Why Goldman Sachs and Others See More Weakness Across Semiconductor Sector

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If you have been tracking the activity in technology stocks in recent weeks, it has been hard to not notice the meltdown that has taken place in the various areas tied to semiconductors. What was running as an industry in supply shortages has started to become an industry facing oversupply. It’s a cycle that has happened dozens of times over the decades, but 24/7 Wall St. recently warned its readers that the analyst downgrades were probably far from being over, after seeing that the consensus analyst price targets were all still way too optimistic.

And now more downgrades have been issued. Wednesday’s top analyst upgrades and downgrades included only some of the formal ratings downgrades and price target cuts. Goldman Sachs and Stifel were among the firms issuing the calls. Sadly, the big iPhone refresh from Apple Inc. (NASDAQ: AAPL) has done little to really help the chip companies as end user companies actually will benefit from lower memory prices ahead.

Goldman Sachs sees concerns covering both DRAM and NAND in the memory areas, and this spells bad news for any company on the capital spending (capex) side and production side of memory. Other analyst downgrades were seen as well.

Entegris Inc. (NASDAQ: ENTG) was maintained as Buy at Goldman Sachs, but the firm removed it from the prized Conviction Buy list. Its shares were down a sharp 5% at $29.92 on Wednesday, and they are down 25% from the 52-week high, and the consensus analyst price target of $43.28 was still above its 52-week high. Entegris handles microcontamination control products, specialty chemicals and advanced materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries.

Lam Research Corp. (NASDAQ: LRCX) was downgraded to Neutral from Buy and the price target was cut to $180 from $224 (versus a $155.40 close) by analyst Toshiya Hari at Goldman Sachs. The downgrade warns that semiconductor capex was going to face a larger fallout from a broad-based correction in 2019. Lam Research’s stock was trading down another 3.2% at $150.50 on Wednesday morning, and previously it had a consensus target price of $239.30. The shares are now down over 35% from the 52-week high.

Maxim Integrated Products Inc. (NASDAQ: MXIM) was downgraded to Hold from Buy and the price target was cut to $65 from $75 at Stifel. Maxim shares were down 6.3% at $56.21, and the prior consensus target price was $63.68. It is now down 25% from its 52-week high.

Micron Technology Inc. (NASDAQ: MU) was downgraded to Neutral from Buy and the price target was lowered to $50 from $68 (versus a $43.60 close) at Goldman Sachs. It was trading down another 5.7% at $41.12 on Wednesday morning and had a consensus target price of $83.60 ahead of this call. Micron’s 52-week range is $34.02 to $64.66.

NXP Semiconductors N.V. (NASDAQ: NXPI) was trading down over 4% at $85.80 on Wednesday, after a similar percentage drop on Tuesday. Stifel downgraded the stock to Sell from Hold with an $84 price target. Merrill Lynch reiterated its Neutral rating but has a $110 price objective after its analyst day. The previous consensus target price was $107, and the 52-week range is $85.33 to $125.93.

Power Integrations Inc. (NASDAQ: POWI) is into analog and mixed-signal integrated circuits, and it was the biggest loser seen in Wednesday’s featured downgrades. Stifel downgraded it to Hold from Buy with a $75 price target (versus $70.15 close), and its shares were down 9.9% at$63.20 on Wednesday morning. The consensus target price was $78.00 ahead of this call. Shares have traded in a 52-week range of $60.55 to $86.60.

The same weakness predicted by Goldman Sachs is also bad for drive-makers. Western Digital Corp. (NASDAQ: WDC), which RBC Capital Markets had just downgraded to Sector Perform from Outperform the prior day, was maintained as Neutral at Goldman Sachs, which cut its price target to $63 from $80. Surprisingly, its shares were last seen trading up 1.5% at $55.81. Seagate Technology PLC (NASDAQ: STX) was trading down 1.4% at $48.30 on Wednesday, with a prior consensus target price of $57.85 and in a 52-week range of $31.70 to $62.70. Just a few days earlier, both Western Digital and Seagate had been downgraded on NAND pricing worries ahead.

On top of Goldman Sachs downgrading top U.S. semiconductor players, the firm also downgraded Hynix and Tokyo Electron to Neutral from Buy in their overseas markets.