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Micron -3%; Drexel downgrades to Hold as part of broader chip stock call

Aug. 07, 2015 12:12 PM ETMicron Technology, Inc. (MU) StockSMH, PSI, MU, XSD, SSG, USD, SOXL, SOXS, SOXXBy: Eric Jhonsa, SA News Editor27 Comments
  • "We’re reducing ratings and/or price targets on Avago, Fairchild, Infineon, Intel, Micron, Texas Instruments and Xilinx owing to industry reports key China-based mobile and comm. infrastructure suppliers are pushing out orders," writes Drexel Hamilton's Rick Whittington. For now, Micron (NASDAQ:MU) is the only name in the group seeing a 2%+ decline. The Nasdaq is down 0.7%.
  • Whittington, a long-time chip stock bull, argues "the chip industry has overbuilt and overstocked for a China OEM community that is struggling to work off inventories," and that OEMs such as Huawei, ZTE, and Xiaomi are pushing out orders. A slew of chipmakers have reported seeing high Chinese inventories this earnings season.
  • Nonetheless, Whittington thinks macro conditions in the U.S., Europe, Japan, Korea, and India remain healthy. He also notes the iPhone 6S and other major phone launches could absorb some excess inventory.
  • Regarding Micron, which Whittington upgraded to Buy just 10 days ago (in response to the 3D XPoint reveal), he reports seeing further DRAM spot price declines and reports of new contract price cuts in August, something which leads him to think PC demand remains soft. Micron rallied earlier this week on a report Samsung is slashing PC DRAM output and shifting capacity towards mobile DRAM, and has notified OEMs it won't be cutting prices in August.
  • Some of Whittington's concerns about chip demand/inventories have arguably been priced in: The Philadelphia Semi Index (NASDAQ:SOXX) is down 16% from a June peak of $101.80.
  • Chip ETFs: SMH, XSD, PSI, SOXL, USD, SOXS, SSG

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