Silicon Carbide Wafer Transition And Supply Diversification Will Face Challenges

Key Takeaways

• Innovation in silicon carbide and wafer transition is set to enhance revenue through new products and upgrades.
  
• Diversifying the global supply chain strengthens resilience to tariffs, stabilizing margins amidst macroeconomic challenges.
  
• Axcelis faces challenges due to global economic uncertainties, Chinese market volatility, and industry competition that may impact revenue growth and profitability.

Catalysts

Designs, manufactures, and services ion implantation and other processing equipment used in the fabrication of semiconductor chips in the United States, Europe, and the Asia Pacific.

• Axcelis Technologies is focusing on innovation to support long-term growth in global silicon carbide demand, such as transitioning from 150
• to 200-millimeter wafers, which could enhance its revenue through new product launches and upgrades.
  
• The company's efforts to diversify its global supply chain increase resilience to tariffs, likely stabilizing gross margins and enabling it to maintain its earnings despite macroeconomic pressures.
  
• Increased production efficiency and strategic cost control, as demonstrated by exceeding expected gross margins, suggest potential for future improvements in net margins.
  
• Axcelis's position as a market leader in ion implantation, especially for next-generation silicon carbide device architectures, positions it well to capitalize on long-term semiconductor growth trends, which could boost revenue.
  
• Ongoing share repurchase plans signal confidence in long-term business fundamentals, potentially contributing to EPS growth as long-term revenue and profit expectations align.

Axcelis Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Axcelis Technologies's revenue will decrease by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 18.6% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $40.9 million (and earnings per share of $1.34) by about May 2028, down from $178.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 65.4x on those 2028 earnings, up from 9.9x today. This future PE is greater than the current PE for the US Semiconductor industry at 22.5x.
• Analysts expect the number of shares outstanding to decline by 1.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.17%, as per the Simply Wall St company report.

Axcelis Technologies Future Earnings Per Share Growth

Risks

• The global tariff situation and uncertainty around macroeconomic conditions could impact demand and revenue, despite current mitigation plans by Axcelis.
  
• Shipments to the key silicon IGBT market are muted due to cyclical softness in the auto sector and competition from growing adoption of silicon carbide, which could constrain revenue growth.
  
• Despite positive momentum in certain market segments, an overall maturation and digestion period through 2025 in general mature markets may lead to moderated implant investments, affecting revenue potential.
  
• Axcelis' substantial revenue reliance on the volatile Chinese market poses risks, as customer digestion of past investments could lower revenue contributions from this region throughout 2025.
  
• Competition and technological transitions within the semiconductor industry, such as shifts required from planar to trench and super junction devices, may require significant R&D investments, potentially impacting net margins and profitability if not managed cost-effectively.

Valuation

• The analysts have a consensus price target of $68.5 for Axcelis Technologies 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 $100.0, and the most bearish reporting a price target of just $50.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $701.3 million, earnings will come to $40.9 million, and it would be trading on a PE ratio of 65.4x, assuming you use a discount rate of 9.2%.
  
• Given the current share price of $54.69, the analyst price target of $68.5 is 20.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
  
• 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.