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European tech stocks tumble as investors question growth outlook
* Graphic on fall in tech stocks: http://bit.ly/1EX30B3
* Citi lowers forecasts on global smartphone sector
By Sudip Kar-Gupta and Francesco Canepa
LONDON, March 26 (Reuters) - European technology stocks, especially semiconductor names, fell sharply for the second day in a row on Thursday, part of a global sell-off as a host of brokers and investors questioned growth prospects and valuations.
The STOXX Europe 600 Technology Index was down 2.4 percent at 1315 GMT, tracking a similar decline in the United States concentrated among semiconductor companies overnight.
The jitters come a few weeks before quarterly earnings results begin for many of the biggest tech firms. The consensus 2015 earnings estimate for the index has fallen to 15.5 percent from 21.7 percent in January, Datastream data shows.
Nearly $3 billion was wiped off the market capitalization of ARM and ASML, which design computer and smartphone chips and make chip production equipment, respectively. The two companies' shares have lost around 10 percent of their value in the last two sessions.
Traders said one reason for the pull-back was a note by U.S. investment bank Citigroup (NYSE: C - news) , which on Thursday cut its forecasts for the smartphone sector and target prices on stocks most highly exposed to China, the world's largest phone market.
"We are now modelling total smartphone shipment growth of 15.5 percent in (2015), down from prior of 19 percent," analysts at the bank wrote in a research note of the key Chinese market.
The bank also cut its target price for ARM, which designs the chips that control most smartphones and the shares were off 4 percent in London.
STMicroelectronics (LSE: 0INB.L - news) and Infineon (Xetra: 623100 - news) , Europe's top two chipmakers, and major mobile network equipment makers Alcatel (Paris: FR0000130007 - news) and Nokia all suffered declines of around 3 percent, part of an across the board sell-off of the 25 components that make up the STOXX Europe 600 Technology index.
Tech stocks earnings growth estimates
Analysts' upgrades on tech stocks fall
VALUATIONS, CURRENCY
Other factors pushing the sector lower on Thursday included a rebound in the euro on currency markets, which cuts the exports of European technology companies, and nervousness about the lofty valuations of many stocks.
Payment systems specialist Ingenico (Paris: FR0000125346 - news) , which generates 41 percent of its sales in America and Asia, fell 4.5 percent. SAP (Swiss: SAP.SW - news) , which derives nearly a third of its sales in the United States, dropped 1.3 percent.
The tech sector includes companies as diverse as chip makers and providers of technology payment systems, which have different growth profiles and cannot be compared to each other using price-to-earnings multiples.
A look at some of these stocks' own history, however, shows valuations have become rich.
ARM, for instance, trades at 37.6 times its expected earnings for the next 12 months, a 26.4 percent premium to its 10-year median of 29.8, Thomson Reuters data showed.
"ARM is a decent company, but in the short term we are just uncomfortable with its valuations," said John B Smith, senior fund Manager at Brown Shipley, referring to ARM's P/E ratio.
Ronny Claeys, senior strategist at KBC Asset Management in Brussels, said investors should wait for a further pullback of 7-8 percent in European technology stocks before buying back into the sector.
($1 = 0.9069 euros) (additional reporting by Alexandre Boksenbaum-Granier, Atul Prakash, Alistair Smout, Alasdair Pal and Eric Auchard; Editing by Toby Chopra)
