It's very rare that you have the opportunity to interview the two most important people in semiconductor equipment land on the same day, but I talked to Rick KLA-Tencor (KLAC) CEO Rick Wallace and Martin Anstice, CEO of Lam Research (LRCX), which is buying Novellus Systems (NVLS), and I can tell you that this business is extremely strong. Gangbusters even.
Why does that matter? Because it is an example of a secular growth story that isn't going to be stopped by a Greek or Portuguese default. It is about an arms race to provide small, better, faster chips for smartphones not unlike the secular blast off that occurred in the 1990s with desktops and laptops.
People don't have enough memory in their heads or didn't trade during the 1990s, but that was an era where every 18 months Intel (INTC) came up with something new that dazzled and personal computers just kept shrinking and shrinking and growing more powerful all of the time.
These days that's the same thing that is happening with smartphones. They are getting higher resolution with better cameras, better screens and more power with longer battery life.
These are all semiconductor-derived innovations and those chips can't be made on current semiconductor equipment. They have to be made on new equipment that can handle the smaller form factor and they have to be made with a precision and a rigor that allows for very few bad chips (yield).
So you need the likes of KLAC and LRCX. If you don't buy the equipment you will be left behind. You will be passed by Apple (AAPL). You will be left in the dust by Samsung. This is what happens in this business and the cellphone makers will pay up for the right chips, but if you don't have those chips because you didn't buy the new equipment from Lam or KLA-Tencorp you are going to become irrelevant.
These stocks are dirt cheap if the cycle's early as both CEOs said it is. The trough was just reached a quarter ago. We are in go mode.
Hope they come back because Lam-Novellus will have fabulous synergies and KLA=Tencor has NO inventory, which is incredible. They can pretty much charge whatever they want at this point in the cycle. Look out above.
Random musings: They need to get the former CEO out of there pronto too. This from a just-posted Avon (AVP) filing with the SEC.
INFORMATION TO BE INCLUDED IN THE REPORT
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
As of January 29, 2012, Charles W. Cramb, Vice Chairman, Developed Market Group of Avon Products, Inc. (the "Company"), is no longer with the Company. This personnel action was taken on January 29, 2012 in connection with the Company's previously disclosed internal investigation and the Regulation FD matter. These matters are ongoing and no final determinations regarding these matters can be made at this time. The financial terms of his separation are subject to future determinations in connection with such matters.
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