Microchips Getting Crowded Out?

Barron’s Tech Trader Daily says Solar Cell Demand Keeps Driving Up Polysilicon Prices. Since solar cells use the same type of silicon as microchips, increased demand for both products is driving up the raw material price. While this may make things tough for chip makers, who could see margins squeezed, Barron’s thinks it may be good for a couple of companies.

(Merrill Lynch analyst) Enomoto writes that the continued shortage should be good news for Tokuyama (TKYMF), which is one of the world’s leading makers of polysilicon. But I’d extrapolate and say it should also be bullish as well for MEMC Electronic Materials (WFR), the leading U.S. producer of silicon wafers. MEMC produces both raw polysilicon and silicon wafers, and has been in the process of gearing up its business to serve the solar industry as well as its traditional semiconductor customers. Once teetering on financial insolvency, MEMC has come roaring back to life. While MEMC shares have gained nearly 70% this year, soaring from $22 to a recent $37.5o, the stock nonetheless has fallen about $10 in the recent tech pullback. And with the polysilicon crunch showing no signs of letting up, that seems like an opportunity to jump aboard.

Definitely sounds like something to keep an eye on.

Disclosure: William Trent has a long position in SMH.

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