Semiconductors | Advanced packaging: don’t miss the next round
SECTOR | Semiconductors | Advanced packaging: don’t miss the next roundAppetite for advanced packaging has never been so strong. Underpinned by 5G, 3D sensing, AI and HPC applications, advanced packaging services are growing four times faster than other packaging at a CAGR of more than 8%. Advanced packaging not only enables complex modules to be manufactured in a small form factor, but it also becomes essential to overcome diminishing returns on front-end technologies. Since our note issued in January 2018, we have noticed a substantial acceleration in advanced packaging roadmaps, especially in the computing space.
• This should lead to strong capital spending in equipment. Intel in particular is far more aggressive as it plans to use advanced packaging in all high-end CPUs at 10nm and 7nm, while TSMC continues to lead and is preparing to meet demand for HPC and mobile applications, including 5G. The assembly equipment market is set to increase by more than 10% in 2020 and 2021, and advanced packaging should grow well above market average.
• Besi is a partner of choice in advanced packaging. Besi’s leadership in premium equipment and its close relationship with high-end chip designers and manufacturers remain intact. Given the upcoming roadmap, we expect significant increase in revenue going forward (24% in 2020 and 30% in 2021). On top of that, Besi’s operating leverage has significantly improved recently. We adopt a BUY vs NEUTRAL rating and a Fair Value of EUR39 vs EUR24.5.
Focus is elsewhere for ASMI. The company owns 25% stake in ASMPT, #1 assembly supplier. However, the investment case is much more supported by the increasing penetration of its front-end ALD business in leading edge nodes. We see further opportunities ahead for the company. We update our FV from EUR105 to EUR120 and maintain our BUY rating.
ASM International is an equipment supplier mainly to the semiconductor manufacturing industry. Co. designs, manufactures and sells equipment and services to its customers for the production of semiconductor devices, or integrated circuits. Co.'s front-end segment manufactures and sells equipment used in wafer processing, encompassing the fabrication steps in which silicon wafers are layered with semiconductor devices. Co.'s back-end segment manufactures and sells equipment and materials used in assembly and packaging, encompassing the processes in which silicon wafers are separated into individual circuits and subsequently assembled, packaged and tested.
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