Semiconductor Equipment - Berenberg Bank

Tokyo Electron Ltd
Technology Hardware
Key risks
The key risks to our investment case are as follows.
• FPD/PV segment: TEL’s FPD/PV business was loss-making in FY 2012, and
management has guided that the division will continue to make a loss over the
next six months. The segment’s continuing underperformance is likely to have a
negative impact on total corporate earnings, and may trigger a heavy
impairment charge on goodwill related to its end-2012 acquisition of Oerlikon
Solar.
In our opinion, the underperformance of the FPD and solar divisions is in line
with the experience of AMAT. We expect the two markets to remain sluggish in
the near future, until the solar supply/demand balance improves and TV
manufacturers start investing in new technology or capacity. TEL has ¥22bn of
goodwill related to the Oerlikon solar acquisition, which is likely to be impaired
if we see continuing underperformance.
• Semiconductor spending pause: TEL generates 79% of sales and 100% of
profit from its SPE division. The performance of SPE is highly correlated to
chip-makers’ capex spend. If chip-makers’ capex level falls as the consumer
electronics market reaches saturation, or technology migration starts to
decelerate, TEL’s shipments, revenue and profit margin could be hit.
In our opinion, capex spending is likely to remain strong over the next few
years, driven by consumer devices growth in emerging markets. We believe
there will be a capex uptick driven by 450mm migration in 2016. As a result, we
are not too concerned about the expected capex pause in the next couple of
years.
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