Chip and chip-equipment stocks went into a tailspin Wednesday after Salomon Smith Barney analyst Jonathan Joseph issued a flurry of downgrades and warned that the industry is starting to show signs of slowing down.
Advanced Micro Devices (NYSE: AMD) shares fell 7 7/16, or 9 percent, to 76 13/16 after Joseph cut it from a "buy" rating to "outperform." Silicon Storage Technology (Nasdaq: SSTI) and National Semiconductor (NYSE: NSM) fell 13 7/8 and 6 7/16 a share, respectively, after they were cut from "buy" ratings to "outperform."
Although Intel (Nasdaq: INTC) wasn't downgraded, it got sucked into the chip sell-off, falling 3 15/16 to 132 15/16.
"Though a slowdown in the group may take six to nine months, we see ‘first mover’ evidence of a trend reversal in decelerating industry unit shipments coupled with price declines," Joseph wrote in a research note.
He also said the group might experience peak capital spending growth rates this year.
Chip-equipment stocks were also hammered by the news.
Applied Materials (Nasdaq: AMAT) fell 7 5/8 to 84 15/16 while Lam Research (Nasdaq: LRCX) and KLA-Tencor (Nasdaq: KLAC) dropped 4 1/4 and 4 13/16 a share, respectively.
All of these stocks have enjoyed terrific gains in the past 18 months as sales of telecommunications equipment, PCs and handheld computer devices have soared.
Intel, AMD and Applied Materials will all report earnings in the next few weeks.
AMD, which shattered analysts' estimates in its first quarter, will report its second-quarter results on July 19.
First Call Corp. consensus expects it to earn $1.13 a share, slightly off the $189.3 million, or $1.15 a share, it earned last quarter.
Intel will release its second-quarter results on July 18 with analysts looking for a profit of 99 cents a share.
Applied Materials, the world's largest chip-equipment maker, will check in with its third-quarter results on Aug. 9. Analysts are predicting a profit of 68 cents a share.