U.S. chip shares sink as Samsung stokes glut fear

By Ian Sherr

SAN FRANCISCO (BestGrowthStock) – Shares in U.S. chip makers slid on Friday after Samsung Electronics Co Ltd (005930.KS: ) said it will “substantially increase” capital spending in 2010, stoking fears about excess semiconductor supply.

The world’s largest maker of memory chips and flatscreen TVs also warned that the low-end DRAM memory chip market may go into oversupply by the year’s end. Local newspaper Korea Economic Daily cited chip gear suppliers as saying Samsung was preparing to invest as much as $17.3 billion to increase semiconductor capacity in the period leading up to 2011.

Samsung said in a statement it had not reached a decision on that, and would not disclose further information for another six months.

Analysts say investors cashed out on Friday of shares such as Intel Corp (INTC.O: ) and memory chip maker Micron Technology Inc (MU.O: ) after the South Korea’s Samsung said that inventory could grow in the second half of the year.

“Samsung said they are pushing up capital spending and could see oversupply by the back half of the year,” said Broadpoint Amtech analyst Doug Freedman.

“Some of the inventory data coming out of some of the semiconductor supply chain companies is concerning people,” he added. Investors were “taking profits.”

Analysts have quizzed every major chip manufacturer during the quarterly earnings season about the possibility that companies will over-build, swelling inventories again.

“The evidence is piling up,” said Auriga analyst Daniel Berenbaum. “Over the course of this earnings season, you see large OEMs, end manufacturers, contract manufacturers and distributors building inventory.”

WHITHER STOCKS?

Freedman pointed to WPG Holdings (3702.TW: ), a chip and electronics distributor based in Asia, as the latest signal that inventories may be building up rapidly in the supply chain. In its earnings release, WPG said inventory for its first quarter had grown 31 percent from the previous quarter.

“It’s all the signs that the cycle is weakening,” said Wedbush Morgan analyst Patrick Wang.

Stock in graphics chip maker Nvidia Corp (NVDA.O: ) was also hit by inventory concerns, which Raymond James analyst Hans Mosesmann said were unfounded.

“Today it is unlikely that there is a glut of notebook discrete GPUs,” he said in a note to investors, referring to Nvidia’s graphics chips for desktop and notebook computers.

The Philadelphia Semiconductor Index (.SOXX: ) closed down 4.5 percent. Shares of Micron fell 8.4 percent to $9.35, while shares of Intel fell 2.8 percent to $22.84. Advanced Micro Devices Inc (AMD.N: ) shares fell 6.8 percent to $9.06. Nvidia ended down 5.7 percent at $15.71.

The Semiconductor Index has gained 3.3 percent since Intel unveiled stellar quarterly results on April 13, outpacing the Nasdaq’s 1.9 percent climb over the same period.

Penny Stocks

(Editing by Edwin Chan, Bernard Orr)

U.S. chip shares sink as Samsung stokes glut fear