Advancements In SiC, GaN, And Micro LED Will Strengthen Future Market Position

Key Takeaways

• Market leadership in silicon carbide and gallium nitride technologies positions AIXTRON for future revenue growth through increased customer demand and technological expansions.
  
• Strategic investments in innovation and CapEx projects aim to boost free cash flow, earnings, and operational efficiency.
  
• AIXTRON faces growth stagnation, project delays, market challenges in silicon carbide, and profitability pressures due to uncertain margins and high expenditures.

Catalysts

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

• AIXTRON's market position in silicon carbide (SiC) is strengthened by advancements in the G10 silicon carbide tool, positioning the company as an industry leader in productivity and cost. Improved tool performance increases customer demand for SiC applications, potentially boosting future revenues.
  
• The anticipated expansion of gallium nitride (GaN) technology to 300-millimeter wafer sizes, driven by AI and high-volume applications, presents a significant growth opportunity. AIXTRON's preparation for this transition could lead to increased future revenues as demand for GaN technology rises.
  
• Progress in micro LED technology, with several customers moving toward production by 2027, indicates future revenue potential from micro LED orders starting in 2026.
  
• Continued development and investment in 200-millimeter and new 300-millimeter GaN platforms, supported by the new innovation center, aim to capture growth opportunities in GaN. This could enhance AIXTRON's revenue potential by addressing various applications and increasing market share in GaN.
  
• Expected future inventory reductions and completion of CapEx projects, including the innovation center, should improve free cash flow, potentially increasing earnings and reducing operational costs in the coming years.

AIXTRON Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AIXTRON's revenue will grow by 4.8% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.5% today to 13.8% in 3 years time.
• Analysts expect earnings to reach €98.3 million (and earnings per share of €1.29) by about February 2028, down from €114.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €129 million in earnings, and the most bearish expecting €82.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.9x on those 2028 earnings, up from 14.2x today. This future PE is greater than the current PE for the GB Semiconductor industry at 13.6x.
• Analysts expect the number of shares outstanding to grow by 0.92% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.58%, as per the Simply Wall St company report.

AIXTRON Future Earnings Per Share Growth

Risks

• The revenue guidance for 2025 suggests that revenues could be flat or slightly lower compared to 2024, indicating potential stagnation in growth, which could impact long-term revenue projections.
  
• A significant portion of AIXTRON's backlog may be pushed into 2026, illustrating delays and uncertainties in project completions that could defer revenue recognition and affect cash flow.
  
• The company faces market challenges in silicon carbide due to overcapacity and underutilization among some customers, which could pressure pricing and margins, impacting net earnings.
  
• The guidance implies that achieving the targeted higher gross margins in Q4 relies on an improved product mix and volume effects, which may not be sustainable, introducing risk to margin consistency.
  
• The ongoing high level of R&D spending and capital expenditures may not immediately translate into revenue, pressuring short-term profitability and free cash flow generation.

Valuation

• The analysts have a consensus price target of €17.564 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 €23.0, and the most bearish reporting a price target of just €13.8.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €714.1 million, earnings will come to €98.3 million, and it would be trading on a PE ratio of 24.9x, assuming you use a discount rate of 6.6%.
  
• Given the current share price of €14.43, the analyst price target of €17.56 is 17.8% 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.