Morgan Stanley's Conviction In Upside For Inphi Limited

Recovery at Inphi Corporation IPHI, a provider of high-speed analog semiconductor solutions for the communications and computing market, is taking longer, according to an analyst at Morgan Stanley.

The Analyst

Morgan Stanley's Joseph Moore downgraded Inphi from Overweight to Equal-weight and lowered his price target from $45 to $36.

The Thesis

The continued build up in inventories and the company's base business that appears smaller than Morgan Stanley's expectations have reduced its conviction in upside, Moore said in a Friday note.

Even if the company maintains a strong second-half 2018 ramp, Moore said it would likely take longer than his initial expectations for the stock to recover. Therefore, the analyst is stepping to the sidelines.

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Morgan Stanley said product pipeline could help the company to return to sustained growth even with a weaker base optical business. However, without a snapback in the optical business, it might take longer for earnings to grow to a level that can drive upside, the firm said.

As such, Morgan Stanley lowered its calendar year 2018 revenue estimate for Inphi by 13 percent, premised on China metro/long haul recovery to be pushed out to the third quarter of 2018. The firm reduced its 2019 revenue estimate by 13 percent. Citing lower revenues, the firm also lowered its 2018 and 2019 non-GAAP earnings per share estimates by 50 cents and 55 cents, respectively.

Price Action

Inphi shares are about 26 percent higher for the year.

Reacting to the downgrade, shares were down 6.64 percent at $33.05.