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  baggo-mh

 

Read-across for Aixtron..
https://seekingalpha.com/news/...ium=referral&feed_item_type=news  

So this is big news, see below from Bloomberg. Wolfspeed stock +17% pre-market, Aixtron moved from -2% to +2% intraday today. Lets see what the US market makes out of this for Aixtron. Obviously a first glimmer of hope for more SIC business at Aixtron, given we know that WOLF is an established large customer.

Regards,
Fel

Wolfspeed Wins $1.5 Billion Financing From Chips Act, Apollo (1)
2024-10-15 09:31:20.573 GMT


By Mackenzie Hawkins and Ian King
(Bloomberg) -- Wolfspeed Inc., a manufacturer of chips used
primarily in electric vehicles, is in line to win $750 million
in US government grants as well as $750 million in financing led
by Apollo Global Management Inc. to support its factory
expansion plans.
The grant from the 2022 Chips and Science Act will cover a
portion of the company?s more than $6 billion in planned
spending for factories in North Carolina and New York. The
projects are anticipated to create more than 2,000 manufacturing
jobs and 3,000 construction jobs, the Biden administration said
Tuesday in a statement. The grant spurred the financing from
Apollo, The Baupost Group, Fidelity Management & Research Co.
and Capital Group, according to the statement.
Wolfspeed also plans to tap 25% tax credits for the
facilities, and expects to receive more than $1 billion in total
refunds, Chief Executive Officer Gregg Lowe said during an
earnings presentation in August. It has already accrued around
$640 million in refunds, Lowe said.
Wolfspeed?s shares rose 17% in premarket trading on Tuesday
before New York exchanges opened. Its stock had declined 74%
this year to $11.38 at Monday?s close.
The Chips Act, a landmark bipartisan law championed by
President Joe Biden, is designed to bring semiconductor
manufacturing back to American soil after decades of production
shifting to Asia. Officials have allocated the lion?s share of
$39 billion in grant funding from the program, and they?ve
signed a final agreement on one of nearly 20 awards announced so
far.
Read More: With US Chips Act Money Mostly Divvied Up, the
Real Test Begins
The others ? including massive grants to companies like
Intel Corp. and smaller ones like Wolfspeed?s ? are preliminary,
subject to due diligence and additional negotiation. After
signing final agreements, companies have to meet project-
specific benchmarks to receive funding as a reimbursement.
The government and private backing may provide a welcome
shot in the arm for Wolfspeed, as the company tries to generate
new production that executives promise will provide it a better
future. The beleaguered chipmaker last posted annual profit a
decade ago and its most recent quarter of positive net income
came in 2018.
Read More: Worst Performing Chip Stock Faces More Gloom in
2024
Wolfspeed?s problems stem from production snarls at a plant
that is one of the largest makers of silicon carbide wafers, on
which its chips are built. Inadequate supply of those wafers is
stifling manufacturing at its chip plant in Mohawk Valley, New
York, forcing the company to rely on an older factory that
carries higher costs.
Wolfspeed now plans to close that facility and shift
production to the newer one, which is one of the two facilities
the Chips Act grant would support. The chipmaker is also in an
area of growing demand ? semiconductors that control power in
EVs and other devices ? where the use of new materials and
techniques promises rewards for leaders.
?As the world?s largest producer of silicon carbide
material, we believe we have a compelling proposition for a
Chips grant because silicon carbide is considered a matter of
national security, is designated a critical material by the US
Department of Energy, and is essential to the electric vehicle
ecosystem,? Lowe said on the August earnings call.

 

 

here in the thread ahead of upcoming Q3 24?
Everybody given up on Aix already or just waiting for better days?
I am cautiously optimistic that we should have reached the bottom line regarding the stock performance.
My hope is that Q3 will deliver OI > 170 m with clear statement for similar OI in the next 1 to 2 Qs as mentioned with Q2. Plus a hint for better 2025 expectations albeit the latter not quite sure.
Personally, I am not so optimistic for 2025 anymore as the management was with Q1. Neither they are I guess. But at least + in the lower one digit percentage for 2025 should be in.  

https://www.prnewswire.com/news-releases/...g-capacity-302284901.html  

i guess AIX is very likely involved in the 300 mm pilot line. Let's see if they give some hint in the Q3 call:

"In addition, TI's expanded investment includes a successful pilot earlier this year for development of GaN manufacturing processes on 300mm wafers. Further, TI's expanded GaN manufacturing processes are fully transferable to 300mm technology, positioning the company to readily scale to customer needs and move to 300mm in the future."  

