Brokers favor TXN, AMD over Intel
PC chip giant downgraded for third time in a week
By Madeleine Acey, CBS MarketWatch
Last Update: 6:22 AM ET Nov. 23, 2004
LONDON (CBS.MW) - Chip analysts appear to be shifting their allegiance to Texas Instruments Inc. and AMD Inc. at Intel Corp.'s expense.
Credit Suisse First Boston on Tuesday was the latest of a string of brokers to downgrade Intel (INTC: news, chart, profile) in the last week. It cut its rating to "underperform" from "outperform" and reduced its share price target from $25 to $22.
The broker said it believed growth in the chip industry would be increasingly driven by digital consumer and communications products, not the PC central processing units that Intel concentrates on.
CSFB cited poor positioning at Intel for secular long-term industry growth, a risk of several years of excess capacity and slowing PC growth. It also predicted market share loss to Advanced Micro Devices (AMD: news, chart, profile) in 2005 and said the company had limited traction outside processors.
"While INTC will likely see near-term strength given low expectations, healthy seasonal build-demand and improving inventories,... we would use the potential near-term strength to swap out of INTC into Texas Instruments (TXN: news, chart, profile) given our longer-term view on the stocks," CSFB added.
"...We believe INTC is more likely to underperform the overall industry in the coming years," it said.
Intel shares were down 35 cents in speculative pre-open trade on Tuesday at $23.75.
Third downgrade in a week
The downgrade came a week after Intel suffered two negative ratings shifts in as many days.
Last Tuesday Wedbush Morgan cut its recommendation on the shares to "hold" from "buy" and also dropped its 12-month price target to $22 from $25. Unlike CSFB, which maintained earnings outlook, Wedbush cut its 2005 earnings per share forecast to $1.15 from $1.25.
"It appears that Advanced Micro Devices will be able to gain share in the second half of calendar year 2005, including with the previously 100 percent Intel customer Dell Computer for the first time," analyst David Wu told clients.
Wu said that AMD in 2006 would have the capacity to accommodate the volume requirements of the top PC original equipment manufacturers, meaning it could back design wins in 2005.
"This is the first time AMD has the capacity to seriously erode Intel's 80 percent-plus market share," Wu said.
Last Monday, First Albany downgraded Intel to "underperform" from "buy" and recommended investors use the stock's seasonal strength to reduce exposure.
"We believe that we are looking at the PC upgrade cycle in the rear view mirror as Intel's year-over-year growth and gross margins peaked a year ago," analyst Auguste Richard wrote in a research note.
Richard also said he believed the company was losing market share.
He sliced his price target to $18 from $24
CSFB said Tuesday it believed growth in the chip industry would come from analog/mixed-signal, digital-signal processors, micro-controller units and clocks for digital consumer and communications products and less by the digital processing that Intel's chips enable.
It predicted PC market growth of just 8 percent long-term, versus 11 percent in 2003 and 2004, and said it thought Intel would continue to lose market share to AMD in PCs and servers.
It also expressed concern that both chip companies' 300mm processor supply would outstrip demand by 11 percent in 2005 and 33 percent in 2006. It added it would have to see one or both players reduce manufacturing plans to gain a more positive outlook.
AMD in focus
Merrill Lynch, two weeks ago, raised its rating on AMD to "buy" from "neutral" and placed a $22 price target on the chipmaker's stock.
"We believe that AMD is in the midst of a microprocessor product cycle that should allow the company to continue expanding profit margin and gaining market share against Intel for at least another year," Merrill told clients. "In contrast, Intel's own microprocessor roadmap for the next twelve months looks troubled."
In late October Smith Barney raised ratings on certain chip stocks, including Texas Instruments, Altera Corp. (ALTR: news, chart, profile) and Analog Devices Inc. (ADI: news, chart, profile).
The one dissenter was Janney Montgomery Scott, which downgraded Texas Instruments to "hold" from "buy" because of concerns over the semiconductor industry's longer-term fundamentals.
Analyst Vernon Essi also lowered the stock price target to $23 from $24, the fourth-quarter earnings estimate to 26 cents a share from 28 cents and the 2005 forecast to $1.16 a share from $1.18.
However, Essi said Texas Instruments was a "must own" chip company with defensive characteristics and limited downside.
On Tuesday, CSFB also downgraded On Semiconductor Corp. (ONNN: news, chart, profile), Fairchild Semiconductor (FCS: news, chart, profile) and Conexant Systems Inc. (CNXT: news, chart, profile) citing an expectation of a milder semiconductor upturn.
The broker theorised that increased capacity and inventory discipline within the supply chain that drove the lower peak in the last up-turn (2003/2004), would limit the downside in the coming downturn next year and the upside in the following upturn in 2006. "In other words, higher troughs, lower peaks."
CSFB said its key outperform rated stocks were Texas Instruments, Linear Technology (LLTC: news, chart, profile), Maxim Integrated Products (MXIM: news, chart, profile), Marvell Technology (MRVL: news, chart, profile), and Broadcom Corp. (BRCM: news, chart, profile).
Enviado: 24/11/2004 14:19