Chip designer ARM Holdings, everyone's favourite technology company, dropping 2.4% to 560.5p on Monday after Deutsche Bank analysts pointed out that its shares are really very expensive. It's a difficult point to argue against. ARM shares trade at almost 40 times this year's earnings. The analysts wrote:
We believe ARM's high valuation will come under pressure as falling smartphone chip prices impact royalty growth, Intel's odds to gradually gain market share in mobile are improving and the "Windows on ARM" ramp could be below expectations.
Windows on Arm is a programme that will see the Windows operating system tied to ARM chips in tablets and other (mainly) mobile devices. The analysts downgraded their recommendation on the shares from hold to sell, with a price target of 400p.
Deutsche Bank also wreaked havoc with chipmaker CSR's shares, driving them down 4% to 312p after cutting them to a sell recommendation. The analysts wrote:
While we welcome CSR's decision to exit legacy businesses in handset connectivity & digital home, we believe the market now overvalues the margin and earnings power of its core auto, camera and consumer businesses. Our analysis shows CSR's sustainable revenue base will generate only 6% margins with longterm margin & growth targets likely challenging. Trading on a material P/E premium to global peers, CSR's continued earnings stream seems overvalued and we downgrade to sell.
