Oppenheimer Raises Red Flags on AMD, Broadcom, Cirrus

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If you want to know what a broad semiconductor downgrade looks and feels like, Oppenheimer has one for you going into 2014. The firm downgraded Advanced Micro Devices Inc. (NYSE: AMD), Broadcom Corp. (NASDAQ: BRCM) and Cirrus Logic Inc. (NASDAQ: CRUS) in a bad sector outlook piece.

Advanced Micro Devices Inc. (NYSE: AMD) was downgraded from Perform to Underperform with no price target assigned. The firm believes structural challenges are mounting despite stabilizing PC markets and despite strong wins in gaming consoles. Oppenheimer sees gross margins declining again, based on competitive pressures. The quote said:

AMD PC/graphics sales are likely to continue falling faster than PC units as Intel leverages its vast manufacturing and cost advantage to aggressively and profitably capture low-end share. Meanwhile, NVIDIA’s competitive graphics position remains as dominant as ever.

Broadcom Corp. (NASDAQ: BRCM) was downgraded to Perform from Outperform and the prior price target of $37 was removed. Oppenheimer does not believe that the LTE business is going to materialize after the recent analyst day last week. Oppenheimer said:

Rising structural risks to Broadcom’s core connectivity business further tilt risk/reward unfavorably, in our view. Qualcomm and in-house solutions from both Apple and Samsung present real long-term connectivity risks.

Cirrus Logic Inc. (NASDAQ: CRUS) was downgraded to Underperform from Perform. The reasoning seems to be everywhere for this downgrade: Customers, products, end-market concentration and even the valuation. Apple is listed as about 80% of sales and the firm sees lower average selling prices and gross margins from the business. No price target was assigned.

If you want to know just how negative Oppenheimer was on AMD and Cirrus, the 2014 Technology sector preview sums it up: “Our top structural/secular shorts are AMD and Cirrus.”

Monday’s downgrades are not going unnoticed right after the open. Cirrus was down more than 4% at $18.78, and AMD was down just over 1% at $3.65. Broadcom is, so far, unscathed with its shares up 0.4% at $28.12 shortly after the open.

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