Chip Stocks Fall on BofA Merrill Downgrades

BANGALORE (Reuters) - Semiconductor stocks fell sharply after BofA Merrill Lynch turned bearish on the industry and downgraded several chipmakers, including Intel Corp , citing a modest rise in inventories.

Shares of bellwether Intel fell 6 percent to $19.01. Rival AMD dropped 5 percent to $6.96.

Other chipmakers followed suit: Nvidia dropped 5 percent to $12.87; Micron was down 7 percent at $6.97; and RF Micro was down 5 percent at $4.42. The Philadelphia Semiconductor Index <.SOXX> was down 4 percent at 309.37.

The drag on semiconductor chips pulled down the broader U.S. markets -- the Nasdaq Composite Index <.IXIC> tumbled 1.86 percent, the Dow Jones industrial average <.DJI> slid 1.27 percent and the Standard & Poor's 500 Index <.SPX> fell 1.55 percent.

Chip stocks have been rising since the start of the year. Excluding today's losses, Intel has risen 37 percent this year. AMD has risen 239 percent.

The brokerage said a correction was likely, given the rising levels of inventory in the supply chain.

"While we believe the correction will likely prove short and shallow, we think any hint of a correction in the supply chain could punish (semiconductor) stocks," BofA Merrill wrote in a note to clients.

The brokerage downgraded Intel, the world's largest chipmaker, to "neutral" from "buy," and made similar rating changes to rivals LSI Corp , Marvell Technology Group Ltd , Texas Instruments Inc and Dutch chip equipment maker ASML Holding NV .

BofA Merrill also cut its 2010 growth estimate for the sector to 18 percent from 21 percent.

Other downgrades included Microchip Technology Inc , Maxim Integrated Products Inc , National Semiconductor Corp , Power Integrations Inc and British microchip designer ARM Holdings Plc by a notch each to "underperform.