Advancements In GaN And SiC Technologies Will Strengthen Future Market Position

Key Takeaways

• AIXTRON's advancements in SiC and GaN technology position it as an industry leader, potentially driving future revenue through increased market share and efficiency gains.
  
• AIXTRON's growth in China and the expanding applications of GaN technology can enhance revenue amid Western market weakness.
  
• Decreased cash balance and negative revenue guidance signal potential liquidity and profitability challenges amid market softness and rising tax expenses.

Catalysts

Provides deposition equipment to the semiconductor industry in Asia, Europe, and the Americas.

• The development and technical progress with AIXTRON’s G10-SiC system, highlighted by significant improvements in layer thickness and uniformity, positions the company as an industry leader, potentially driving future revenue through increased market share in silicon carbide equipment.
  
• The move towards 300-millimeter wafer technology for gallium nitride, including successful shipment of first tools and the establishment of a dedicated Innovation Center, indicates readiness for the next growth phase, which could boost revenue and enhance net margins through improved efficiencies.
  
• Strategic investments in R&D and the development of single-wafer reactor technology for 300-millimeter GaN position AIXTRON for future competitiveness and potential market capture in this segment, likely impacting revenue growth and gross margins positively as the technology is adopted.
  
• The anticipated expansion of gallium nitride applications, such as AI powering, EV onboard chargers, and efficient 3-phase power inverters, suggests increasing demand, potentially leading to significant future revenue growth as these applications drive new GaN orders.
  
• AIXTRON’s strong presence and growth in China for silicon carbide tools, particularly tied to the robust EV market there, might bolster the company's revenue, as Western markets currently exhibit weakness.

AIXTRON Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AIXTRON's revenue will grow by 3.3% annually over the next 3 years.
• Analysts are assuming AIXTRON's profit margins will remain the same at 16.8% over the next 3 years.
• Analysts expect earnings to reach €116.8 million (and earnings per share of €1.05) by about April 2028, up from €106.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €137.6 million in earnings, and the most bearish expecting €90.5 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, up from 10.7x today. This future PE is greater than the current PE for the GB Semiconductor industry at 11.9x.
• Analysts expect the number of shares outstanding to decline by 0.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.21%, as per the Simply Wall St company report.

AIXTRON Future Earnings Per Share Growth

Risks

• A significant decrease in cash balance from €182 million to €65 million due to delayed receivables, high inventory levels, and reduced advance payments could strain liquidity and impact free cash flow in the short term.
  
• Despite investments and innovations, revenue guidance for 2025 is negative, with expectations to drop to between €530 million and €600 million, indicating potential stagnation in sales growth.
  
• A decrease in gross margin from 44% in 2023 to 41% in 2024, driven by unfavorable product mix and under-absorption in operations, could indicate challenges in maintaining profitability.
  
• The predicted softness in demand and ongoing weaknesses in the market environment for 2025, particularly in silicon carbide and gallium nitride power electronics, could further strain revenue and earnings.
  
• An increase in tax expenses, largely due to a reduction in deferred tax assets, highlighted a 27% decline in net profit compared to the previous year, affecting earnings per share and overall profitability.

Valuation

• The analysts have a consensus price target of €14.88 for AIXTRON based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €22.0, and the most bearish reporting a price target of just €9.8.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €697.0 million, earnings will come to €116.8 million, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 7.2%.
• Given the current share price of €10.1, the analyst price target of €14.88 is 32.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.