes to rivals LSI Corp, Marvell Technology Group Ltd , Texas Instruments Inc (NYSE: TXN - news) and Dutch chip equipment maker ASML Holding NV.
BofA Merrill, which cut its 2010 growth estimate for the sector to 18 percent from 21 percent, also downgraded Microchip Technology Inc, Maxim Integrated Products Inc, National Semiconductor Corp, Power Integrations Inc and British microchip designer ARM Holdings Plc by a notch each to 'underperform.
After a period of rapid replenishment of inventory as well as normalization of semiconductor shipments to 'true' consumption levels, inventories in the supply chain are approaching a level that suggests a modest overshoot versus equilibrium levels, the brokerage said.
'Barring a sharp upturn in the global economy, our indicators point to the potential for an inventory correction, thus rendering the risk-reward associated with ownership of chip stocks unattractive,' it added.
In addition, recent indications from the Asia PC supply chain suggest a downward bias to PC build forecasts in the near-term, the brokerage said.
Given the importance of PC sales to semiconductor sales, more than 40 percent of which are directly or indirectly linked to PCs, the weakness in the PC supply chain cannot be ignored, BofA Merrill said.
The brokerage revised its price targets on European semiconductor stocks to reflect the risk of negative news flow in the coming quarters.
Despite the brokerage's cautious view on the sector, it still expects continued growth in electronic end demand in conjunction with an economic recovery.
Global semiconductor sales in the third quarter rose 19.7 percent sequentially, the Semiconductor Industry Association said earlier this month, as it forecast an upbeat full-year sales.
(Reporting by Tenzin Pema, S. John Tilak in Bangalore; Editing by Anil D'Silva) Keywords: SEMICONDUCTORS/RESEARCH BOFAMERRILL
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