Applied Materials is paying $4.9 billion in cash to buy Varian because when it comes to making the equipment that makes the chips, Varian does something very technical for clients that Applied Materials no longer does.
Varian dominates the market for selling gear that implants ions around which it then builds chip structures. Some consider that a vital technology for the next generation of transistors, about which Intelis also making its own announcement.
More generally, for those invested in semiconductors, this could be the start of a string of deals that bouys the sector.
With the Philadelphia Semiconductor Index up 60 percent in the last two years, the fear is that supply will accelerate in the second half of the year and stockpiles of semiconductors will build, hitting prices and margins.
Before today's deal Citigroup was very negative on the capital equipment sector, arguing that after a rally lasting eight quarters, historically stocks plunge 25 percent to 30 percent.
But now Barclays is arguing that today's announcement will be an important new inflection point, and that shares will go higher.
Specifically, it sees Applied Materials, Lam Research and ASML in the Netherlands as potential consolidators, with the scale and the leadership to mop up pure-play, quality companies with leading market shares.
Barclays names KLA-Tencor, Novellus and CYMER as potential targets.
Watch video interview with Applied Materials' CEO here______________________________
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