Who Wins the Chip Wars? (INTC, AMD, FORM, WFR, RSTI)
After hearing about Advanced Micro Devices' (AMD) earnings this evening, which sounded pretty impressive to me, I started thinking about the chip wars that everyone seems obsessed with -- who will win, will it be Intel (INTC) with it's still-huge market share, agreements with big manufacturers, and price cutting, or will it be AMD with it's upstart, faster chipsets and aggressive moves at building a brand and chipping away at the INTC monopoly?
In the long run, I still cant' bet against Intel -- I don't own stock in either,
though I do have some Jan 07 calls in INTC at $20 that I picked up a while ago when Intel was looking ridiculously cheap. Unfortunately, it's looking even more ridiculously cheap now ... but I'm holding on to see if my thesis plays out, that large demand in the fall for the new machines that will be taking advantage of the Vista rollout will lead to increased profits and guidance that should boost the stock in the second half of the year. Hopefully, it won't get too far down before that kicks in, and hopefully Vista won't be delayed again ... but either way, this is just a small option position for me.
And I don't have much faith in AMD -- everyone seems enamored of their products right now, and they may well be better and faster, but Intel has not stopped work. They may be slightly behind on innovation and speed right now, but my bet would have to be that they should be capable of catching up with AMD specs-wise, and lapping them when it comes to marketing and pressuring manufacturers and, perhaps more importantly, driving prices down to cause AMD, with their significantly smaller volume, a lot of problems.
But in truth, I'm never going to be an expert on the chip wars -- that's why I haven't placed a big bet on my belief that Intel will win, again.
And it's why I have placed my semiconductor holdings primarily in two companies (three, if you want to stretch it) that all benefit from the growing volumes of semiconductor manufacturing and the demand for semiconductors in general.
Formfactor (FORM) is my investment in semiconductor equipment -- they sell the top of the line probe testing equipment, and they sell to all the big manufacturers and to all the sectors of the market. Not only does it not matter whether Intel or AMD wins or if SanDisk or Taiwan Semiconductor have good quarters, it doesn't even matter whether we're talking about logic chips or flash memory or analog ... FORM's equipment can be made to test them all, and with every advance in technology -- a new chip, a new architecture, another push at the limits of tininess that these manufacturers can achieve, they need a whole new testing system. Add on that FORM's testing can improve efficiency of foundry lines and save money, and any company in this competitive industry should be knocking on their door. I wrote about FORM's last earnings release here, and I think this should be a very strong year for them as they begin to really reap the rewards of their investment in new manufacturing capacity.
MEMC Electronic Materials (WFR) is my investment in the bones of the chip -- the silicon wafers that are the heart of every semiconductor. They manufacture their own purified polysilicon, form it into precisely tuned wafers, and sell to all the chipmakers (and as a kicker, they're upping their polysilicon production because the other major industry that uses it, solar power, is continuing to drive prices higher). Like Formfactor, they don't care that much which parts of the semiconductor industry are doing well or poorly -- if more chips of any kind are needed, and I believe they are, then WFR will be happy to supply the wafers to build them on. I've written a lot about WFR in the last six months, and they've had a remarkable year of recovery -- driven largely by multiple expansion, and I think soon to be driven by continuing earnings growth, especially if solar power remains hot.
And the one that doesn't really count? Rofin-Sinar Technologies (RSTI). This is a growing laser company, and they have a micro division that supplies the tiny lasers used in semiconductor manufacture. It's not the biggest part of their business, but these days it is growing pretty quickly and helping to offset the pain they're feeling from some old-line industrial sectors (though I think manufacturing demand for lasers is likely to pick up again as well -- laser welding is an investment in efficiency and automation, which generally tends to win out in manufacturing even when the overall economics aren't great in big sectors like automobiles). I wrote up RSTI after their last earnings, and my guess is that it's continued steady progress from here.
So keep up the fight, Intel and AMD. I'll be quietly watching to see if Intel beats up on AMD in the end, as I expect them to. But I'll be putting my money on the demand for their products, no matter which of them wins the market share wars.
In the long run, I still cant' bet against Intel -- I don't own stock in either,
though I do have some Jan 07 calls in INTC at $20 that I picked up a while ago when Intel was looking ridiculously cheap. Unfortunately, it's looking even more ridiculously cheap now ... but I'm holding on to see if my thesis plays out, that large demand in the fall for the new machines that will be taking advantage of the Vista rollout will lead to increased profits and guidance that should boost the stock in the second half of the year. Hopefully, it won't get too far down before that kicks in, and hopefully Vista won't be delayed again ... but either way, this is just a small option position for me.
And I don't have much faith in AMD -- everyone seems enamored of their products right now, and they may well be better and faster, but Intel has not stopped work. They may be slightly behind on innovation and speed right now, but my bet would have to be that they should be capable of catching up with AMD specs-wise, and lapping them when it comes to marketing and pressuring manufacturers and, perhaps more importantly, driving prices down to cause AMD, with their significantly smaller volume, a lot of problems.
But in truth, I'm never going to be an expert on the chip wars -- that's why I haven't placed a big bet on my belief that Intel will win, again.
And it's why I have placed my semiconductor holdings primarily in two companies (three, if you want to stretch it) that all benefit from the growing volumes of semiconductor manufacturing and the demand for semiconductors in general.
Formfactor (FORM) is my investment in semiconductor equipment -- they sell the top of the line probe testing equipment, and they sell to all the big manufacturers and to all the sectors of the market. Not only does it not matter whether Intel or AMD wins or if SanDisk or Taiwan Semiconductor have good quarters, it doesn't even matter whether we're talking about logic chips or flash memory or analog ... FORM's equipment can be made to test them all, and with every advance in technology -- a new chip, a new architecture, another push at the limits of tininess that these manufacturers can achieve, they need a whole new testing system. Add on that FORM's testing can improve efficiency of foundry lines and save money, and any company in this competitive industry should be knocking on their door. I wrote about FORM's last earnings release here, and I think this should be a very strong year for them as they begin to really reap the rewards of their investment in new manufacturing capacity.
MEMC Electronic Materials (WFR) is my investment in the bones of the chip -- the silicon wafers that are the heart of every semiconductor. They manufacture their own purified polysilicon, form it into precisely tuned wafers, and sell to all the chipmakers (and as a kicker, they're upping their polysilicon production because the other major industry that uses it, solar power, is continuing to drive prices higher). Like Formfactor, they don't care that much which parts of the semiconductor industry are doing well or poorly -- if more chips of any kind are needed, and I believe they are, then WFR will be happy to supply the wafers to build them on. I've written a lot about WFR in the last six months, and they've had a remarkable year of recovery -- driven largely by multiple expansion, and I think soon to be driven by continuing earnings growth, especially if solar power remains hot.
And the one that doesn't really count? Rofin-Sinar Technologies (RSTI). This is a growing laser company, and they have a micro division that supplies the tiny lasers used in semiconductor manufacture. It's not the biggest part of their business, but these days it is growing pretty quickly and helping to offset the pain they're feeling from some old-line industrial sectors (though I think manufacturing demand for lasers is likely to pick up again as well -- laser welding is an investment in efficiency and automation, which generally tends to win out in manufacturing even when the overall economics aren't great in big sectors like automobiles). I wrote up RSTI after their last earnings, and my guess is that it's continued steady progress from here.
So keep up the fight, Intel and AMD. I'll be quietly watching to see if Intel beats up on AMD in the end, as I expect them to. But I'll be putting my money on the demand for their products, no matter which of them wins the market share wars.
Labels: WFR
This article posted by One Guy @ 4/12/2006 08:21:00 PM 0 comments
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