Intel, chip stocks slide after M.Stanley downgrade

By Ian Sherr

SAN FRANCISCO (Reuters) - Shares of Intel Corp and other semiconductor makers slid on Tuesday after Morgan Stanley downgraded the sector, warning that inventory was creeping up and revenue growth could peak in early 2010.

Morgan Stanley, which downgraded bellwether Intel to equal-weight from overweight, cast a shadow over growing optimism among investors and executives that a revival in corporate and consumer spending would prop up chip sales.

The U.S. investment bank downgraded the U.S. semiconductor sector to cautious from attractive, saying expectations of a recovery and forecasts of above-seasonal growth may have already been factored into stock prices.

"A lot of good news has been baked in," wrote Morgan Stanley analyst Mark Lipacis. "We can't help but think that PC component suppliers will have a difficult time beating expectations for over the next several quarters."

Still, some analysts continue to foresee revenue growth for chipmakers after stronger-than-expected back-to-school sales, holding out hope for renewed corporate spending on technology in the second half of next year.

But others agreed with Morgan Stanley's more pessimistic assessment, warning that U.S. unemployment may soon rise above 10 percent, depressing consumer sentiment, which has held up well.

"Did 2009 feel good enough to you that Intel revenue should only be down 8 percent?" said Auriga analyst Daniel Berenbaum.

"There is an assumption both among investors and at semiconductor companies that the U.S. consumer will continue to be OK," he added. "That's a bad assumption."