Varian Semiconductor Equipment Associates (VSEA)

It is highly likely that the company will end up with over 70% of the overall implant market past 2008 as rivals have exited the cost-intensive business, essentially forking over their customers to VSEA. Ion implantation is the process by which chips are activated much the way your cell phone gets “activated” and ready for use once you leave the carrier store. Implanters essentially alter the surface properties of semiconductor materials when ions introduce both a chemical change in the target: dopants such as boron, phosphorus or arsenic create a charge carrier in the semiconductor, thus modifying the conductivity of the semiconductor in its vicinity. This space is one of the higher margin and harder to enter segments along the semi equipment food chain.

Bookings across the semi equipment space are soft and will likely remain soft till the beginning of Q4, think some of our contacts who follow these stocks. That said, you don’t buy these stocks when things have already turned up -- you buy them at least 2 quarters in advance of the cycle’s inflection point. VSEA remains a market share grab story with room for margin expansion and revenue upside potential as the cap ex cycle troughs, which should materialize in the back half of the year. In addition, Varian possesses one of the most transparent management teams in the sector and they are still repurchasing stock – your downside is getting in the stock too early, as DRAM and NAND spending this year looks horrific. But given that VSEA is 35% off its highs,its the time to make the plunge.