Ominous reports of rapidly slowing personal computer orders out of Asia pushed chip stocks lower Tuesday morning, with Intel (INTC), Advanced Micro Devices (AMD), Micron Technology (MU) and Nvidia (NVDA) all declining more than 3%.
Personal computer orders are "falling off a cliff," according to J.P.Morgan analyst Christopher Danely, who issued a research report downgrading his revenue and earnings estimates for Intel, the world's largest chip maker. Meanwhile, Robert W. Baird & Co. analyst Tristan Gerra offered a similarly glum assessment of PC orders.
"Our checks point to a sharp deceleration in PC order trends continuing into August, after a below-expectation July month," Gerra wrote in a note to clients. "Hopes of a meaningful recovery for the September month are less and less likely, in our view, leading to a likely below-expectation [third quarter].
Gerra downgraded Intel shares to Neutral from Outperform, reducing his price target to $22 from $30.
The reports are an ominous sign that the recent rise in consumer and enterprise technology spending may be slowing down, a worrisome development for an economy already sputtering. Analysts have been hoping that a pickup in PC spending would help drive economic growth, but reports of slowing PC orders are sure to put a drag on the recovery.
"Our checks in the Taiwan PC food chain indicate order rates from the PC end market deteriorated sharply during the last part of July," J.P.Morgan analyst Christopher Danely wrote in a note to clients. "Our checks indicate HP and Acer cut orders to the notebook supply chain, while Acer and Lenovo cut orders to the semiconductor food chain."
"Although there is a possibility order rates could recover, we view this as unlikely given increased inventory in the supply chain and weakening demand in the US and Europe and slowing demand in China," Danely added. "We continue to be cautious on the space due to the large amount of capacity coming on line combined with softening demand."
Danely lowered his calendar year revenue and earnings-per-share estimates for Intel from $44.4 billion to $44.1 billion and $2.01 to $1.95 to reflect a "below-normal seasonal quarter." He maintained his $19 price target on Intel with a Neutral call on the stock.
"With roughly 94% of its revenues derived from the overall computing end market, Intel is highly exposed to the prevailing PC demand headwinds in Asia," Danely noted.
The dual bearish chip maker reports helped send the tech-heavy Nasdaq down nearly 1.5% in mid-day trading.