Morningstar | Tokyo Electron Facing Similar Headwinds as Peers; We Expect Memory Spending to Improve in 2020
Tokyo Electron completed its fiscal 2019 with results consistent with management’s forecast, leading to full-year revenue growth of 13%. Nevertheless, the firm expects wafer fab equipment spending to decline 15% to 20% in calendar 2019, which is aligned with our forecast, stemming from a “temporary adjustment in memory investment on a softening in demand,†according to management. Specifically, DRAM and NAND spending in 2019 is expected to be down 30% and 50%, respectively, partially offset by 25% growth in logic and foundry. Coupled with capital spending for OLED panels poised to be weaker, fiscal 2020 sales are slated to be down about 14% in Tokyo Electron’s full-year guidance. We are maintaining our fair value estimate of JPY 18,500 per share for the narrow-moat firm, and current levels look modestly attractive.Fiscal fourth-quarter revenue was up 19% sequentially, thanks to foundry and logic segments in support of 10- and 7-nanometer ramps by the likes of Intel, TSMC, and Samsung. For fiscal 2019, Tokyo Electron recorded record high equipment sales at JPY 1,167 billion, up 11% year over year. According to the firm’s estimates, etch and deposition market share grew by 4% and 2%, respectively. The firm’s full-year gross margins came in at 41.2%, down 80 basis points due to a less favorable product mix. Despite the tepid near-term outlook, we anticipate the firm’s revenue to trend upwards throughout fiscal 2020, thanks to improved memory spending.
For more information on our thoughts on the WFE space in 2019 and beyond, please see our Technology Select Presentation: “Buy the Chip Equip Dip."
Tokyo Electron is a supplier of semiconductor production equipment ("SPE") and flat panel display ("FPD") selling through global network that spans Japan, the U.S., Europe and Asia. Co.'s principal products are coater/developers, plasma etch systems, thermal processing systems, single wafer deposition systems, cleaning systems (auto wet station, single wafer cleaning system, pre-clean system and scrubber system), wafer prober, FPD coater/developers and FPD plasma etch/ash systems. In addition, Co., through its subsidiaries, is engaged in the provision of transportation services, insurance services, as well as the support services for Co.'s photovoltaic cell ("PV") production equipment.
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