Caris Sees 'Lagging Fundamentals' in Analog Semis

Rich Whittington, semiconductor analyst at Caris & Co., on Friday downgraded a lengthy list of analog semiconductor stocks, seeing “lagging fundamentals” and “higher than desired” inventories. He puts it this way:

Analog semiconductor stocks are reverting to the mean. After a decade, even two decades of superior returns, with superior margins and cash flows, a combination of slow growth fixed wireline telecommunications and slowing wireless demand, both for cell phones as well as next generation wireless base stations, as well as lagging oversupply in power management targeted by numerous new entrants, including Asian producers, suggests lagging fundamentals during the present seasonally robust year-end.

We would further note feedback from distribution contacts have specifically suggested that North American based analog IC inventories higher than desired.

With inventories remaining higher than expected and the analog-IC based seasonal demand pull lower than expected, we conclude that there may be scope for contracting lead times and pricing pressure heading into the fourth quarter likely pressuring margins.

Hence, we’re lowering investment codings one or two notch’s except for TXN which was already downgraded a month ago.

His rating changes:

* Analog Devices (ADI), to Average, from Buy.
* Exar (EXAR), to Above Average, from Buy.
* Intersil (ISIL), to Average, from Above Average.
* Linear (LLTC), to Above Average, from Buy.
* Micrel (MCRL), to Below Average from Average
* Microsemi (MSCC), to Above Average from Buy
* Maxim (MXIM), to Average, from Above Average.
* National Semi (NSM), to Above Average, from Buy.
* Semtech (SMTC), to Below Average, from Average.
* Texas Instruments (TXN), maintained at Average.

All nine of the downgraded stocks traded lower Friday.