Wachovia Cuts Semiconductor and PC Sector Ratings to Market Weight

September 25, 2008 2:04 PM EDT

Wachovia today reduced its sector ratings on the Semiconductor and PC groups from Overweight to Market Weight and maintained its Market Weight rating on the wireless handset industry.

Semiconductors
The firm believes that a slowdown in the PC, handset, and other semiconductor end markets will cause a deceleration in semiconductor consumption during 2009. Wachovia expects to see a build in inventory heading into next year as growth slows and demand weakens at the end of this year. Excess inventory would in turn create a suppression in chip growth and pricing in 2009.

As a result, Wachovia lowered its FY08 semiconductor growth estimates from 5-9% to 4-7%, which compares to sales growth of about 5% year-over-year for the first 7 months of 2008. The firm also introduced FY09 growth of 0-7% for semiconductor sales.

Some of the largest semiconductor companies, although not mentioned in the Wachovia report, are Intel (Nasdaq: INTC), Texas Instruments (NYSE: TXN), Marvell (Nasdaq: MRVL) and NVIDIA (Nasdaq: NVDA).

Computer Hardware (PC)
Despite expected deceleration in worldwide PC growth, Wachovia believes the PC group could be "one of the better performing technology segments in 2009" due to several positive underlying trends. First, the firm believes there could be some upside to its FY09 notebook shipment forecasts given a strong secular trend in this space. Wachovia sees growth in notebooks continuing at 20% or greater in 2009. Second, the firm believes that "relatively low PC penetration in emerging markets will help support some desktop growth over the next couple of years, helping to insulate the industry from a more severe macroeconomic downturn."

Wachovia maintains its FY08 PC growth estimates as the firm feels "reasonably good business momentum for PCs in the first half of 2008 probably carried itself through most of the September quarter." Wachovia sees FY08 unit growth in the range of 14-17% and initiates a FY09 growth estimate of 5-12%.

Apple (Nasdaq: AAPL), Dell (Nasdaq: DELL), Sun Microsystems (Nasdaq: JAVA) and HP (NYSE: HPQ) are some of the biggest companies in the Computer Hardware industry.

Wireless Handset
The firm lowered its FY08 wireless handset growth projects from 10-15% to 9-12% and introduced a FY09 unit estimate of 5-10% growth. Wachovia said that the "relatively high penetration of wireless handset worldwide makes this segment quite sensitive to economic softening."

Some important companies involved in the communications industry include: Nokia (NYSE: NOK), Motorola (NYSE: MOT) and Qualcomm (Nasdaq: QCOM).

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