Trouble for Semis ‘By No Means’ Over Yet, Morgan Stanley Says

(Bloomberg) -- Morgan Stanley continues to hammer the semiconductors stocks.

In a note today, analysts Craig Hettenbach and Joseph Moore acknowledged that the recent sell-off in the sector has been “swift and painful,” but the outlook remains a tough one going forward.

“While it could be getting overdone near term, the group is by no means out of the woods,” the analysts wrote, noting that Wall Street estimates have only just started to come down and investors increasingly expect companies to guide to fourth-quarter revenue at least a few percentage points below consensus.

The Philadelphia Semiconductor Index has tumbled more than 11 percent since the firm downgraded the broader semiconductors sector to a cautious rating in early August.

Trouble for Semis ‘By No Means’ Over Yet, Morgan Stanley Says

“The biggest difference in semi fundamentals today vs. the last correction seen in 2015 is in the degree of excess that built up in the supply chain this go-round,” Hettenbach and Moore said in Tuesday’s note. “In 2018, cyclical indicators (lead times, double ordering, inventory) flashed red in contrast to the benign cyclical backdrop of 2015.”

Earnings will be the next test for the group, with capital equipment peers Lam Research Corp. and ASML Holding NV kicking things off over the next 24 hours, followed by Taiwan Semiconductor Manufacturing Co. to round out the week.

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