FBR: Risk of PC Chip Overbuild; AMD Cut to “Market Perform”

Although inventory of chips in the PC supply chain is still “lean,” there’s a risk that companies have overbuilt a tad in the third quarter, writes Friedman, Billings, Ramsey analyst Craig Berger in a note to clients today, after a trip to Asia talking with companies in that supply chain.

Partly as a result, Berger cut Advanced Micro Devices (AMD) to “Market Perform” from “Outperform.”

Some urgency around the release of Microsoft’s “Windows 7? operating system this month, writes, Berger, means “Net, our contacts suggest October [chip] builds will be the peak for PCs in 2009, whereas usually November is the peak build month.”

In 2010, writes Berger, a corporate PC refresh is still something that his contacts are expecting will boost chip production, along with the release of Apple’s (AAPL) iPhone in China, expected this month, and the construction of China’s cellular network enhancements.

As far as implications for the stocks: Intel’s (INTC) business this quarter is “robust,” writes Berger, and Intel will probably forecast a Q4 increase in sales of 3% to 7%, which would be consistent with current Street estimates for a 5% or so rise.

Broadcom (BRCM) “had a blowout 3Q with meaningful upside versus Street estimates and official revenue guidance. Indeed, we think revenues likely tracked in the $1.2 billion to $1.3 billion range (better than guidance of $1.125 billion to $1.175 billion).”

Marvel (MRVL) will likely benefit for the next couple quarters from a ramp-up in hard drive shipments (for which it makes controller chips), and the firm is placing emphasis on chips to control high-end corporate drives, which would assumedly come with higher margins.

Fairchild Semiconductor (FCS), On Semiconductor (ONNN), and Microsemi (MSCC) are all experiencing shortages of their chips in the market, which should propel coming sales.

Lastly, while SanDisk is saw “quite robust” momentum in the third quarter, there is a risk of price declines for its NAND flash memory chips in November, writes Berger.

Despite all that, AMD shares are up $1.15, or 1.7%, at $67.72.