Collins Stewart analyst John Vinh this morning dropped his ratings on both ON Semiconductor (ONNN) and Diodes (DIOD) to Hold from Buy, on concerns about slowing demand in China.
Vinh says checks find evidence of “broader weakness in end-demand in LCD TVs, automotive, handsets and PCs.” He notes that China exposure is 40%-50% for DIOD and about 30% for ONNN.
“While we had previously believed that strong backlogs and limited capacity expansion would allow DIOD/ONNN to absorb a short-term pause in demand, our recent round of checks indicate that semiconductor lead times have started to compress in China to 15-16 weeks from ~20 weeks prior, indicating that second half estimates may ultimately prove to be ambitious even with current backlog and visibility,” he writes in a research note.
Adds Vinh: “We believe that stocks at current discounted levels have certainly priced in meaningful forward estimate cuts. However, with indications of fundamental demand weakening in China, we believe these stocks will likely be range bound until demand re-accelerates and are thus moving to the sidelines.”
In today’s trading:
- ONNN is down 23 cents, or 3.2%, to $6.76.
- DIOD is down 69 cents, or 3.9%, to $17.14.
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