Focus On GAA And HBM Technologies Will Drive Future Opportunities In Semiconductors

Key Takeaways

• Strong adoption of GAA and advancements in HBM are boosting sales and driving future revenue growth in key semiconductor segments.
  
• Strategic focus on R&D and operational efficiency supports market expansion, improved profitability, and long-term growth in the semiconductor market.
  
• Revenue is challenged by uneven market recovery, cyclical downturns, export restrictions, and rising R&D costs affecting net margins.

Catalysts

Engages in the research, development, manufacture, marketing, and servicing of equipment and materials used to produce semiconductor devices in Europe, the United States, and Asia.

• ASM International is seeing strong growth in the adoption of gate-all-around (GAA) technology, which is driving increased sales in their leading-edge logic/foundry segment, particularly for 2-nanometer technology. This is expected to boost future revenue as demand for advanced semiconductor devices continues to rise.
  
• The company has a significant opportunity in the memory market, particularly in high-bandwidth memory (HBM) related DRAM, where they hold a strong position with their high-k metal gate ALD technology. Continued demand for HBM is expected to sustain healthy sales in this segment, impacting future revenue positively.
  
• ASM's continued focus on expanding their addressable market through innovations such as molybdenum ALD and selective ALD processes is poised to increase their market share, potentially enhancing net margins due to the higher value offerings.
  
• The shift towards more digitalization and efficiency improvements in their operations is expected to streamline processes and reduce costs, which could improve net margins and overall profitability in the coming years.
  
• Despite current challenges, the long-term strategic focus on R&D, including new applications and materials for future nodes, positions ASM to capture growth from the broader semiconductor market, driven by AI and new technological advances, supporting revenue growth and long-term earnings potential.

ASM International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming ASM International's revenue will grow by 17.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 23.4% today to 25.6% in 3 years time.
• Analysts expect earnings to reach €1.2 billion (and earnings per share of €25.08) by about March 2028, up from €685.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €1.3 billion in earnings, and the most bearish expecting €901.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.3x on those 2028 earnings, up from 33.1x today. This future PE is lower than the current PE for the GB Semiconductor industry at 34.6x.
• Analysts expect the number of shares outstanding to decline by 0.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.04%, as per the Simply Wall St company report.

ASM International Future Earnings Per Share Growth

Risks

• The semiconductor end market recovery in 2024 was uneven, with sluggish performance in segments such as PCs and smartphones due to slow consumer spending and geopolitical tensions, potentially impacting future revenue.
  
• The power, analog, and wafer segments are experiencing a cyclical downturn, with no signs of recovery expected in 2025, which could significantly affect future sales and revenue.
  
• The memory market, particularly 3D NAND, is predicted to remain subdued in 2025 unless there's a recovery in consumer-related end markets, potentially reducing revenue growth from this segment.
  
• A significant portion of revenue in 2024 was driven by exceptional sales to China, which are projected to decrease in 2025. This reduction, along with the impact of U.S. export restrictions, could affect revenue.
  
• Increased R&D expenditures, which rose by 22% in 2024 and will likely stay elevated as a percentage of sales, could exert pressure on net margins despite the aim to maintain efficiency.

Valuation

• The analysts have a consensus price target of €685.182 for ASM International 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 €960.0, and the most bearish reporting a price target of just €540.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €4.7 billion, earnings will come to €1.2 billion, and it would be trading on a PE ratio of 33.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of €461.7, the analyst price target of €685.18 is 32.6% 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.