Hot Growth: The Chips Have It

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Can MEMC keep it up? Analysts expect MEMC to clock north of $1.9 billion in sales this year and to report $3.29 in earnings per share, more than double the $1.60 it reported last year. But Soleil-Princeton's Leming wonders how long Germany can afford to subsidize solar power. "The way Germany has structured it, it has guaranteed pricing in the solar-panel business as far as the eye can see," he says. "But Germany is going to realize that it can't afford this forever."

One Wafer at a Time

Betting on solar power as the demand driver for silicon would have appeared a long shot a decade ago. Another company reaping the benefits of a long-shot bet is Varian Semiconductor (VSEA). Its specialty, ion implant gear, sounds arcane, but it's paying off in a big way, with sales expected to reach $1.1 billion this year, up from $730 million in 2006.

Ion implanting is a crucial step in the chipmaking process. Varian Chief Financial Officer Robert Halliday describes it as "blasting a silicon wafer with a high-pressure spray-paint gun," to implant specific molecules precisely where they're needed. In 2003, when chipmakers typically implanted ions on several wafers at once, Varian made a contrarian wager that it would eventually need to process one wafer at a time. Why? Ion implanting on individual wafers increases the precision with which molecules can be placed, eliminating the unintended damage that can happen when many wafers are processed at once.

Varian's risky maneuver took time to pay off, says analyst Weston Twigg of Pacific Crest Securities. "They came out with this process earlier than their competitors and were able to tune and refine their process," he says. The results speak for themselves: Applied Materials (AMAT), the $9 billion chip manufacturing gear giant, announced in February it was exiting the ion implant business. Since then, Varian's share of the business has soared to north of 60%, up from 43% last year, says Twigg.

Cypress and Nvidia Share in the Sector's Spoils

Cypress Semiconductor (CY)—one of the fast-growing companies that actually makes chips—has certainly profited from the demand for semiconductors, though it owes much of its recent success to an equity stake in solar power concern SunPower (SPWR), which makes and installs solar cells and panels. Cypress also benefits from demand for the Apple iPod: Cypress' Programmable System-on-Chip business is behind the iPod click wheel. The Cypress chip notes how the finger is moving on the click wheel and translates that information into a computer command, such as "more volume" or "next song."

The sixth-fastest-growing tech company is $3 billion graphics chipmaker Nvidia (NVDA). Intel and AMD get much of the credit for pushing the computational power envelope. But the often overlooked yet hugely important components in today's graphics-heavy PCs are the graphics processors from Nvidia and its AMD-owned rival, ATI. Playing games, watching video, and editing photos are all made easier by graphics processors.

Nvidia is the brand of choice among gaming enthusiasts who customize their own machines, but Hewlett-Packard (HPQ), Dell (DELL), and Apple are big Nvidia customers, too. Nvidia's share of the market for graphics chips in notebook computers has grown to north of 80% in the last year, according to analyst Doug Freedman of American Technology Research.

From Laptops to Handhelds

At least part of Nvidia's growth this year can be attributed to stumbles by AMD, which has struggled to integrate ATI and has lost business that Nvidia has been all too happy to take, says Freedman. "ATI couldn't get products out that were very competitive, and that opened the floodgates for Nvidia," he says. Nvidia CEO Jen-Hsun Huang cautions against attributing too much of his company's success to ATI's troubles: "I'd have to ask how much our leadership position actually led to the merger of AMD and ATI," he says. "We were ramping up and became very successful before that merger."

Nvidia's next challenge? Handheld computing. This year it closed a deal to acquire PortalPlayer, the chip company that made its name supplying chips for the iPod. PortalPlayer is a building block in Nvidia's new strategy to attack the handheld computing market. "Eventually all these mobile devices are going to evolve into the first true computer in your hand," Huang says. "We believe they're going to be a lot more common in the next decade."

Check out the BusinessWeek.com slide show for a look at the Hot Tech Growth top 10.

Hesseldahl is a writer for BusinessWeek.com in New York. With Catherine Holahan in New York.