Semiconductor Stocks Stage a Rebound
Karen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Investors leery of investing in the semiconductor sector can take heart. After being stunted by slowing global demand, this sector is undergoing a substantial rebound. Digitimes Research forecasts that the global semiconductor sector will grow at an annual rate of 5%.
SEMI, the North American Semiconductor Equipment Industry, reports that equipment orders exceeded supply for March, April and May 2012, at book-to-bill ratios of 1.12, 1.10 and 1.05 respectively. Applied Materials (NASDAQ: AMAT), the leading semiconductor chip-making equipment company, is taking full advantage of this industry upturn. The company has developed chip-making equipment that builds chips in a pyramid stair-step configuration to hold a terabyte of information, which is equal to 1,000 gigabytes. Applied Materials sells this chip making equipment to companies like Intel (NASDAQ: INTC).
Applied Materials has strong financials with cash of $2.17 billion exceeding their debt of $1.95 billion. The company has a trailing P/E of 10.3 and a future P/E of 9.93, making it a relatively inexpensive stock. The stock closed on Friday at $10.51 per share.
May 2012 reflected an increase in semiconductor chip demand with a 1.05 book-to-bill, marking the fourth consecutive month in which demand exceeded supply. Intel uses chip making equipment to produce the chips used in smartphones, tablets, computers, airplanes and television sets. The chips are then sold to a diverse range of companies that include Apple (NASDAQ: AAPL), Hewlett-Packard and Ford Motor Company. Intel has cash of $13.65 billion against debt of $7.18 billion. Their trailing P/E and future P/E are 10.83 and 9.97, respectively. Intel’s stock price closed Friday at $25.52.
To maintain their number one chip manufacturing place, Intel spent more than $4 billion this month to purchase 15% of Dutch chip equipment manufacturer ASML (NASDAQ: ASML). ASML is the world’s largest company to supply the machines that etch circuits onto silicon wafers. This investment saves Intel $2 billion a year on 450 mm chips along with the capital investment it would take for Intel to develop the chip manufacturing machines. Perhaps most importantly, the acquisition insures Intel will increase their already substantial lead over rival chip making companies. ASML has cash of $3.28 billion and debt of $900.89 million, and a trailing P/E of 14.66 and future P/E of 11.83. Friday’s stock closing price was $55.47.
SanDisk (NASDAQ: SNDK) is the leading manufacturer of NAND flash memory chips. The chips higher revenue and lower cost helped SanDisk beat Wall Street’s 2Q 2012 estimates. The company reported revenue of $1.032 billion, well over the Street’s $1.02 billion forecast. To meet increasing demand, SanDisk acquired Schooner Information Technology earlier this month. Schooner develops flash optimized database and data storage solutions and will help SanDisk remain ahead of their competitors in NAND flash technology. SanDisk reports cash of $2.54 billion against $1.65 billion in debt. The trailing P/E is 14.79 and future P/E is 12.52. The stock closed Friday at $38.70.
Apple is a driving force behind the semiconductor sector recovery and currently dominates the worldwide demand for the NAND flash memory chips used in their tablets. The iPad singlehandedly accounted for 78% and 72% of global gigabyte shipments for 2011 and 2012 respectively. By 2014, worldwide semiconductor tablet sales are predicted to rise to $18.2 billion along with increased smartphone sales. Apple has $28.54 billion in cash and no debt. The trailing P/E is 14.72 and the company has a future P/E of 11.11. The stock closed Friday at $604.30.
The Semiconductor Industry Association reports that global chip sales increased to 1.5% MoM to $23 billion. Investors may want to take advantage of the building momentum that should bolster the semiconductor industry for the remainder of this year and into next.
kprogers has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Intel. Motley Fool newsletter services recommend Apple and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.