Bank of America/Merrill Lynch analyst Krish Sankar is wreaking havoc on the small-cap semi equipment sector, after reducing his 2011 forecast for chip industry capital spending to a range of flat to up 5%, down from a previously forecast 15%. He expects lower spending by memory chip companies in the wake of softening PC demand.
Sankar cut his ratings on four stocks this morning, reducing Advanced Energy Industries (AEIS) and Ultratech (UTEK) to Neutral from Buy, and dropping Entergis (ENTG) and MKS Instruments (MKSI) to Underperform from Buy.
His new targets:
- AEIS: To $16, from $21.
- UTEK: To $18.50, from $21.
- ENTG: To $5, from $5.75.
- MKSI: To $19, from $28.
“Our bullish thesis on the small cap sub-component suppliers was due to their high revenue growth leverage early in the cycle as semi-cap OEM�s rebuild inventory to support shipment growth,” he writes. “Now, as the shipment run-rate slows down, the OEM�s tend to draw down inventory thereby slowing the revenue growth for these suppliers.”
In today’s trading:
- AEIS is down $1.54, or 10.9%, to $12.66.
- UTEK is down $1.20, or 6.9%, to $16.28.
- ENTG is down 46 cents, or 9.3%, to $4.49.
- MKSI is down $1.89, or 8.9%, to $17.31.
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