Semiconductor Equipment - Berenberg Bank

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Suess Microtec AG Small/Mid-Cap: Technology Hardware Key risks 1. Timing of 3D bonding adoption: The substrate bonder division has a -50% operating margin, and made a €12m loss in 2012 (group operating profit: €10m). It has never been profit-making in the past. The substrate bonder division is likely to keep making a loss until it begins volume shipments. In our opinion, 3D bonding has a bright future once the industry reaches the physical lithography shrinkage limit. However, the timeframe for volume adoption is unclear. Management has indicated that the division requires a revenue run-rate of €30m-40m/year to reach breakeven. The extra €7m-17m revenue will require SUSS to ship 1-3 more tools more each year compared to 2012, which may be a challenge in the short term, in our opinion. 2. The photomask division dilutes group operating profit: SUSS’s photomask revenue may remain at the €20m-40m level if it turns out that EUV photomasks do not require a more regular cleaning process. The segment is profit-dilutive as its operating margin is lower than the lithography division’s (5% versus 21% in 2012). It accounted for 10% of total group operating profit in 2012. We believe the photomask division will remain profit-dilutive at the operational level as it has a lower operating margin compared to the lithography segment. If further data point shows that EUV photomasks need to be cleaned more regularly than conventional photomasks, SUSS may enjoy a period of high growth before other equipment vendors join the market. However, we are not expecting to see any significant growth in this segment until mid-2014, which is when we believe EUV will ramp up. 3. Margin pressure: The main profit generator for SUSS has always been the lithography segment, which generated 100% of group operating profit in 2010, 2011 and 2012. The profitability level is highly cyclical and highly dependent on the top-line level. The operating margin for the division was 20% for Q4 2011, and 2% in Q1 2013. The Tamarack acquisition is margin-dilutive as well, as it has a low level of profitability compared with the lithography segment. In our opinion, the profitability of the lithography division is likely to improve in the coming quarters as the top line recovers from the 2012 trough. Tamarack is only likely to account for a small part of lithography revenue in the next two years – 10% in 2014, 14% in 2015 – hence the margin dilution is not likely to be significant. We expect Tamarack to slowly converge to the average lithography operating profit level starting from 2015, as integration completes. 82
Suess Microtec AG Small/Mid-Cap: Technology Hardware Financial Profit and loss account We model SUSS’s revenue based on the order intake trend. The lithography segment has a shorter lead time compared to substrate bonder and photo mask equipment, thus the order trend in the lithography segment is likely to be reflected in the top line earlier than the other two segments. Figure 6: Revenue forecast 2011 2012 2013E 2014E 2015E Revenues (Eur millions) Lithography 111.5 113.2 96.9 118.0 145.9 Substrate Bonder 20.5 23.1 24.2 28.5 29.2 Photo mask equipment 36.3 22.9 26.4 36.0 34.2 Other 7.1 4.8 5.4 6.0 6.0 Total 175.4 164.0 152.9 188.5 215.3 Percent of total Lithography 64% 69% 63% 63% 68% Substrate Bonder 12% 14% 16% 15% 14% Photo mask equipment 0% 14% 17% 19% 16% Other 0% 3% 4% 3% 3% Total 75% 100% 100% 100% 100% year-over-year % change Lithography 25% 2% -14% 22% 24% Substrate Bonder -17% 13% 5% 18% 3% Photo mask equipment 97% -37% 15% 36% -5% Other 1% -32% 12% 11% 0% Total 26% -6% -7% 23% 14% Source: Company data, <strong>Berenberg</strong> estimates Lithography: SUSS mainly focuses on the mid-/back end of the semiconductor fabrication process, and so is affected by the semiconductor cycle with a three- to six-month delay compared to front-end-focused semiconductor equipment players like ASML, AMAT and KLA. The front-end players have seen an order recovery from Q1 2013; we therefore expect SUSS’s order intake to rebound from Q2. We expect total order intake to grow to €163m in 2013. Revenue is likely to decrease in 2013 due to the low order intake towards the end of 2012 and weak Q1 revenue. We estimate that revenue will rebound in 2014 following the order recovery. Substrate bonder: After receiving the temporary bonder order from a leading IDM (Samsung, we think), management indicated that no further orders were expected from the same buyer or from its peers in the short term. We estimate that order intake and revenue levels will remain flat at the €20m-30m level for the time being, but will start to grow at high speed once other leading IDMs/foundries start to adopt 3D bonding as part of their chip-manufacturing process. Photomask equipment: We estimate photomask equipment revenue will remain flattish (€20m-40m) further data proves that EUV photomask requires more regular cleaning. As per ASML’s EUV roadmap, the first batch of EUV tools will 83
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Semiconductor Equipment - Berenberg Bank

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