Tokyo Electron Leveraging Semiconductor Math, And Looking For Share Gain Opportunities

 

I had a finance professor as an undergrad who liked to say “math works”, and when it comes to the math on semiconductor capex, the math still works for Tokyo Electron (OTCPK:TOELY) (8035.T) (“TEL”). New demand from end-markets like autos, consumer, data center, industrial, medical, and wireless is likely to drive at least mid-single-digit chip volume growth over the next decade, and increasing production complexity means ever-higher capital intensity.

TEL also has credible opportunities to continue gaining share in its core semiconductor production equipment (or SPE) markets, while also driving further progress in margins, with management targeting 30%-plus operating margins when it reaches JPY 2T in revenue.

Where the math stops working for me is valuation. I realize we’re in a bullish cycle for SPE capex spending and that drives higher multiples, but the stock really doesn’t work on a GARP basis. That’ll be fine for some investors, and I do certainly understand using Tokyo Electron as a play on ongoing capex spending growth, but I’ve too many cycles in this sector to want to play the game of musical chairs.

 

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Tokyo Electron Leveraging  Semiconductor Math, And Looking For Share Gain Opportunities

As The Market Gets More Fearful About VAT Group, It's Tempting To Get Greedy

”Be fearful when others are greedy, and greedy when others are fearful.” - Warren Buffett

The Street’s unbridled love affair with semi-equipment stocks looks to be over, with investors increasingly worried about the prospect for equipment order push-outs and a general slowdown later in 2018 and into 2019, and perhaps an actual short-term contraction. That’s not great news for Switzerland’s VAT Group (OTCPK:VACNY) (VACN.S), as this leading provider of vacuum valves depends upon a strong semiconductor and display equipment order environment for its own growth.

I do believe there is sufficient evidence to support the idea that 2019 will be a much more challenging year, and there’s really not much visibility at this point. That’s a dangerous set-up, and buying equipment stocks going into a slowdown is often a painful (or at least frustrating) experience. But then, VAT is a significantly above-average equipment provider, and getting too cute about waiting for the ideal entry point could mean never owning the shares.

Investors should note that VAT Group’s ADRs are not very liquid; the local shares are considerably more liquid, but that may not be an option for all investors.

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As The Market Gets More Fearful About VAT Group, It's Tempting To Get Greedy

Seeking Alpha: Mattson Technology: A High-Beta Play On 20nm And Below

Fellow Seeking Alpha contributor Ashraf Eassa and I have both written previously about Ultratech (UTEK), a semiconductor equipment company that we both like for its innovative positions in laser spike annealing (LSA) and advanced packaging lithography ("flip chips"), as well as the potential of its steppers in LED manufacturing. In particular, we have both made the case that advanced annealing technologies are likely to be a critical factor in the move to sub-20nm processes.

Ultratech isn't the only game in town, though, and there are multiple technologies and process steps that are going to play significant roles in the production of FinFETs and 3D circuits. With that, I would take a look at Mattson Technologies (MTSN), as this company has already accomplished the not-so-easy task of gaining meaningful share in the dry strip, rapid thermal processing (RTP), and etch markets despite competing with giants like Lam Research (LRCX), Applied Materials (AMAT), and Tokyo Electron (TOELY.PK).

While 2013 has proven to be a very disappointing year for semiconductor equipment orders (and much like waiting for Godot), I don't believe this stagnation is sustainable. Foundries and chip companies can only delay orders and repurpose older equipment for so long. With that, I believe orders will begin to recover in late 2013/early 2014 and bring Wall Street back to the view that Mattson has the collection of tools and technology to challenge its prior record revenue levels - an achievement that I believe could take the shares to $3 or above.

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Mattson Technology: A High-Beta Play On 20nm And Below

Investopedia: A Melancholy Farewell to FSI International

There are two kinds of investors - those who've watched a great idea slip away and liars. In other words, it's just part of the nature of investing that eventually you're going to identify a great stock and somehow, for some reason, not buy it before its big move. With today's news that Tokyo Electron is buying up-and-coming semiconductor equipment company FSI International (Nasdaq:FSII), I add another stock to that not-so-illustrious list.

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http://stocks.investopedia.com/stock-analysis/2012/A-Melancholy-Farewell-To-FSI-International-FSII-AMAT-LRCX-INTC0813.aspx

Investopedia: Volatility Is The Price Of Opportunity At FSI International

Financial writers love to write articles that talk about how if investors had simply bought "Super-Duper Tech Stock" back in the earliest days and held on tight, they'd be sitting on windfall profits and debating which island to buy for their retirement. What those articles often fail to mention is that the road from small up-and-comer to successful growth stock is never straight or smooth; there are bumps, potholes and detours along the way and some of them are real doozies.

