Wachovia Capital’s David Wong turned cautious on both the computer hardware and semiconductor sectors Thursday morning, cutting his ratings on the two groups to Market Weight from Overweight.
“Over the past couple of weeks we have become increasingly concerned with what appears to he a heightened sense of uncertainty regarding future economic growth,” Wong wrote in a research note. “We had originally hoped that secular trends in the semiconductor and computer hardware markets would be strong enough to offset some softening in global demand. However, several recent data points suggest that the technology demand has softened, possibly in response to global economic conditions.” (Possibly?)
On the other hand, Wong writes that there are some positive underlying trends that could make PCs one of the better performing tech segments in 2009. “A bigger risk for computer hardware companies,” he writes, is “the possibility of IT budget cutbacks at large corporations, impacting demand for enterprise computer hardware such as Unix servers and mainframes.”
As for chips, Wong worries that decelerating growth in the second half could lead to excess inventory build heading into 2009. “We think that the working down from higher inventory levels could suppress chip growth and pricing somewhat in 2009,” he writes.
Wong cut estimates for Dell (DELL), Hewlett-Packard (HPQ), IBM (IBM) and Sun Microsystems (JAVA); he maintained his Outperform ratings on Dell, HP and Sun and his Market Perform rating on IBM. He also cut his estimated valuation ranges for IBM, Sun and Dell.
Wong also cut estimates on Analog Devices (ADI), Altera (ALTR), Broadcom (BRCM), California Micro Devices (CAMD) and Xilinx (XLNX); he cut his valuation ranges on both Broadcom and Analog Devices. He did not change any ratings on the chip stocks.