Barclays cuts Intel, Applied Materials to equal weight

U.S. semiconductor stocks are in for a volatile 2012 as inventory correction extends into the first quarter, and an industry recovery due only in the second half, Barclays Capital said and downgraded five stocks, including Intel Corp.

Barclays lowered its ratings on Intel, Applied Materials Inc, Freescale Semiconductor Holdings Ltd, Microchip Technology Inc and Spansion Inc to equal weight from overweight.

First quarter should be the trough for semis given the ongoing inventory correction, coupled with supply chain constraints, due to muted end demand visibility, Barclays analyst C J Muse wrote in a note to clients.

Muse now expects U.S. semiconductor revenue growth to come in flat to 4 percent in 2012. He had earlier forecast growth of 2-5 percent.

According to Thomson Reuters' Starmine data, Muse is a four star-rated analyst for the accuracy of his earnings estimates on the companies under his coverage universe, which include Intel and Applied Materials.

Intel, which cut its fourth-quarter outlook citing hard drive shortages, will also see lower demand for its core PC business, Muse said.

Applied Materials is also likely to experience headwinds in its flat panel display and solar photovoltaic businesses, said the analyst.

Barclays' Muse sees volatility in the semiconductor space in 2012 with the emergence of new architecture, new computing platforms, expected refresh in operating systems, more players and the ongoing shortage in hard drives.

The analyst, however, expects semiconductor stocks to outperform end markets in the second half of 2012 and expects a 6-8 percent growth rate in 2013.

Barclays upgraded Cymer Inc, LSI Corp, Micron Technology Inc to overweight from equal weight.

The Philadelphia semiconductor index fell 12 percent since the start of 2011 to end the year at 364.44 points, as the industry was hit by disruptions in supply chains with the earthquake and tsunami in Japan and flooding in Thailand.

(Reporting by Rachel Chitra in Bangalore; Editing by Tenzin Pema, Maju Samuel)