Wednesday, January 8, 2020

A More Diverse Advanced Energy Is Looking At Multiple End-Market Drivers

The cyclicality of the semiconductor industry is a challenge for all equipment suppliers. Advanced Energy Industries (AEIS) has tried to offset and mitigate that cyclicality by deploying capital into diversification efforts. These efforts haven’t really worked so well historically; the solar inverter business was a small-scale disaster, and the other acquisitions haven’t really done all that much. Now management is hoping that its biggest-ever deal will change that, with the Artesyn acquisition giving the company exposure to near-term growth trends in 5G and data center and long-term opportunities in med-tech and industrial.

Advanced Energy has done well since my last update, rising close to 40% as the stock has followed other semiconductor suppliers higher since the fall. I was bullish on the stock then, but modeling has gotten a lot more challenging with the addition of Artesyn, and AEIS management guidance suggests a less robust margin/cash flow recovery from the semiconductor business than in past cycles (or Artesyn margins are going to really weak). Unlike many semiconductor equipment stocks, I don’t think the shares look all that expensive, but I want to emphasize the higher level of modeling uncertainty.

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A More Diverse Advanced Energy Is Looking At Multiple End-Market Drivers

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