Morningstar | ALD Tools Still a Source of Strength for ASM Thanks to Logic and Foundry Demand; Maintaining FVE
ASM International reported second-quarter earnings surpassing our expectations on the top line due to a patent litigation settlement with Kokusai Electric over the quarter. Otherwise, ASM would have met our forecast for the quarter due to particular strength in ASM’s ALD business. Despite ASM’s atomic layer deposition growth and our continued belief that ASM will outperform the wafer fab equipment market in 2019, we’re maintaining our EUR 50 fair value estimate for this no-moat name, as we anticipate more intense competition from the likes of Lam Research and Applied Materials. With shares currently trading near EUR 70, we recommend holding off on investing in this 2-star stock for the time being.ASM’s second-quarter revenue rose by 74% year over year to EUR 363 million, or 24% year over year to EUR 260 million excluding litigation gains. ASM’s ALD business was a major driver of results in the quarter. While logic was the largest segment for the quarter, foundry orders declined sequentially. Logic bookings grew sequentially thanks to ALD popularity at the 10- and 7-nanometer processes. Meanwhile, memory orders increased sequentially due to an uptick in DRAM-related ALD demand.
Gross margins for the quarter were 59%, or 42.8% excluding the litigation settlement, both of which were up from 41.3% in the prior-year quarter. Margin expansion excluding settlement gains was a result of a beneficial mix shift.
Management expects to report third-quarter revenue at a midpoint of EUR 260 million with ASM in position to outperform the wafer fab equipment market in 2019, which is poised to be down in at least the mid-teens due to memory weakness.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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