3 Reasons Applied Materials Is More Than Just a Chip Shortage Stock
A global shortage of semiconductors -- basic building blocks for everything from high-tech services to autos to household appliances -- is reverberating through the economy. For semiconductor manufacturing equipment providers like Applied Materials (NASDAQ: AMAT), it's a good time to be in business. Chip fabricators are scrambling to keep up with orders and are trying to expand their production, which means strong demand for equipment. In fact, Applied Materials just posted record quarterly sales and signaled growth will continue at a torrid pace this year -- and could stay strong well beyond 2021. Here's why.
As with all businesses related to manufacturing, managing supply of basic commodities is of utmost concern. While circuitry is a basic commodity used in the manufacture of all sorts of devices these days, it isn't exactly a cheap product to keep large inventories of. On the contrary, some high-end chips are quite expensive.
To manage costs, many companies keep only a short supply of chips they need on hand, and the chip fabrication industry has adapted to this "just-in-time" strategy. It's worked well, at least up until the pandemic. Factories around the globe have been shuttered at times due to the pandemic, and chip customers opted to work with the limited inventory they had last year to manage cash flow. But the sudden resurgence in demand for tech hardware means there's now a shortfall in supply in some sectors of the economy (like autos and some consumer electronics).
Source Fool.com
