UBS versus Goldman Sachs: Two Opposing Analyst Views on Semiconductors

UBS chip analyst, Uche Orji, raised his rating on several chip company stocks this morning.  He raised his rating from Neutral to Buy on the following: Texas Instruments (NYSE:TXN), Maxim Integrated Products (NASDAQ:MXIM), Linear Semiconductor (NASDAQ:LLTC), and Analog Devices (NYSE:ADI).

Uche Orji also raised the price target for Texas Instruments from $28 to $32, based on the companies strong position in the analog and embedded chip market.  TI is down nearly 4% for the day, and almost 19% YTD.  He also expects Analog Devices to benefit from bottoming industrial demand and improving orders, and Maxim Integrated Products to capitalize on strong phone demand and low distributor exposure.

Mr. Orji offers the following insight: “Orders and rolling forecasts have by and large stopped to deteriorate recently, post a last leg down earlier in the quarter.  We also think that PC DRAM prices have passed a trough for now.  Hence, we believe investors will re-focus on lead indicators.  We see the most relevant of them at trough levels (supply-led) or close to through levels (YoY semis revenues growth and utilisation rates by 1Q12).  We expect semis stocks to start outperforming in anticipation of this.”  Orji also maintains his Buy rating on Qualcomm (NASDAQ:QCOM), Intel (NASDAQ:INTC), Sandisk (NASDAQ:SNDK), and Samsung Electronics.

While UBS (NYSE:UBS) is bullish on several tech names, Goldman Sachs (NYSE:GS) has concerns of its own.  On Monday, Goldman cut its rating on Applied Materials (NASDAQ:AMAT) to a Sell.  The bank also released a target price of $10.50 for AMAT, which correlates with its 52 week low.  Shares are currently down nearly 4% on the news. Goldman cites oversupply issues in the semiconductor market as the reason for concern.  Goldman says, ” We continue to believe that record shipments to the foundries and Intel (NASDAQ:INTC) will lead to excess supply and a downward trend in orders through mid-2012.”  Goldman also downgraded Lam Research (NASDAQ:LRCX) to Neutral on Monday with a price target of $37.  Lam Research is a supplier of wafer fabrication equipment and services to the worldwide semiconductor industry.

Investors looking for tech plays will need to be cautious as macroeconomic trends still remain weak.  Last Tuesday, the world’s largest computer networking equipment maker Cisco (NASDAQ:CSCO), lowered its long-term sales growth. The compay now expects long-term sales to decline from 12%-17% to 5%-7%.  Best Buy (NYSE:BBY), the nation’s largest electronics retailer, also reported weak sales last Tuesday.  The company’s second quarter profit fell 30%, as sales missed estimates.  The retailer also lowered its forecast as new smartphone and notebook launches slowed.