Recapping The Semicon West Trade Show: Winners And Losers

Bank of America Merrill Lynch analyst Krish Sankar recently attended Semicon West, the largest semiconductor equipment trade show, and came away with “optimism abound” for the industry.

Drivers for future growth include the transition from 2D to 3D NAND, increasing business with Chinese memory companies and coming 7nm foundry, logic and auto spending.

Purchase orders from China are expected by many of the present management teams in the second half of 2017, which is also expected to be a fairly predictable period.

Most of the companies Sankar spoke to believe the current demand for 3D NAND is sustainable, seeing as several greenfield fabs are still in the pipeline.

3D NAND is expected to drive $13 billion or more in wafer fab equipment compares to $11.5 billion in calendar 2016.

Other points of note are expected yield improvements and lower costs as both horizontal and lateral scaling ramp up.

Price Target Updates

Sankar compiled updates forecasts for 11 companies at the Semicon West, most of which are smaller names in the industry.

They generally shared many of the same risks. On the upside: stronger than expected electronics demand, acceleration in deals with native Chinese firms and individual market share growth for companies being better than expected.

On the downside: slower than expected capital spending cycles, M&A risks and a decline in the semiconductor test market.

• Advanced Energy Industries, Inc. AEIS — $88 price target from a 19x multiple to Sankar’s calendar 2018 EPS plus cash estimate.
• Applied Materials, Inc. AMAT — $65 price target based on a 19x multiple on a calenday 2018 EPS estimate of $3.40.
• Cadence Design Systems Inc CDNS — $38 price target based on a discounted cash flow valuation and implies a 25x multiple on Sankar’s estimated calendar 2018 EPS.
• Keysight Technologies Inc KEYS — $53 price target based on a 17x multiple on the average of Sankar’s estimated fiscal 2018 EPS.
• KLA-Tencor Corp KLAC — The analyst has terminated coverage of the company and says investors should not rely on previous ratings.
• Kulicke and Soffa Industries Inc. KLIC — $15.50 price target based on a 10-17x calendar 2018 EPS estimate plus excess cash.
• Lam Research Corporation LRCX — $195 price target based on a 19x multiple on an estimated $10.28 calendar 2018 EPS.
• MKS Instruments, Inc. MKSI — $60 price target based on a 12x multiple to Sankar’s estimated calendar 2018 EPS.
• Synopsys, Inc. SNPS — $87 price target based on a 24-25x multiple on Sankar’s estimated fiscal 2018 EPS.
• Teradyne, Inc. TER — $39 price target based on a sum-of-the-parts analysis which applied the mid-range of peer average P/E multiples.
• Veeco Instruments Inc. VECO — $41 price target based on a 25x multiple from the blended average of the company’s 90/10 split between its LED and non-LED businesses, using peer multiples for each segment.

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