Bank of America’s Sumit Dhanda Wednesday chopped his outlook for 2009 semiconductor industry sales, and now forecasts a 5% contraction, rather his previous forecast for 7% growth. That said, Dhanda remains bullish on the sector, asserting that most stocks in the sector have reached a valuation level where “normalized earnings power” should set a floor on share prices “even in the event that an economic tsunami is at our doorstep in 2009.”
Now, keep in mind that Dhanda made a pretty bad call when he turned bullish on the group in April. Dhanda wrote Wednesday that his bullish stance had been based on expectations that even a mild recession would result in only limited risks for semiconductor growth. But he now concedes that the “ultra bear case” appears to be coming true.
That said, he contends that “the stocks have come a long way in discounting an ugly scenario.” Dhanda says he has no idea what the catalyst might be for a rally in semi shares, but that historically there typically isn’t one when the industry hits a bottom. He also says that the current period should not be as bad as the 2001-2002 period for the chip industry. “As dire as the economic scenario seemingly is, the unfolding industry downturn is unlikely to see the deterioration in fundamentals witnessed in 2001-02 for the simple reason that inventories are in much better shape this time.”
Dhanda cut estimates for semi shares across the board, but maintains his Overweight rating on the sector, and continues to recommend purchase of Atheros (ATHR), Broadcom (BRCM), Altera (ALTR), Xilinx (XLNX) and Intel (INTC).
