Consolidation In The Semiconductor Equipment Space Makes 3 Stocks Prime Targets

by: Nigam Arora

Lam Research (LRCX) a major semiconductor equipment maker is buying Novellus Systems (NVLS-OLD). Lam Research is paying $3.3 billion for Novellus which is a significant premium. The purchase price represents a P/E of 14.5.

From an investor’s point of view, it is worth noting that synergies are expected to result in $100 million in cost savings.

This deal and its projected cost savings are likely to start consolidation in the semiconductor equipment space.

Here are three prime acquisition candidates.

Mattson Technology (MTSN)

Mattson is one of the smaller players and can easily form a good fit with a number of larger companies. Mattson is a leader in 300mm Strip and RTP technologies. Its equipment is installed on a global basis in a majority of the foundries. Market cap of the company is only $76 million. The company is inexpensive as it trades at price/sales (P/S) of only 0.40.

Kulicke & Soffa (KLIC)

This company has often been the subject of takeover rumors. The company is a leader in bonding products such as die bonding, wedge bonding, ball bonding, and wire bonding. It is a relatively small company with a market cap of only $643 million. The stock is inexpensive supporting a P/S of only 0.76.

KLA-Tencor (KLAC)

The company provides a comprehensive line of defect inspection and metrology products that help semiconductor foundries to manage yield. Previously this company was rumored as a merger partner with Novellus. The company has also been mentioned as an acquisition target of Applied Materials (AMAT). This is a large company supporting a market cap of $7.68 billion. The stock is not inexpensive on P/S basis as P/S ratio is 2.34, but the earnings power and potential cost savings in a merger makes this an attractive acquisition candidate.

Other stocks of interest in this space are FSI International (FSII), CVD Equipment (CVV), Tegal (TGAL), Axcelis (ACLS), ASM International (ASMI), Rudolph (RTEC), Amtech (ASYS), and Nanometrics (NANO).

Investors should consider a method that has proven to make money in technology stocks such as the ZYX Change Method to time their purchases.

While a large number of technology investors are focused on Apple (AAPL) and Google (GOOG), which seem to be ranged bound, there may be better profit making opportunities in the semiconductor equipment stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I, my hedge fund, and subscribers to The Arora Report may take positions in some of the stocks mentioned in the very near future without any further notice.