ARM Downgraded by UBS Warburg
(COM) 16/01/01 09:04: STOCKWATCH: ARM, ARC, Parthus downgraded by
UBS Warburg
STOCKWATCH: ARM, ARC, Parthus downgraded by UBS Warburg
LONDON (AFX) - Shares in UK microprocessor stocks were in focus after UBS
Warburg issued a note taking a negative stance on the sector, dealers said.
The broker downgraded ARM Holdings PLC to 'hold' from 'buy' with the price
targe reduced to 440 pence from 840, while rival chip designer ARC International
was moved to 'hold from 'buy' on a 250 pence target, cut from 300.
Parthus PLC also had its recommendation cut to 'reduce' from 'hold', on a
120 pence target reduced from 250.
Analyst Laura Baker said the downgrades were to bring the stocks in line
with the broker's neutral negative stance on the global semiconductor sector.
Baker also said the downgrades highlighted an increased earnings risk,
primarilly affecting ARM.
"A third of ARM's royalties come from revenues, and we're seeing weakness in
the original equipment manufacturer markets and that's going to feed through
into its revenue," she said.
UBS Warburg has recalibrated royalty revenue estimates "across the board",
with communications and consumer electronics seen under pressure along with
mobile handsets.
"What we're seeing is a lot of excess inventory in the market, so sales are
likely to be lower," Baker said.
For ARC and Parthus, royalty revenues are less significant and the companies
will therefore be affected much less, she said.
"Earnings will be more resilient, because they have more visibility (than
ARM) in how they book revenues. However, there was a profits warning from
InSilicon in the U.S. earlier this year which did not relate to royalties --
that suggests they are by no means immune," she added.
UBS Warburg also said the downgrade reflected a reweighting of its DCF
valuation.
"Valuations were a bit meaningless before, so we have tried to put a simple
framework round the valuation. The market is not willing to pay the blue-sky
valuations that they were 9-months ago," Baker added.
At 8.49 am, shares in ARM were down 24 pence to 525, while ARC International
was off 10 to 257-1/2. Parthus meanwhile was down 12 to 166-1/2. |
