Goldman Sachs Lowers Semiconductor Sector View to Neutral

Strategic Insights -

Goldman Sachs has lowered its view on the Semiconductor sector to Neutral from Attractive due to less favorable fundamentals. The company's bottom-up model projects a 11% increase in overall capital expenditures year-over-year, led by memory and foundry segments. However, stocks in the sector have traded higher as orders have recovered significantly in 2013, with unit volumes now more in line with historical trends.

Key Takeaways:

  • Goldman Sachs lowered its view on the Semiconductor sector to Neutral from Attractive due to less favorable fundamentals.
  • The company's bottom-up model projects a 11% increase in overall capital expenditures year-over-year, led by memory and foundry segments.
  • Unit volumes have significantly recovered over the past three quarters, with a 28% increase from the February 2013 trough and a 16% year-over-year increase.
  • Goldman Sachs favors stocks that have lagged in 2013, such as Maxim Integrated Products Inc (MXIM) and Teradyne, Inc (TER).
  • The analyst also upgraded Avago Technologies Ltd (AVGO), Microchip Technology Inc. (MCHP), Lam Research Corporation (LRCX), and Xilinx Inc. (XLNX) to Buy from Hold or Upgrade.
  • The analyst downgraded Aeroflex Holding Corp. (ARX), NXP Semiconductors NV (NXPI), Altera Corporation (ALTR), and ON Semiconductor Corp (ONNN) to Neutral from Buy due to slowing cyclical dynamics.
  • Analog Devices, Inc. (ADI) was moved to Sell from Neutral, while Intel Corp. (INTC) and KLA-Tencor Corporation (KLAC) remain Sell rated.

Statistics:

  • 11% increase in overall capital expenditures year-over-year, led by memory and foundry segments (Goldman Sachs).
  • 28% increase in unit volumes over the past three quarters (Goldman Sachs).
  • 16% increase in unit volumes year-over-year (Goldman Sachs).
  • SOX 527.75 -7.29 -1.36 (0.85% decrease in the past 24 hours) (COMTEX).
  • MXIM 27.85 -0.01 -0.02 (0.04% decrease in the past 24 hours) (COMTEX).
  • TER 17.63 0.00 0.00 (no change in the past 24 hours) (COMTEX).

Sources:

  • Goldman Sachs, "View on Semiconductor Sector Lowered to Neutral" (January 2, 2014).
  • COMTEX, "SmarTrend Alert" (December 29, 2013).
  • Comtex News Network, Inc., "SmarTrend" (www.mysmartrend.com).