Semiconductor Equipment - Berenberg Bank

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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
ASM International NV Small/Mid-Cap: Technology Hardware 3) the ramp-up in 3D NAND may drive PE CVD tool demand. Figure 3: Deposition market share 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 2012 2011 2010 2009 2008 AMAT TEL LAM/Novellus Hitachi ASMI Veeco Aixtron Source: Gartner data ALD will grow as HKMG adoption increases ASMI generates 70% of its front-end revenue from ALD equipment sales. We expect robust ALD growth due to the increased adoption of the HKMG process. The HKMG process is currently only used in some 28nm solutions but it will become mandatory for 20nm and smaller nodes, as it increases the transistor capacitance and allow chips to function with reduced power needs. The ALD process enables chip-makers to form thin films atom by atom, which enables the precise chip-manufacturing process required by advanced nodes. It offers better uniformity, surface roughness and thickness control than other solutions. Currently, Intel, TSMC and Samsung have adopted HKMG for some products. Globalfoundries has limited HKMG for 28nm, and UMC is due to ramp up HKMG 28nm in 2014 at the earliest. We expect that HKMG will be used by more logic/foundries as they scale down to 20nm and below. At the same time, HKMG layers will increase with shrinkage. We expect the ALD market to grow by a CAGR of 20% pa in next three years, versus the total deposition market grow which will grow by 6% during the same period according to Gartner’s estimates. Figure 4: ALD growth versus total deposition market $mn 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2009 2010 2011 2012 2013E 2014E 2015E 2016E 2017E ALD Deposition ALD/deposition 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Source: Gartner data, <strong>Berenberg</strong> estimates 57
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