Semiconductor Equipment - Berenberg Bank

ASM International NV
Small/Mid-Cap: Technology Hardware
Strong fundamentals unrecognised
Consensus focus on front-end implied valuation
The main focus of consensus lies on ASMI’s implied valuation for its front-end
business, which has had a negative market cap since 2007 (see Figure 2). As a
result, the pair trade of long ASMI/short ASMP was well known and widely
discussed among investors, who predicted that ASMI’s share price would re-rate
after it divests its ASMP holdings, and that ASMP’s share price would slump upon
ASMI’s disposal.
Figure 2: ASMI had negative market cap since 2007
EUR bn
2
1.8
1.6
1.4
1.2
1
0.8
0.6
0.4
0.2
0
160%
140%
120%
100%
80%
60%
40%
20%
0%
Source: Bloomberg data
ASMI marcap
ASMP as % of ASMI marcap
In March 2013, ASMI divested 12% of its holding in ASMP, and ASMI’s share
price fell by as much as 24% in the two months following the disposal. The slump
occurred because 1) the market was expecting ASMI to sell more than 12% of its
ASMP holdings and 2) investors were concerned about when and even if there will
be further share disposals.
We believe the market currently has a low expectation of further divestment once
the lock-up period expires in September 2013, and a further disposal could be a
catalyst for ASMI’s share price. However, we also analyse ASMI from a different
angle. We believe its front-end business will also drive strong performance in the
long run and make the stock an attractive investment.
New chip designs trending in ASMI’s favour
ASMI has a solid front-end business that generated 91% of its revenue from the
deposition market in 2012, according to data from market researcher Gartner.
While the total deposition market will grow by c5% between 2012 and 2017
according to Gartner data, we believe that the ALD, PE CVD and epitaxy subsectors
will outperform the total deposition market.
AMAT dominates the deposition market, while ASMI’s market share has always
been small: its market share in 2012 was c5.2% (see Figure 2). Compared with
AMAT and LAM, which supply a broad range of deposition equipment, ASMI
focuses on specific segments, including ALD, epitaxy and PE CVD. We expect
ASMI to benefit from the new generation of mainstream chip designs, which
include 20nm/10nm HKMG, FinFET and 3D NAND, given that 1) its ALD tool
is essential in leading-edge chip manufacturing processes, such as HKMG, 2) its
epitaxy tool is required in the manufacturing of FinFET chips and 3D NAND, and
56