Chip Stocks Take A Beating On Growing Concerns On Demand

Uh oh.

Chip stocks are taking a beating today on growing concerns that aggressive ordering in the first half of the year, combined with a slowdown in Europe, could result in second-half slowing in the PC sector.

Some of the worries are coming from the disk drive sector. Hutchinson Technology (HTCH), which makes suspension arms for hard drive, late yesterday said customers have reduced their production plans.

J.P. Morgan analyst Mark Moskowitz this morning trimmed his estimates on both Seagate (STX) and Western Digital (WDC), asserting that “checks indicate lighter than expected demand conditions due to moderating growth in Europe and Asia.” He now sees the industry posting a 4% sequential drop in unit growth for Q2, rather than the 1.9% increase he had been forecasting previously. For Seagate’s June quarter, he now sees profits of 84 cents, down from 93 cents. His target on the stock drops to $23, from $27.

For Western Digital, he makes a similar move, cutting his target to $51, from $54, while cutting his June quarter EPS estimate to $1.43, from $1.48.

J.P. Morgan also trimmed estimates on 2010 PC unit growth to 18.2%, from 18.8%; for 2011, they now see 12.4%, up from 12%. Based on slower anticipated growth in both PCs and disk drives, Morgan chip analyst Harlan Sur trimmed estimates and price targets for both LSI (LSI) and Marvell (MRVL). The target for Marvell falls to $26, from $27; for LSI he goes to $6.50, from $7.450.

Meanwhile, UBS analyst Uche Orji wrote a cautious take on the chip group this morning, asserting that “after four quarters of above trend growth,” the sector is likely “to regress to normalized trends.” That factor, combined with macro risks in Europe, inventory normalization and seasonal weakness, “could lead to bookings moderation and a possible inventory correction, creating risk to the Q3 sales outlook,” he writes.� The sector, the firm contends has “downside risk near term.”

Last night, as previously posted, Suquehanna Financial analyst Chris Caso downgraded both Intel(INTC) and Broadcom (BRCM), citing signs of slowing demand.

In today’s trading:

• Seagate is down 16 cents, or 1.1%, to $14.36.
• Western Digital is down 35 cents, or 1.1%, to $33.13.
• Intel is down 35 cents, or 1.7%, to $19.95.
• Broadcom is down 65 cents, or 2%, to $31.93.
• Marvell is down $1.14, or 6.3%, to $16.92.
• LSI is down 16 cents, or 3.2%, to $4.79.
• Hutchinson is down 42 cents, or 8.6%, to $4.47.