June 1 (Bloomberg) -- Taiwan Semiconductor Manufacturing Co. fell the most in three years after Goldman Sachs Group Inc.’s Donald Lu, the top-ranked analyst covering the stock, cut his recommendation, citing weak demand in China and Europe.
The chipmaker dropped 6.1 percent, the most since Jan. 8, 2009, to NT$79.90 at the close in Taipei, with volume 1.7 times the daily average over the past three months. TSMC accounted for one-quarter of the benchmark Taiex index’s 2.7 percent drop today and was the largest contributor to a 1.1 percent decline in the MSCI Asia-Pacific Index as of 2 p.m. in Taipei.
Semiconductor inventories will increase this quarter and next with a potential correction in the final three months of the year, Beijing-based Lu wrote in a report yesterday. He reduced his share-price estimate by 16 percent. TSMC, whose clients include Qualcomm Inc. and Broadcom Corp., forecast record revenue for the current quarter in April and raised its spending budget on anticipated stronger demand.
“TSMC shares have rarely outperformed the market once its utilization has surpassed 95 percent due to cyclical concerns,” Lu wrote. “We estimate TSMC’s utilization to reach 98 percent in 2Q12 and would wait for a better entry point.”
Lu cut his recommendation on the stock to neutral from buy and lowered his share-price estimate to NT$80. He also downgraded rival United Microelectronics Corp., which dropped 4.2 percent today in Taipei, to sell from neutral.
Rising competition and the risk of order cuts prompted Jefferies Group Inc.’s Hong Kong-based analyst Robert Lea to lower TSMC to underperform from hold, lowering his share-price estimate 9 percent to NT$72.
“While it is difficult to be precise about the timing and magnitude of the order cuts, we believe it is not a question of ‘if,’ but ‘when’ they occur,” Lea wrote in a May 31 report. “Our checks suggest earlier thoughts of re-stocking have now given way to de-stocking, as confidence in the economic recovery has evaporated.”
TSMC has a buy rating from 24 of 32 analysts whose recommendations on the stock are tracked by Bloomberg. Including the downgrade from Jefferies, six analysts say hold while two suggest investors sell the stock. TSMC’s decline today takes it 10 percent below its record-high close of NT$88.90 on May 3.
To contact the reporter on this story: Tim Culpan in Taipei at firstname.lastname@example.org.