This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Merrill Call Whips Chips

Updated from 9:05 a.m. EDT

The swoon in semiconductors resumed Monday after Merrill Lynch issued negative research on both Intel (INTC - Get Report) and the chip-equipment sector.

The brokerage downgraded Intel to neutral from buy one day before it reports earnings, citing uncertainty about technology demand and the stock's valuation relative to its peers. Demand has been a concern since last week's parade of software preannouncements, a series of warnings that led chip investors to sell down the Philadelphia Semiconductor Index 4.8% before it mostly recovered Friday.

The Semiconductor Holders Trust (SMH) was recently down 2.9%, while the SOX was off 3.1%.

"With questions about demand becoming tougher to answer, we're concerned about the impact that lower manufacturing utilization could have on Intel's gross margin in both the second and third quarters," Merrill wrote. "Intel came into the quarter with high inventory by historic standards, and may face pressure to bring inventory levels down in the third quarter."

Merrill also undertook a "broader shift to a more negative stance on the semiconductor business," citing a new belief that industrywide demand is likely to peak at a lower rate and earlier than it previously believed. The brokerage lowered its rating on the semiconductor equipment space to neutral from overweight, a move that was pressuring Applied Materials (AMAT - Get Report), KLA-Tencor (KLAC - Get Report) and Novellus (NVLS), despite the latter's strong second-quarter earnings report .

The brokerage said Intel is likely to hit its revenue target of $8.1 million when it reports Tuesday, saying flash-memory sales should offset any problems with microprocessors. While leaving its earnings and revenue estimates for the rest of the year unchanged, Merrill said its "confidence in those estimates has deteriorated."

Intel was recently down 64 cents, or 2.4%, to $25.93 on Instinet, a level that leaves it about 21 times the 2004 Thomson First Call consensus.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AMAT $22.77 0.00%
INTC $31.46 0.00%
KLAC $59.40 0.00%
SMH $55.86 0.00%
AAPL $126.37 0.00%

Markets

DOW 17,976.31 +263.65 1.49%
S&P 500 2,086.24 +25.22 1.22%
NASDAQ 4,947.4410 +56.2220 1.15%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs