Investing.com -- Shares of GlobalFoundries (NASDAQ:GFS) and United Microelectronics (NYSE:UMC) traded lower on Monday following Morgan Stanley’s downgrade of both companies, reflecting the increasing challenges in the semiconductor industry.
The downgrade shifted both firms from an “overweight” to “equal-weight” rating, signaling tempered expectations for growth amid industry-wide pressures.
Morgan Stanley’s revised outlook underscores several factors that weigh on these companies' prospects. GlobalFoundries, while still valuable, faces slower recovery in semiconductor demand and growing competition, particularly from Chinese fabs and established players like Taiwan Semiconductor Manufacturing Company (NYSE:TSM).
The overcapacity in the mature node segment is a key concern, as companies may need to reduce wafer prices to maintain market share.
GlobalFoundries, which operates heavily in the mobile and IoT sectors, will also encounter pricing challenges as wafer average selling prices decline, with Morgan Stanley trimming its 2025 growth expectations for the company.
United Microelectronics faces a similar scenario, with its new price target reduced from NT$60 to NT$52. The company is expected to lower its wafer prices by 4-5% to remain competitive in a landscape dominated by TSMC’s aggressive pricing strategy and overcapacity from Chinese fabs.
Despite United Microelectronics’s progress with advanced 12nm production slated to begin in Intel’s fabs by 2026, the near-term outlook remains weak. Morgan Stanley anticipates continued sluggishness in non-AI demand, affecting industries such as automotive, PCs, and smartphones.
This subdued demand has led to elevated semiconductor inventories, creating additional headwinds for both companies.
The analysts also notes that TSMC, leveraging its dominance, is cutting prices for mature node products by 2-3% while raising prices on leading-edge technologies like AI semiconductors.
This dynamic puts additional pressure on second-tier foundries like United Microelectronics and GlobalFoundries to match the pricing flexibility to sustain their market position.
In the case of GlobalFoundries, the firm’s focus on trailing-edge technologies has historically provided a buffer.
However, the slower-than-expected recovery in its key markets, such as automotive, is dampening growth prospects.
The company’s exposure to supply chain realignments due to geopolitical shifts remains an opportunity, though competitors are rapidly closing the gap.
Ultimately, while both GlobalFoundries and United Microelectronics retain importance within the semiconductor sector, Morgan Stanley’s downgrade reflects the lack of near-term catalysts and persistent margin pressures across the industry.