Yesterday I listened to the quarterly analyst conferences for graphic chip maker NVIDIA (NVDA) and semiconductor equipment manufacturer Applied Materials (AMAT). You can see my summaries at:
Applied Materials (AMAT) Q1 Fiscal 2010 analyst conference summary
NVIDIA (NVDA) Q4 Fiscal 2010 analyst conference summary
One data point that matched up was that there is a shortage of key production capacity for semiconductor manufacturing. Nvidia described this as a supply constraint. This is called process technology, and it comes in generations, with less nanometers (nm) being better. 40nm is where Nvidia is at for process technology its newest chips.
The result was a great quarter for semiconductor equipment makers including Applied, which had revenues of $1.85 billion, up 21% sequentially, and up 39% from the year-earlier quarter.
The question for Applied is, how long can this last. Executives were cautious with their guidance, saying it is hard to predict the second half of 2010 at this point. The jump in the quarter that ended January 31 has a lot to do with manufacturers needing to make up for pent up demand. Remember the gloom and doom of January 2009? No one was buying manufacturing equipment; there was plenty of capacity. But designers like Nvidia expect a new generation of smaller chips about every 2 years. So their new products can't even be done on the older processes, which have plenty of capacity.
So two scenarios are possible. One is that with some extra equipment bought in the second half of 2009 and first half of 2010, manufacturers will be up to date on the newer technology. This assumes that the global economy, and in particular the consumer electronics segment of the U.S. economy, grows slowly in 2010.
I think the other scenario is more likely. Demand in nations like India, China, Indonesia, and Brazil will grow rapidly, and the U.S. will ramp moderately, rather than slowly. People are going to want the new smartphones, especially ones that use Marvell's chips to get prices under $125 in Asia. At the same time mobile pushes the small end of web presence, technologies like Nvidia's 3D Vision and AMD's Eyefinity will reinvigorate the large screen segment. Applied Materials makes equipment to manufacture large screen displays, so they should benefit.
All bets on technology involve risks. So ...