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Monday, January 5, 2009

Barclays upgrades semicaps, Credit Suisse downgrades NVLS; Wachovia upgrades semis

Barclays upgrades semicaps from negative to neutral. He says he thinks capex will drop 50% for the industry and consensus is using down 35% but stocks are attractive on tangible book values. He continues to dislike VRGY, FORM and BRKS. TER gets an upgrade. Many semicaps believe their business is at maintenance levels and that companies can't possibly reduce capex below current levels.

The upturn may remain elusive nonetheless as parts are selling below cash cost across the memory industry and cash is tough to come by with memory maker balance sheets so bloated with debt. I'd rather see some DRAM makers fail before calling a bottom. Taiwan is going to prolong the memory pain by throwing bailout money into the grinder.

Credit Suisse downgrades Novellus on poor operating leverage. No kidding… but uh that's been apparent for over a year. They started missing numbers way before everyone else. Their call has little value add.

Wachovia thinks an inflection point is close in semis. He upgrades only Altera but has buy ratings on ADI, INTC, XLNX, MU and CAMD. His sector rating moves from neutral to overweight. The basic thesis is though chip inventories will continue to rise from 70-75 days at September's quarter end to as high as 90-100 days by the end of the March quarter investors will look past near-term deteriorating fundamentals towards eventual recovery. He believes contract manufacturer and distribution inventory is significantly lower than it was in the downturn of 2001 and says more chip inventory is being held at component makers than in the past several years.

He talks somewhat about peak inventory occurring in the middle of 2001 in the last significant downturn. For what its worth, the semi index was down over 50% by September of the following year. As he doesn't expect inventories to peak until March, his call seems more in line with the recent market move than his thesis.


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