Goldman Sachs downgraded Intel (INTC) and Freescale Semiconductor (FSL) to in-line from outperform.
Analyst James Covello says he is transitioning coverage of Intel and Freescale (both downgraded); as well as Texas Intruments (TXN), Advanced Micro Devices (AMD), and SanDisk (SNDK) -- which remain rated in-line; and Micron Technology (MU) -- which stays at underperform.
Covello believes key drivers of the classic upturn (operating leverage, strong ASPs, and lengthening lead times) are absent, and valuations are rich at 38 times normalized earnings per share.
He believes Intel's margins are close to peak levels (which tends to coincide with a stock peak), and robust 2005 capex is likely to lead to uninspiring sales and margins in 2006.
The analyst believes Freescale no longer represents a "deep value," hence improved sales momentum is likely needed for further stock acceleration.