Citi Sees Buying Opportunities In Semiconductors Despite FX Headwinds

Citi commented on the semiconductor industry Thursday and the impact of currency movements. Analysts led by Christopher Danely believed that the a strengthening of the U.S. dollar could result in two possible negative scenarios for the semiconductor sector. First, the analysts believed "an inventory drawdown could happen in the channel due to higher component costs in local currency." Second, the analyst note indicated that "demand for certain products such as PCs or smartphones, particularly in Europe and emerging markets, could be negatively impacted due to unfavorable exchange rates versus the U.S. dollar." In either of the above cases, however, any negative impact was seen as temporary and the firm remained "constructive on the sector." The analysts warned, however, that a slowdown in GDP would create a reason for concern with the "biggest fear" being "lower global GDP as a result of currency movements." Danely mentioned that the firm had "written several times" concerning the belief that "the economy is the biggest driver of semiconductor demand, and specifically higher YoY GDP growth. If global GDP were to fall below the current 3.0 percent estimate, we believe the semiconductor sector could experience a correction." For Innolux Corp (TPE: 3481), the firm maintained a Buy rating and Price Target of NT$24 and expected "the improving industry dynamic and product offerings will support INX's secular earnings growth in 2015/16E." Intel Corporation

was also rated a Buy with a $31 price target. Risks included the fact that "Intel derives roughly 90 percent of sales from the PC and server segments which are highly dependent on IT spending." SAMSUNG ELECT LTD(F)

was rated a Buy while weakening PC sales and "aggressive investment by competitors" were cited as risks.