CS First Boston analyst Charles Glavin handed out downgrades to a trio of big-name techs on Tuesday, citing concerns over withering demand and decreased earnings visibility.
Glavin cut communication chip giant Broadcom (Nasdaq: BRCM) to "hold" from "buy," slashed 2001 earnings estimates and lowered the company's 12-month price target to $80. The analyst also handed out tough medicine to Texas Instruments (NYSE: TXN) and Intel (Nasdaq: INTC), which were both dropped to "hold" from "buy."
At market open, shares of Broadcom fell $2.19, almost 3 percent, to $78.25, while Intel lost 31 cents to $34.44 at the opening bell. Texas Instruments moved up 18 cents to $37.88.
For Broadcom, Glavin said the downgrade and price target cut were based on impaired visibility in terms of end market growth and customer demand, excess chip inventories, a looming Gigabit Ethernet price war, and the effects of aggressively courting customers.
In a research note, the analyst jumped on the company's statement that first-quarter 2001 growth would not be as robust as previously forecast. Glavin said that he believed the reduction in orders along with order delays from original equipment manufacturers (OEMs) was extensive. The situation could be compounded, according to the analyst, by a further drop in demand from multiple PC vendors.
Glavin also highlighted potential pitfalls in the company's recent acquisition strategy, noting that concerns over expected returns are still an issue.
Broadcom topped analysts' estimates in its most recent quarter earlier this month and raised its sales estimates for the first quarter of 2001.
The analyst also cut Texas Instruments, which missed analysts' targets in its fourth quarter and first-quarter estimates. The semiconductor company's rating was reduced to "hold" from "buy" and its 2001 earnings per share targets were cut.
"We are downgrading TI to a hold from a buy, based primarily on valuation," Glavin wrote in his research note. "TI is still trading at twice its 20 to 25 percent long-term growth rate." The analyst said he believed that there still was a downside risk to earnings that has not been fully valued into the stock.
Glavin also pointed out the "significant downside margin risk" that exists for the company with regard to its large fixed asset base in the era of the fabless company model.
"We believe TI wanted to take much less output from its foundries...than it actually has to, and did not shut off its internal production quickly enough to counter weaker demand," the analyst wrote.
Last on the block for Glavin was Intel. "We are downgrading Intel to a hold from a buy, as we believe a substantial recovery for 2001 is unlikely for Intel," he wrote. Glavin was among the last analysts to downgrade Intel, which started to fall in September.
Earlier this month, the chip giant squeaked past lowered fourth-quarter earnings expectations but forecast a 15 percent decrease in revenue for the first quarter of 2001 compared with the fourth quarter of 2000.
Weaker end markets in desktop, servers, and laptops, the continuing aggressive pricing environment for chips, and snags in the ramp up of the company's Pentium 4 product all contributed to the situation, the analyst wrote.