Semiconductor Equipment - Berenberg Bank

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Semiconductor Equipment Technology Hardware Helicopter view of the names Figure 1: Market share and market growth potential High Market share Low Low High Addressable market growth Source: Berenberg estimates Figure 2: Relative share performance 01/01/2008 01/01/2009 01/01/2010 01/01/2011 01/01/2012 01/01/2013 Source: Bloomberg data AMAT ASMI ASML TEL Suess Figure 3: Valuation matrix ROE* Dividend yield* No.1 ASML 19.7% AMAT 2.5% AMAT 9.7% TEL 26.5% No.2 AMAT 17.1% TEL 1.5% ASMI 6.2% SUSS 17.6% No.3 SUSS 9.1% ASML 0.9% ASML 4.5% AMAT 16.7% No.4 TEL 6.3% ASMI - TEL 4.3% ASMI 8.9% No.5 ASMI 6.2% SUSS - SUSS 1.6% ASML 6.5% * based on Berenberg estimation of 2014 performance Net cash based on 2012 YE balance Source: Bloomberg data, company data, Berenberg estimates FCF yield* Net cash/marcap 6
Semiconductor Equipment Technology Hardware Key debates Will the semiconductor space remain as cyclical as before? We believe the semiconductor cycle is going to remain cyclical, but less volatile compared to history. Over the past decade, we have seen cycle peaks in 2000, 2007 and 2011, followed by a capacity digestion period, ie trough cycles in 2002 and 2009, driven by different market trends. Memory was the main driver for the 2000 and 2008 cycle peak, and logic/foundry drove the peak cycle with memory in 2011. Figure 4: Semiconductor capex to remain flattish for the next two years USD mn 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - 35% 30% 25% 20% 15% 10% 5% 0% Semi capex $mn Semi equipment revenue $mn Semi capex/semi revenue % Source: Gartner data, Berenberg estimates The 2000 cycle was driven by 1) strong PC demand, 2) increased DRAM content per PC, 3) increased capacity for 0.13 micron, 0.18 micron and 300mm. In 2007, the cycle was driven by 1) Apple’s Nano/Shuffle products and other portable media players, which led NAND demand, 2) a DRAM demand increase due to increased adoption of 64-bit processors, Microsoft Vista and the Sony PlayStation 3 (PS3) launch, 3) an increased mobile phone DRAM demand, and 4) DRAM, Logic and NAND moving to smaller nodes. The 2011 cycle was influenced by 1) smartphone/tablet demand offset by PC demand, 2) leading-edge chip increases (logic: 28nm; NAND: 20nm; DRAM: 30nm) as the consumer electronics market grew. We believe future cycles will be less volatile: In the future, we believe the semiconductor capex trend will be less cyclical compared to previous cycles for the following reasons. 1) Memory-makers become more conservative in their spending: The previous three peak cycles were driven by memory. Memory-makers have tended to double their capex in the peak years (ie 2000, 2004-2007, 2010) and cut capex by half in the following one/two years. Following the 2012 memory price slump, memory-makers became more cautious and are now ramping up addition capacity slower than before. Therefore we believe the cycle volatility caused by memory spending will be significantly reduced. 2) Foundry/logic spending is likely to remain strong: Intel, Samsung (excluding memory) and Taiwan Semiconductor Manufacturing Company (TSMC) (which together account for 78% total foundry/logic capex) are heavily exposed to the consumer electronic markets, and the competition in the market is further intensified by the war between Apple, Samsung, Qualcomm, Intel and ARM. We believe that these companies have no choice 7
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Semiconductor Equipment - Berenberg Bank

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