It’s been a terrific week for bad news about various sectors of technology, from smartphones to disk drives to computing.
Add another negative to the pile: MKM Partners’s Daniel Berenbaum this morning opines that estimates for semiconductor companies for this year and next are at risk, and he thinks company management will “talk down expectations for the second half.”
Moreover, the stocks could be at risk given investors show no real commitment to risky assets, he thinks, and the stocks are not “broadly compelling” on a valuation basis.
Berenbaum outlines the risk he sees in the group’s results:
In 1Q, semiconductor revenue dipped below the trendline implied by our framework regression analysis, and could easily remain that way for several quarters; should it quickly return to trend, we would still likely see a 1.5% decline in semi revenue in 2012 before returning to GDP +100bps (6%-7%) growth in 2013 � well below consensus estimates. If industry revenue remains below the regression-implied trendline for an extended period of time, particularly in conjunction with out-year consensus revenue estimates moving meaningfully lower, we would be inclined to get more bullish. For now, we remain below consensus for 2013 on cyclical names like Texas Instruments�(TXN), Analog Devices�(ADI), Linear Technology (LLTC), and Maxim Integrated Products (MXIM) � ADI, for example, is trading at 15x our below-consensus CY13 estimates (MKM $2.22 vs. consensus $2.44), which might not be unjustifiable, but also does not make the stock compelling in the face of pending estimate cuts.
Despite the pessimism, Berenbaum continues to recommend shares of Intel (INTC), writing “we do not expect a negative pre from INTC, which, judging by the volume of calls from investors asking when we will see the bad news, seems to put us in the minority.”
Intel shares today are up 74 cents, or almost 3%, at $26.57.
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