When Taiwan Semiconductor Manufacturing (NYSE: TSM) and Samsung build out their chipmaking factories, Applied Materials (Nasdaq: AMAT) licks its chops. As the world's leading supplier of semiconductor manufacturing equipment -- with a side of solar-panel films and flat-panel displays -- the big boys turn to Applied when they can't keep up with their own customers' demands. Right now, that's the case.

That's why I'm not surprised to see Applied flex its financial muscles in the just-reported second quarter. Sales more than doubled year over year to $2.3 billion, and yesteryear's $0.12 non-GAAP loss per share turned around to a $0.22 profit per share. CEO Mike Splinter noted that "global demand for computing and consumer electronics is giving our customers the confidence to make significant capacity additions," and the industry is in the early stages of "a multiyear growth cycle."

Splinter specifically pointed to the rise of tablet computers and smartphones as a driving factor for the next few years. If the Apple (Nasdaq: AAPL) iPad and competing tablets sell something like 7 to 10 million units this year, the new product category will "seriously stretch" the supply of flash memory chips. Given that Apple sold 1 million iPads in their first month, and there's a slew of competing products, it's not unreasonable to see tablets hitting that kind of sales volume by the end of the year. 

"I'm not sure where those are going to come from, because everyone today is pretty much already utilized," Splinter said. And that's on top of rampant smartphone growth, which also dips into the pool of available memory chips. This is why everyone and their aunt is busy building new chip factories or expanding old ones.

Applied's position in the semiconductor supply chain makes the company an awesome leading indicator of the entire industry's health. However, the lack of forward visibility makes it a less-than-perfect investment. When (not if) the semiconductor cycle turns downward again, Applied will be among the first businesses to suffer, alongside other semiconductor "leading indicators" such as KLA-Tencor (Nasdaq: KLAC) and LAM Research (Nasdaq: LRCX). 

Would you buy the canary in the coalmine, or the mining operation that brought it underground? Yeah, that's what I thought.

If you really love the Applied canary, you can tell me why in the comments below. Alternately, nod along with me and keep a watchful eye on this company. You'll want to know the next time it's pining for the fjords.