Chipmaker stocks sink after Goldman Sachs downgrade

Goldman Sachs’ downgraded view of the semiconductor sector weighed on industry heavyweights such as Samsung Electronics and SK Hynix on Thursday.

Samsung shares shrank 1.12 percent compared to the previous trading day to 44,050 won ($39.20), while SK Hynix fell 0.8 percent to 74,500 won, the lowest since Aug. 17.

In an earlier report on Wednesday, Goldman Sachs lowered its view of the semiconductor capital equipment sector to “neutral” from “attractive,” citing concerns about oversupply in memory chips including dynamic random-access memory (DRAM) chips.

“We are lowering our coverage view and making select rating changes as we account for the deterioration in memory pricing (and thus margins) and potential implications for future memory,” the investment bank’s analyst, Mark Delaney, wrote. “Note the two have historically been highly correlated,”

The comment shows that worries over the supply glut and subsequent pricing decline are no longer a distant possibility and could impact the largest chipmakers.

Goldman Sachs cut SK Hynix to “neutral” from “buy” and removed Samsung Electronics from its “conviction list” of stocks that the investment bank sees as having more than 25 percent upside potential over the next 12 months.

The downbeat prospect followed Morgan Stanley’s downgraded view for the sector to “cautious” from “in-line” last month, warning of high inventory levels.

“The semiconductor cycle is showing signs of overheating,” Morgan Stanley analyst Joseph Moore wrote in the note to clients. “Cyclical indicators are flashing red and any contraction in lead times and/or demand slowdown could lead to a significant inventory correction.”

In the report, Morgan Stanley curbed SK Hynix’s target stock prices against the backdrop of an increased supply of server DRAMs in the fourth quarter, tepid growth of DRAMs and an anticipated oversupply of flash memory, or NAND, chips.

“As the price of DRAMs will slightly increase in the third quarter, SK Hynix will make short-term profits exceptionally,” the report read. “However, the DRAM cycle will be balanced in the fourth quarter. With an overall downward tendency in the NAND sector, SK Hynix, which is relatively weak in NAND chips, can face difficulties.”

The latest series of dim outlooks put investors with semiconductor stocks on edge. They have been on a selling spree since the beginning of September. Foreign investors have dumped more than 1.1 trillion won worth of shares in Samsung Electronics and SK Hynix as of Wednesday.

The weak performance of tech behemoths such as Facebook, Twitter and Netflix will also likely affect the semiconductor industry because their reduced data traffic could lead to lower demand for server DRAM chips.

Korean analysts are also set out to cut their price target for earnings in the third and fourth quarters.

“Mobile DRAM prices will be lowered at a faster-than-expected pace, which will erode the profits of chipmakers,” said Yoo Jong-woo of Korea Investment & Securities.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]