Chips Are Down Again After Analyst Lowers His Rating on Micron Technology
The dumping of certain chip stocks is starting to look serious.
One day after a well-known analyst downgraded Intel Corp. on worries about slowing personal computer sales, another analyst’s downgrade of Micron Technology helped spark heavy selling in the semiconductor sector.
Donaldson, Lufkin & Jenrette Inc. analyst Boris Petersik, who is based in the brokerage’s Hong Kong office, on Wednesday slashed his rating of memory-chip maker Micron two notches, to “underperform” from “buy.”
He skipped over the “neutral” rating in favor of DLJ’s equivalent of a “sell.”
Micron (ticker symbol: MU) plunged $8.50 to $70, its lowest price since May.
Other chip makers were hammered as well. Intel (INTC), down $4.69 on Tuesday, fell $3.55 to $65.70, Vitesse Semiconductor (VTSS) lost $7.45 to $79.75, Advanced Micro Devices (AMD) lost $2.75 to $32 and Cypress Semiconductor (CY) slid $4.25 to $42.13.
Still, many of the stocks remain well above their early-August lows, from which they rallied sharply--until recent sessions.
Petersik, like Ashok Kumar of U.S. Bancorp Piper Jaffray, who downgraded Intel on Tuesday, is concerned about the effect of weaker personal computer sales on the chip sector.
The supply of dynamic random-access memories, the main memory chips in personal computers, is increasing because PC demand isn’t as high as expected, Petersik said. That will push the average price of Micron’s chips down by $1 this quarter, crimping profit.
He now expects an average price of $8 a chip, down from his previous forecast of $9, Petersik said.
He predicted Micron’s shares could sink to $50 within a year. “When you see momentum going out of DRAM prices, usually performance starts going out of the stock,” said Petersik, who said he received a flurry of calls from DLJ salespeople and investors seeking more information after the report. “It’s a controversial call.”
Indeed, Petersik is alone in his “sell” rating. Of 26 analysts who follow Micron that are tracked by Bloomberg, only Petersik has a recommendation lower than a “buy.”
Eight analysts raised their profit forecasts for the company over the past month, according to First Call/Thomson Financial. Only Petersik has lowered them.
“He’s really against the sentiment,” said Philip Foreman, of the Evergreen Masters Fund. “Most analysts’ and portfolio managers’ sentiment is very bullish.”
Analyst Erika Klauer of Deutsche Bank Alex. Brown said some weakness in chip prices is related merely to seasonal factors.
Some portfolio managers say they’re not ready to believe semiconductor stocks have peaked.
“Technology is continuing to grow at an exponential rate and there’s still not enough capacity out there to meet the demand for chips,” said Art Bonnel, manager of the $250-million U.S. Global Investors. Bonnel said he doesn’t see current chip shortages easing for at least two years, despite some predictions earlier this summer that the semiconductor industry business cycle has peaked.
