4 Chip Equipment Companies That Could Benefit From Big 2016 Spending

By Lee Jackson Updated Jan 13, 3:40PM EST · Published Dec 28, 11:20AM EST

Follow 24/7 Wall St. on Google

This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.

4 Chip Equipment Companies That Could Benefit From Big 2016 Spending — © Thinkstock

As the year winds down, technology investors are casting an eye toward 2016, and what hopefully will be a busy year for the top semiconductor capital equipment companies. With the battle among chip makers growing in the competitive dynamic random access memory (DRAM) and 3D NAND areas, raising capital expenditures could bode well for some of the top chip equipment companies.

In a new research report, Stifel feels that Micron Technology could be forced to increase capital spending next year in an effort to catch up to Samsung in both leading edge DRAM and 3D NAND. In fact, the Stifel team raises their capex forecast for Micron to $5.4 billion from $5.0 billion, and four companies in the firm’s coverage universe rated Buy look like they will have the best exposure to the increase in spending.

Lam Research

This remains one of the top chip equipment picks across Wall Street. Lam Research Corp. (NASDAQ: LRCX) designs, manufactures, markets, refurbishes and services semiconductor processing equipment used in the fabrication of integrated circuits (ICs). The company offers plasma etch products that remove materials from the wafer to create the features and patterns of a device. Many Wall Street analysts have highlighted the company and its peers as having a significant equipment opportunity from the NAND evolution as well. Lam Research also appears well positioned to gain share in the wafer fab equipment market, driven by a strong focus on technology inflection spending over the next few years.

Despite so-so foundry and logic spending, many on Wall Street think that this company will also continue to benefit from technology transitions such as FinFET, 3D NAND, multi patterning and advanced packaging in 2015 and beyond. Many analysts believe it is the “cleanest” semi cap story, benefiting from cyclical tailwind, SAM expansion and share gains.

Lam Research investors receive a 1.5% dividend. The Stifel price target for the stock is $93. The Thomson/First Call consensus target is $91.65. Shares closed most recently at $80.39.
[recirclink id=305681]
Photronics

This is another company that could get a nice chunk of the increase in spending at Micron. Photronics Inc. (NASDAQ: PLAB) is a leading worldwide manufacturer of photomasks, which are high precision quartz plates that contain microscopic images of electronic circuits. A key element in the manufacture of semiconductors and flat panel displays, photomasks are used to transfer circuit patterns onto semiconductor wafers and flat panel substrates during the fabrication of integrated circuits, a variety of flat panel displays and, to a lesser extent, other types of electrical and optical components.

The stock has been on fire and made a nice breakout near the end of November. In the past month, current quarter earnings estimates have jumped from $0.15 per share to $0.19, while current year estimates have soared from $0.75 per share to $0.84. While a more aggressive play, this stock could have big upside.

Stifel has a $13 price target, while the consensus target is $14.20. The shares closed most recently at $12.78.
Nanometrics

This micro-cap company could also hold big upside for aggressive accounts. Nanometrics Inc. (NASDAQ: NANO) is a leading provider of advanced, high-performance process control metrology and inspection systems used primarily in the fabrication of semiconductors and other solid-state devices, including sensors, optoelectronic devices, high-brightness LEDs, discretes and data storage components.

Nanometrics’ automated and integrated metrology systems measure critical dimensions, device structures, topography and various thin film properties, including three-dimensional features and film thickness, as well as optical, electrical and material properties. The company’s process control solutions are deployed throughout the fabrication process, from front-end-of-line substrate manufacturing to high-volume production of semiconductors and other devices and advanced three-dimensional wafer-level packaging applications.

Some analysts on Wall Street also see the company benefiting from a pickup in spending at chip giant Intel. Back in October, the company surprised Wall Street by reporting third-quarter net income of $818,000, after reporting a loss in the same period a year earlier.

The Stifel price objective of $21 is higher than the consensus target of $18.40. Shares ended last week at $12.78.

FormFactor

This is another small-cap company that could offer large returns for aggressive investors. FormFactor Inc. (NASDAQ: FORM) helps semiconductor manufacturers test the ICs that power consumer mobile devices, as well as computing, automotive and other applications. It is one of the world’s leading providers of essential wafer test technologies and expertise, with an extensive portfolio of high-performance probe cards for DRAM, Flash and system-on-a-chip devices. Customers use FormFactor’s products and services to lower overall production costs, improve their yields and enable complex next-generation ICs.

This is also a company on which analysts across Wall Street are bullish, and they are raising their estimates. After a big dip back in late August, the stock has fought back nicely, but it still offers investors a great entry point.

The Stifel piece target is $11, and the consensus target is $10.93. The shares closed Thursday at $9.11.
[recirclink id=305670]
While these stocks are only suitable for very aggressive risk tolerant accounts, the anticipated increase in spending in 2016 could make a solid difference to the top and bottom lines of these well-run companies.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.