67 WALL STREET, New York - December 7, 2011 - The Wall Street Transcript has just published its Semiconductors Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
Topics covered: Energy Efficiency, Cloud Computing and Telecommunications - Semiconductor Content Increase Across Verticals - Semiconductor Manufacturer Consolidation
Companies include: ARM Holdings' (ARMH); AMD (AMD); AT&T (T); ATI (ATI); AUO (AUO); Aixtron (AIXG); and many more.
In the following brief excerpt from the Semiconductors Special Report, expert analysts discuss the outlook for the sector and for investors.
Kevin Cassidy joined the Stifel, Nicolaus & Co., Inc., research team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July of 2010. Mr. Cassidy joined Thomas Weisel Partners in August 2007, covering the power management and broadline segments of the semiconductor industry. Prior to joining TWP, he was a Research Analyst at Piper Jaffray & Co. Mr. Cassidy brings over 20 years of practical semiconductor industry experience through various sales positions. He has an electrical engineering degree from the University at Buffalo, The State University of New York, and a B.S. in mathematics and physics from SUNY Geneseo.
TWST: What are your favorite stocks in the space right now and why?
Mr. Cassidy: Intel, for one, because of this manufacturing capability that they have that no one else in the world has. I think by this time next year they'll have a full year head start on everyone else in the world. If you can make smaller transistors, that means you can make products with more capability at lower power and lower cost. Their latest chip is going to have 1.5 billion transistors on it.
TWST: With the demand growing so much, are there supply concerns in the space?
Mr. Cassidy: I think there will be a supply problem in the future. Take as an example, Micron Technologies (MU). Micron is another company that still manufacturers their own ICs. Micron manufactures memory ICs, DRAMs and NAND flash. But each new generation of semiconductor process, technology is more expensive. Micron teamed with Intel to manufacture flash ICs because the cost - over $3 billion - for building a new fab is getting prohibitive. AMD (AMD) just recently gave up on manufacturing their own chips, and they took all their manufacturing plants and spun it out as a separate company called GLOBALFOUNDRIES. GLOBALFOUNDRIES needed to work out a deal with New York State to build their next fab just north of Albany. New York State is contributing around $1 billion to the build GLOBALFOUNDRIES next fab.
With a new fab costing $3 billion, companies have to make sure there will be a market with enough volume to justify this expense. Going back to China, this is why semiconductor companies need a billion Chinese consumers to buy whatever is produced in the next-generation semiconductor facility. The concern around supply down the road is finding the markets large enough to justify the funding needed. In the future, capacity can be limited. Intel this year will spend over $10 billion on their new factories. They have 80% market share in PCs and probably 90% market share in the servers and the data centers, but they still need to get into handsets to justify all this capacity expansion, in my view.
The primary inventor of flash memory company, SanDisk, shares its manufacturing in Japan with Toshiba (6502.TYO). So even SanDisk - that sells flash chips into USB drives, MP3 players, cell phones, etc. - can't afford their own fab. Last night SanDisk announced slowing the capacity expansion of a new facility. In my memory, that's the first time ever that a semiconductor company has slowed a capacity expansion phase. It seems SanDisk is saying, "Let's just wait and make sure demand is there before we spend any more money."
TWST: Who else do you like?
Mr. Cassidy: There's a smaller company, Mellanox (MLNX). Similar to most PCs today that have Ethernet connection, most servers use higher-speed Ethernet to communicate to each other in a data center. A little over 10 years ago, Mellanox worked with a group of other companies to come out with a new standard for higher-speed and lower-latency networks called InfiniBand. For 10 years, InfiniBand been a niche market. Research centers and maybe college campuses were using InfiniBand. That was their standard. But now with all these data centers and the higher-performance Intel processors, there is a need for both faster memory and faster ways of getting that information in and out of the computer.
InfiniBand has the merits to meet the new demands. Now I see it as the mainstream applications have caught up to what InfiniBand offers. Mellanox has been developing high-speed networks for 10 years and now the world needs it. Mellanox is growing 20% a year.Last year in December, Oracle (ORCL) tried to acquire Mellanox. Oracle uses InfiniBand in their Exadata and Exalogic products. They liked InfiniBand so much that they wanted to acquire Mellanox. Mellanox management resisted the acquisition with the view that it was too early to sell out. Mellanox is only about $250 million in annual revenue now, and we think they can get to $1 billion in the next three to five years. There is more shareholder value in the company at $1 billion in revenue, in our view. I like Mellanox's market and the unique value Mellanox brings to this market.
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