Good news for semiconductors too late for Intel, AMD, Nvidia, and ATI

San Jose (CA) - It was probably a report just last Friday published by the Semiconductor Industry Association, indicating slowing growth in the microprocessor industry, triggered by a price war among manufacturers, that was among the factors triggering financial analysts to lower their estimates for both Intel and AMD today. At mid-morning, Citigroup sharply cut its earnings estimates and price targets for both companies, sending their stock values lower.

Last week’s report cited rapidly rising competitive pressures upon AMD and Intel triggering price cuts by both parties, but with only "nominal" sales growth as a result. The Citigroup report cited the current pricing environment in the second quarter, amid suddenly rising economic concerns - for instance, inflation fears triggered by new Federal Reserve chairman - as cause for revising its own forecast downward.

Later in the day, CNBC reported that ThinkEquity Partners followed suit, downgrading both AMD and Intel and reportedly commenting on how unlikely it was that either company is likely to find value, especially with AMD’s low margins and . The firm cut its price targets on AMD down to $22 from $27 (compare that to Citicorp’s target of $33), and its target on Intel to $15 from $16.

Commenting on reports such as TG Daily’s on Tuesday, stating perhaps through attrition, and perhaps through a sale of company divisions, spokesman , "Everything is on the table...There are no pre-conceived outcomes of this effort."

The downturn was already well under way when the SIA issued a revised forecast for the semiconductor industry, raising its estimates from just last week. Whereas worldwide sales were only anticipated to grow by an annual rate of 7.9% in the SIA’s November figures, cited in last week’s report, the revised target is now 9.8%. SIA still foresees a downturn in growth, but not until 2009.

"Stronger than anticipated end-market demand, mainly in consumer product sectors, caused us to raise our forecast for semiconductor industry growth for 2006," SIA president George Scalise is quoted as saying today. So the PC industry is coming back after all, right ? Well...not if you break down the numbers. The SIA still predicts nominal growth for the microprocessor side of the business : only 4.3% for the whole of 2006.

Since microprocessors are also at the heart of graphics cards, the bad vibes from Intel and AMD spilled over to Nvidia and ATI. Both stocks traded lower on the day by late afternoon, after analyst firm Stifel Nicolaus carried through on its promise to initiate coverage on both stocks simultaneously, with a "hold" rating (not "buy," not "sell"). Earlier in the day, the AP reported that JMP Securities analyst Krishna Shankar slammed the door on any likelihood that either Intel or AMD would merge with Nvidia or ATI, claiming Intel’s fairly well preoccupied with its own affairs these days, and AMD has an obligation to maintain a vendor-neutral stance in order to maintain good relations with its own suppliers. Apparently Shankar didn’t foresee any "near-term tie-up dynamics" for both sets of companies.