That is worth remembering when it comes to wafer cleaning equipment company FSI International (Nasdaq:FSII). The volatility in growth and guidance over the past few quarters highlights several key points about this stock - there is real growth potential here, but the company is exceptionally vulnerable to any wobble in orders.

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http://stocks.investopedia.com/stock-analysis/2012/Volatility-Is-The-Price-Of-Opportunity-At-FSI-International-FSII-AMAT-LRCX-TSM0625.aspx

Investopedia: There's Still Time To Buy FSI International

The semiconductor sector has looked a bit more wobbly of late, but the odds still seem to favor a pick up in activity and orders in the semiconductor equipment space. Investors who want to make a high-risk/high-reward play on the sector should still consider FSI International (Nasdaq:FSII). While this tiny company's market share in the wafer cleaning space is still tantamount to rounding error, solid order growth speaks to a more interesting future.

Q2 Results - Plenty of Progress, Plenty of Work to Do 

FSI's second quarter highlights some of the pluses and minuses of this almost unfollowed story. Revenue rose 25% this quarter and handily surpassed sell-side analyst estimates. In point of fact, business was even a little better than it looked, as the company shipped two Orion systems that it was not able to recognize as revenue for the quarter.

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http://stocks.investopedia.com/stock-analysis/2012/Theres-Still-Time-To-Buy-FSI-International-FSII-AMAT-LRCX-TSM0322.aspx

Investopedia: Applied Materials A Long-Term Play In A Short-Term Market

Leading semiconductor equipment company Applied Materials (Nasdaq:AMAT) posted stronger than expected revenue and raised guidance for fiscal 2012. So, it's off to the races, right? Not exactly. While conditions do seem to be getting better in the equipment world, analysts remain very skeptical about the persistence of this recovery and expectations for the company are all over the map. Although its valuation looks too low for the full cycle, the short-term world of Wall Street couldn't care less about more than one quarter.

Less Bad Is Better
Applied Materials didn't have a strong quarter, but it was less rotten than many analysts feared. Revenue fell 19% from last year and was up very slightly on a sequential basis as reported. Stripping out the Varian acquisition, sales would have been down about 9% sequentially.


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http://stocks.investopedia.com/stock-analysis/2012/Applied-Materials-A-Long-Term-Play-In-A-Short-Term-Market-AMAT-KLAC-ASML-TSM0221.aspx

Seeking Alpha: FSI International - This Small Semiconductor Company Could Clean Up

It has already been a fairly solid year for many companies in the semiconductor equipment space. With guidance from major players like Applied Materials (AMAT) and ASML (ASML) suggesting that dawn is breaking and the merger between Lam Research (LRCX) and Novellus (NVLS) hinting that business is getting back to normal, investors seem to be willing to consider risky stories again.

That could set up the right sort of one-two punch for investors in FSI International (FSII). Like many other small equipment vendors, FSI was hit hard by the downturn in equipment spending. Unlike some of those small peers, though, FSI is coming into a cyclical upswing with a new product and the potential for some real sales momentum. Couple that with the fact that this stock is barely followed and has about 10% short interest, and it may not take much for this stock to do even more in 2012.

Read more here:
http://seekingalpha.com/article/345591-fsi-international-this-small-semiconductor-company-could-clean-up

Investopedia: Lam Snaps Up Novellus

Given the incredibly cyclical nature of semiconductor capital equipment spending and the growing power of a relatively small number of buyers, consolidation just makes sense. While Applied Materials (Nasdaq:AMAT) has been more active of late in buying companies, Lam Research (Nasdaq:LRCX) has stepped up in a big way with an offer for Novellus Systems (Nasdaq:NVLS).

The Deal
Lam announced that it had reached an agreement to acquire Novellus in a $3.3 billion all-stock deal. Lam will give 1.125 of its shares for each Novellus share - a deal which imputes a value of $44.42 per share for Novellus based on pre-announcement prices. That price is a 28% premium for Novellus, but only about 2.3 times trailing sales - a modest discount to historical multiples and a definite discount to the recent Applied Materials - Varian deal.

If the deal goes through as expected, Lam shareholders will own 58% of the combined company, and Lam intends to launch a $1.6 billion share repurchase to neutralize some of the impact of the deal. (For related reading, see The Merger- What To Do When Companies Converge.)


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http://stocks.investopedia.com/stock-analysis/2011/Lam-Snaps-Up-Novellus-LRCX-NVLS-INTC-ASML1216.aspx