Companies that make the equipment used to make semiconductors have lagged behind the stock market during the last three years, but their shares could climb sharply if investors decide that a strong economic recovery is finally under way.
In previous economic cycles, stocks like Applied Materials, Novellus, Lam Research and KLA-Tencor outperformed the overall stock market and most other technology stocks when worldwide demand for electronics products was strong. Analysts expect that to happen again.
"In prior upturns, equipment companies have recovered faster than other related industries, and investors in the next upturn should look to these stocks to outperform the rest of the technology sector," said Edward C. White Jr., a chip-equipment analyst at Lehman Brothers.
The chip-equipment companies are easy to overlook because they reside at the bottom of the production chain for both consumer and industrial electronics. While their equipment is indispensable in the chip-making process, they are far removed from the end products that rely on silicon chips.
The companies are not only less prominent than many other technology concerns, they are also extremely volatile. Since April 7, 2000, when the S&P index of semiconductor equipment makers reached a peak, the sector has fallen 73 percent.
But from Jan. 1, 1997 to April 7, 2000, the S&P semiconductor equipment-maker index gained 1,042 percent. In that period, the NASDAQ gained 244 percent, and the S&P 500-stock index rose 106 percent.
During weak times, chip makers are generally cautious about spending on new equipment, but when a recovery begins, they scramble to add production capacity, and equipment makers can benefit mightily, several analysts said.
The challenge, of course, is knowing when spending in consumer and corporate electronics goods is likely to rise. While the stocks in the sector are considered fairly cheap right now, there is a consensus among analysts that they could languish for months, given the disappointing pace of recovery so far in a wide range of electronics goods.
"I would sum up the current market for chips and chip equipment as a nascent recovery that is at risk," said Richard Tortoriello, an analyst at S&P who has a neutral rating on the sector. Though sales of chip equipment are expected grow this year for the first time in three years, the gain will probably be a modest 5 percent to 10 percent, less than the average gains of 17 percent in past recovery years, according to industry analysts.
Some analysts see buying opportunities even now among a few niche chip-equipment makers, including KLA-Tencor of San Jose, California, and ASML Holding of the Netherlands.
Kevin Landis, a portfolio manager at Firsthand Funds, a technology-oriented fund company in San Jose, for example, said that he would minimize his overall holdings in the chip-equipment sector until he saw clear signs that chip makers "need both additional capacity and new technology."
But Landis is bullish on ASML. It competes with Canon and Nikon in the market for specialized photo-lithography systems used to imprint microscopic circuitry patterns onto silicon wafers.
"This is one specialized area that Applied Materials won't even touch," Landis said.
He said ASML would gain market share from Canon and Nikon in the next production recovery in chip making. "I am patient with this stock because I think they are an excellent candidate in the next cycle to pick up share," he said.
White favors KLA-Tencor, which makes inspection tools.
"Their inspection tools are so critical for the research and development, that it allows them to do well at a time when chip companies aren't adding manufacturing capacity but still investing in research and development," White said. "Their level of profitability is higher than almost any other company in the industry right now."
Taiwan will prioritize the development of silicon photonics by taking advantage of its strength in the semiconductor industry to build another shield to protect the local economy, National Development Council (NDC) Minister Paul Liu (劉鏡清) said yesterday. Speaking at a meeting of the legislature’s Economics Committee, Liu said Taiwan already has the artificial intelligence (AI) industry as a shield, after the semiconductor industry, to safeguard the country, and is looking at new unique fields to build more economic shields. While Taiwan will further strengthen its existing shields, over the longer term, the country is determined to focus on such potential segments as
UNCERTAINTY: Innolux activated a stringent supply chain management mechanism, as it did during the COVID-19 pandemic, to ensure optimal inventory levels for customers Flat-panel display makers AUO Corp (友達) and Innolux Corp (群創) yesterday said that about 12 to 20 percent of their display business is at risk of potential US tariffs and that they would relocate production or shipment destinations to mitigate the levies’ effects. US tariffs would have a direct impact of US$200 million on AUO’s revenue, company chairman Paul Peng (彭雙浪) told reporters on the sidelines of the Touch Taiwan trade show in Taipei yesterday. That would make up about 12 percent of the company’s overall revenue. To cope with the tariff uncertainty, AUO plans to allocate its production to manufacturing facilities in
COLLABORATION: Given Taiwan’s key position in global supply chains, the US firm is discussing strategies with local partners and clients to deal with global uncertainties Advanced Micro Devices Inc (AMD) yesterday said it is meeting with local ecosystem partners, including Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), to discuss strategies, including long-term manufacturing, to navigate uncertainties such as US tariffs, as Taiwan occupies an important position in global supply chains. AMD chief executive officer Lisa Su (蘇姿丰) told reporters that Taiwan is an important part of the chip designer’s ecosystem and she is discussing with partners and customers in Taiwan to forge strong collaborations on different areas during this critical period. AMD has just become the first artificial-intelligence (AI) server chip customer of TSMC to utilize its advanced
Chizuko Kimura has become the first female sushi chef in the world to win a Michelin star, fulfilling a promise she made to her dying husband to continue his legacy. The 54-year-old Japanese chef regained the Michelin star her late husband, Shunei Kimura, won three years ago for their Sushi Shunei restaurant in Paris. For Shunei Kimura, the star was a dream come true. However, the joy was short-lived. He died from cancer just three months later in June 2022. He was 65. The following year, the restaurant in the heart of Montmartre lost its star rating. Chizuko Kimura insisted that the new star is still down
RSS