As Asia Bolsters Chip Demand, Focus on SanDisk, Nova, Camtek

Includes: CAMT, NVMI, WDC
by: Shlomi Cohen

Goldman Sachs research analysts covering the chip sector traveled to Asia to visit chip producers there. They had 15 meetings.

Their opinion is that the industry is healthy, because on the supply side, they don't see chip surpluses. For example, in the personal computer manufacturing food chain they found low inventories, even though April and May were weak in terms of computer sales. Only in June was there a big recovery, which will lead the Asian sub-contractors to reach their sales targets for the second quarter.

In SanDisk Corporation's (Nasdaq:SNDK) sector, specifically, Goldman Sach's analysts found strong demand for NAND chips. This brought them to estimate that in the second half of the year there will be a chip shortage because the investments in new and existing lines will find significant expression only next year.

Lazard analyst Daniel Amir also traveled through Asia, and reached the same conclusions as the Goldman Sachs analysts about NAND, but Amir was quick to raise his target price for SanDisk to $59, from $52, and to recommend it as a "Buy". In contrast, Goldman Sachs kept its recommendation at "Neutral", and a target price of $40, lower than the market price.

From the perspective of the small Israeli firms in the chip equipment industry, whose shares I hold in my portfolio tracked by "Globes" - Nova Measuring Instruments Ltd. (Nasdaq:NVMI) and Camtek Ltd. (Nasdaq: CAMT) - I carried out my own checks, and my conclusion is not different than what the analysts saw in Asia.

Demand for inspection and measuring equipment from the two companies continues to be strong, and I am convinced that the second half of the year will be stronger than the first, which can lead the two firms to raise their guidance in upcoming results. The two companies each reported equipment orders in recent weeks, which should contribute millions of dollars to revenue for the quarter which ends this week, and to the third quarter.

Disclosure: Author holds shares as part of his portfolio tracked by "Globes".

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