You probably know about the global semiconductor shortage that has forced some automakers to idle their production lines at various times throughout the past year, notes Tony Sagami, editor of Weiss Ultimate Portfolio.
But you may not realize that chip foundries are not only running at full capacity, but they’re frantically expanding production capacity. And they’re paying big bucks to do it; to address the shortage chipmakers are collectively expected to spend $113 billion this year on capital equipment.
One company that’s positioned to grab a big chunk of that is Entegris (ENTG). This company doesn’t make chips or the sophisticated machines used to produce semiconductors. Instead, it supplies purification equipment that is crucial to these tiny and extremely sensitive semi chips.
The process of making semiconductor chips requires a highly purified environment. Producing leading-edge semiconductors requires ultra-pure specialty chemicals and extremely demanding filtration, as well as ultra-pure specialty materials for handling and transporting the inputs, intermediates and final products.
The more advanced/complex the chip, the more intense purification/filtration that is required. That’s why ENTG is enjoying a twofold business boom: 1) chip demand is rising and 2) chip complexity is exponentially increasing.
Those are long-term, secular tailwinds: increasing electronics going into increasing products with increasing complexity (e.g., virtual reality, autonomous vehicles, artificial intelligence, life-like graphics).
Business is booming. In the second quarter of 2021, revenues were up 27%, operating income was up 47% and profits were up 42% year over year. That’s impressive, but ENTG is quietly (and rapidly) adding customers outside of the semiconductor industry.
Chipmakers aren’t the only industry requiring a highly sterile/purified environment. Biotechnology and biopharma are becoming an increasingly important part of ENTG’s business. Combined with soaring semiconductor demand, this is going to plump up the company’s profits.
Shares have steadily increased since the beginning of the year, guided upward by its 50-day moving average. This bottleneck in the semiconductor supply chain isn’t going away anytime soon. Some analysts say it could last until 2023.
In the meantime, everyone from automakers to data centers to video game makers will be in line, ready to pay up so they can complete (and sell) their products. And the company’s $40 billion bet on biopharma manufacturing should pay off in spades. Those are just three good reasons to get this order in right away.
