Semiconductors will be in the news this week, with equipment and software companies from all over the world gathering in San Francisco for one of the biggest exhibitions and conferences: SEMICON West. Among Israeli companies attending that I hold in my portfolio are Camtek Ltd. (Nasdaq: CAMT) and Nova Measuring Instruments Ltd. (Nasdaq: NVMI), which respectively specialize in chip inspection and measurement.
The semiconductor manufacturing equipment sector had a dream year last year, after a deep crisis because of the global recession in 2008 and the first half of 2009. In the first quarter of this year, orders broke records, and so companies are expected to report a substantial decline in orders in the second quarter, and to experience stability in the third quarter and a rise again in the final quarter. Orders for semiconductor equipment will take off again not just because of strong demand for smartphone and tablet computer chips of all kinds, but because of the switch, that will start next year and continue for several years, to three-dimensional technology for building the transistors on the chips, 3-D, which Intel (INTC) unveiled two months ago.
Since 1959, the same flat method has been used for building the transistors on chips, invented in parallel by the founders of Intel and Texas Instruments (TXN). The switch to three dimensions after more than 50 years is so revolutionary that The New York Times compared it to the change from low-rise construction to skyscrapers. If the economic consequences for the semiconductor industry of the switch to a three-dimensional structure are similar to the effect on the real estate industry of the start of high-rise construction over 100 years ago, then there are great changes in store in the next few years in computers, smartphones, and electronic gadgets in general.
Intel says that the new processors that it will start producing next year in an initial 22-nanometer node, codenamed "Ivy Bridge", will be up to 37% faster, and that their energy consumption will be up to 50% lower. Intel has also substantially raised its investment in production lines. Nova Measuring Instruments has been very quick off the starting line in this revolution. Yesterday, it announced the launch of a control and measurement platform for the three-dimensional age. From Nova's announcement, it is possible to understand that it developed the platform, T600, with several of its fab and memory chip customers, and it can be presumed that among the others are TSMC (TSM) of Taiwan, the world's biggest fab company, and Samsung and/or Hynix of Korea in memories.
This also indicates that Intel's competitors were working on 3-D well before Intel unveiled the revolution with such great fanfare two months ago. Market rumor has it that TSMC will precede Intel, and will be producing 3-D chips by the end of this year. It is safe to assume that measurement will be with the Nova T600. Nova has supplied measuring instruments to TSMC to the tune of tens of millions of dollars over many years.
A further rumor running around the market recently says that Apple (AAPL) is starting to switch manufacturing of iPhone and iPad chips from Samsung, with which it has a dispute over patents, to TSMC, a move that promises more sales for Nova.
I continue to view Nova as a highly attractive stock, on the basis of its low p/e ratio-- despite the vertigo experienced by many investors, since early 2009 when the global crisis was at its height, the share price was at $0.35, and this year it has climbed to a multi-year peak of over $11. The miniaturization of chips in recent years, alongside substantial improvement in performance, has caused a huge growth in demand for complicated metrology, hence the new orders Nova announced last Thursday.
Furthermore, the switch starting late this year to 3-D is boosting demand for metrology even more, because, in comparison with previous manufacturing technologies, there are many more inspection points in the manufacturing process, and Nova can be expected to receive large orders from its development partners next year.
Published by Globes [online], Israel business news - www.globes-online.com - on July 12, 2011; Reprinted on Seeking Alpha with permission © Copyright of Globes Publisher Itonut (1983) Ltd. 2011