Applied Materials (NASDAQ: AMAT) is the world's largest supplier in the semiconductor equipment market. AMAT sells semiconductor fabrication tools to chip makers and offers tools for 11 of the 13 most significant steps of chip manufacturing. AMAT has a larger portfolio of semiconductor fabrication tools than any other company and competes mostly against smaller companies that specialize in specific areas of the fabrication process. AMAT's vast resources allow it to remain competitive in nearly all of its production segments. However, AMAT's operations cover many areas of the semiconductor equipment industry, making AMAT vulnerable to industry cycles. The last major downturn of the semiconductor industry was in 2000.

As chips become more complex the steps in the manufacturing process increase and the technology to complete those steps change. This provides AMAT with more business by offering products for the additional steps, but also exposes AMAT to greater competition from its specialized competitors. AMAT spends over $1 billion on R&D in order to remain on the cutting edge of semiconductor equipment technology. The semiconductor industry, along with AMAT, is vulnerable to general economic conditions, more specifically GDP growth. Semiconductor sales have shown about an 80% correlation with GDP growth trends, meaning a downturn in GDP growth could very likely be accompanied by a downturn in semiconductor sales.

(Read more at Wikinvest )