J.P Morgan Downgrades Affymetrix To Underweight

Affymetrix AFFXendured a difficult 2010, particularly in 2Q as a result of weakness in Europe, as well as competition in the microarray business. While results in 2H10 showed some signs of stabilization, the broader risk of technology obsolescence from low-cost sequencing and other platforms remains a core issue, in its view, as does poor visibility on both product uptake and margins. Accordingly, J.P Morgan maintains a cautious outlook on the stock, downgrading from Neutral to Underweight, as it views further resolution of the magnitude and scope of a potential GWAS renaissance, as well as longer-term margin improvement as key to a more constructive stance. Since AFFX is likely to be barely profitable for the foreseeable future and there is serious risk of technological obsolescence, J.P Morgan expects the stock to trade lower over time. It is lowering its FY2011 estimates, although note that given the rapidly evolving sequencing landscape, there is risk of an inflection point of weakening array demand which would negatively affect Affymetrix. AFFX closed Monday at $5.05