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ST, Infineon, AMSL ratings go sour

Posted: 07 Apr 2009 ?? ?Print Version ?Bookmark and Share

Keywords:S&P rating? sell investor share? ST Infineon cash flow?

Standard & Poor (S&P) equity analyst James Crenshaw is suggesting that investors sell shares in a bunch of semiconductor companies, including Infineon Technologies AG, STMicroelectronics N.V. and chip equipment manufacturer ASML Holding N.V., due to deteriorating demand and cash-flow problems.

Crenshaw, however, confirmed his "buy" rating on ARM Holding, which he said continues to benefit from its IP-revenue model and its asset-light operating system.

Crenshaw lowered his ratings on Infineon, ST and ASML from "hold" to "sell" and raised the possibility of bankruptcy reorganization for Infineon, which may select this option in a bid to reduce crushing debt payments amidst concerns it may not be able to refinance loans in a tight credit market.

"Infineon is weakly positioned in a highly competitive industry, produces low earnings before interest and taxes margins, and generates a return on invested capital below its cost of capital," Crenshaw said in a report. "In its current loss-making condition, we believe it may struggle to refinance the approximately 400 million euro [$537 million] of debt necessary."

Memory woes
ST, based in Geneva, Switzerland, fared only slightly better under Crenshaw's critical review. The analyst, who tracks a group of European technology companies, including several OEMs, lowered his target price for ST to about $4.7, or 3.50 euro, from a previous estimate of about $6.03, or 4.50 euro.

Crenshaw said ST took positive steps to revitalize operations by merging its wireless IC business with a similar unit at NXP and by forming a joint venture with Ericsson. However, ST's stability could be jeopardized by its exposure to problems at Numonyx, a joint venture with Intel Corp. that some believe may be headed for bankruptcy.

If Numonyx files for bankruptcy, ST could be "liable for $225 million of debt guarantees," Crenshaw said, adding that although ST has strong positions in several markets, it is "too thinly spread across product categories. Consequently, ST generates low operating margins and a ROIC well below its cost of capital."

The S&P analyst said ASML is similarly in trouble, in its case, due to problems in the memory market. The company's immersion technology is proving a positive, though, and should help it remain competitive in a difficult market environment despite the overall weakness in the global economy.

"While we expect ASML to perform strongly over the next few years with its immersion technology and high-yield machines, we see increased risks following the global economic slowdown, which we believe will extend the oversupply situation in memory chips," Crenshaw said.

One chip company, however, received a positive assessment from the analyst.

Crenshaw, who is based in London, confirmed his "buy" rating on ARM Holding, observing the company has managed to weather the current market weakness due to its "relatively insulated asset-light, highly cash generative IP business model.

- Bolaji Ojo
EE Times

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