Beneficiaries of the Vibrant Chip Industry

 |  Includes: AVGO, CAMT, MRVL, NVMI, WDC
by: Shlomi Cohen

With or without connection to good results posted by Blackberry-maker Research In Motion (Nasdaq: RIMM), chip stocks of all types are enjoying strong momentum this month.

It is happening because the sector's food chain is healthy all along. End products mainly telephones, computers, and LCD televisions are getting snatched up by consumers during the holiday season, and that means that fabless chip developers are getting larger orders from the gadget makers. The foundries that actually produce the chips for the fabless chip firms are increasing orders for the equipment used to produce chips, because the production at many of those firms is running at near full capacity following a drastic cut in investment during the crisis.

We heard this yesterday from Nova Measuring Instruments Ltd. (Nasdaq:NVMI), a small equipment maker that I recently added to my portfolio tracked by "Globes". Apparently it received more orders from the largest chip producer in the world, Taiwan's TSMC.

Because of that healthy food chain, several leading chip companies, such as Marvell Technology Group (Nasdaq: MRVL), SanDisk Corporation (Nasdaq:SNDK), and Broadcom (Nasdaq: BRCM) are breaking records of a year and more.

Industry leader Intel (Nasdaq: INTC), which so far has remained out of the party, received support with a "Buy" recommendation from Barclays, among other reasons because they ignored it during the recent rally, as the share of smaller competitor AMD doubled since early November.

Along with Nova, I recently noted the stock of Camtek Ltd. (Nasdaq: CAMT), another small Israeli equipment maker, which is set to rise in 2010 on the back of the momentum in the chip industry.

Today, I am adding Camtek to the portfolio. It is replacing Broadcom, which has reached its price from the fall of 2007, at the eve of the crisis, and I prefer to keep only its rival Marvell in the telecommunications chip sector. In my opinion, Marvell can continue to rise significantly, among other things on the basis of its penetration of China's telephone market, through its collaboration with China Mobile (NYSE: CHL), the world's largest phone company.

Camtek sells automatic optical inspection systems and related products for the printed circuit board industry and semiconductor manufacturing and packaging industries. In the third quarter it was nearly at breakeven, with sales of $14.5 million, and I assume that it will meet its guidance for the fourth quarter $15-17 million revenue which should bring it to profitability.

Camtek utilized the crisis to buy two small companies, to move its production lines for printed circuit board inspection equipment to China, and, like all technology companies, to generally improve efficiency.

These moves, together with a current forecast for strong growth in the equipment market in 2010, can cause a significant rise in Camtek's profit, and a significant rise in its current value of $45 million, which is $10 million less than its owner's equity at the end of September.

Published by Globes [online], Israel business news - - on November 17, 2009; Reprinted on Seeking Alpha with permission

© Copyright of Globes Publisher Itonut (1983) Ltd. 2009