OnSemi Q3 CC:

https://seekingalpha.com/article/...-q3-2024-earnings-call-transcript

short summary from SiC perspective:
- BEV Market still soft with L-recovery expected but nevertheless growing: China, Japan strong. Europe, America soft.
- China driving innovation with transition to 800V systems where SiC plays crucial role
- long term strategy unchanged, commitment and trust in the SiC market
- biggest portion of CapEx completed.
- further capacity expansion planned mainly through transition from 6 inch to 8 inch.
This will involve only tool conversion and not new orders.

Note: this is my take away by skim reading.
 

Hey Rosskata,

I think you asked the right questions.. I think Sentiment is very very low for Aixtron at current. The EV market is weak and so are all the related stocks in that theme, look at Wolfspeed, ON etc. SIC accounts for ca. 30% of Aixtron revenue and is probably -30% to -40% yoy in 2024. ON Semi and Wolf are both investing less, both are known large Aixtron customers. But structurally, both will likely invest again, e.g. ON for their Czech plant, will it already be some investments in 2025, we dont know.

GAN probably too small in terms of mass applications to make a difference yet. This is also ca. 30% of Aixtron sales and had 1-2 strong years so far.

MicroLED remains a wildcard, 70m sales in 2024, maybe 30-40m in 2025. So some headwind from this as well into 2025 but the option for a mass production line. If that arrives at some point, it should easily add 150m to revenue (my guess).

Another wildcard is SIC investment in China.. where Aixtron had not been active with the G10 so far, first orders received in Q2 only. There is material investment and capacity buildup going on.

The valuation captures a lot of that at these levels I think.. the stock trades at 10x EV/EBIT compared to ASMi at 30x, BE Semi at 40x, Suess at 17x and ASML at 30x. For a company that is debt free and should be beyond the capex & WC peak.. e.g. FCF should be solid in 2025, at least a little treat.

Are 2025 expectations de-risked yet? Consensus is looking for 637m in sales after 627m in 2024. I think as we started 2024 some analysts expected 700m in sales in 2025. Q2 orders were at 176m, Q3 likely around 150-160m (vs guidance "similar level"). If we assume 155m and 176m and annualise that we get 662m, so it would indeed cover the 2025 expectation. If we take 155m*4 we arrive at 620m. So current expectations have improved alot; particularly against that valuation..

Lets hope that Q3 brings decent orders and indication for continued order activity... maybe even GAN moving into some volume for Datacenters..

That are my rough thoughts. Lets hope the current stabilisation phase in the stock price continues and we dont move below ? 14...

Do you agree / disagree? Thursday will bring more insight.

Regards,
Fel
 

Aixtron beeindruckt mit starkem Q3 Ergebnis trotz Marktunsicherheiten

AIXTRON navigiert durch ein dynamisches drittes Quartal 2024: Während verschobene Großprojekte die Umsätze dämpfen, glänzt das Unternehmen mit einem beeindruckenden Auftragseingang und technologischen Innovationen

- AIXTRON erzielte im dritten Quartal 2024 Umsatzerlöse von EUR 156,3 Mio., was in der unteren Hälfte der Prognose lag, da die Auslieferung eines Großprojekts verschoben wurde.
- Der Auftragseingang im dritten Quartal 2024 lag mit EUR 143,5 Mio. um 21% über dem Vorjahresquartal, und der Auftragsbestand stieg auf EUR 384,5 Mio.
- AIXTRON präsentierte technologische Fortschritte bei der 200mm G10-SiC Anlage, die nun die Spitzenposition im Markt erreicht hat.
- Im Bereich GaN wird die Einführung der 300mm-Wafer-Technologie vorbereitet, und die erste 300mm Anlage ist im neuen Innovationszentrum eingezogen.
- Die Bruttomarge sank auf 39% in den ersten neun Monaten 2024, hauptsächlich aufgrund eines margenschwächeren Produktmixes.
- Die Prognose für das Gesamtjahr 2024 wurde bestätigt, mit erwarteten Umsatzerlösen zwischen EUR 620 Mio. und EUR 660 Mio. und einer Bruttomarge von etwa 43% bis 45%.  

Q3 insgesamt unter den Erwartungen, AE schwächer, Umsatz, EBIT schwach. Umsatz wegen Verschiebungen von Kunden auf Q4. Die guidance für 2024 unverändert, das ist der key positive Faktor hier.
IR sagt wohl Q4 AE stärker vs Q3, das wird wohl auch die Message im
call sein, ein klarer positiver Aspekt.
2025 guidance für flat/down sales.
Heute wieder viel vola im Kurs, mal sehen, wie er sich nach US Eröffnung verhält und wie die Aussagen im
call sind. Der kurs preist hier sicher viel ein, und je nachdem wie der AE in Q1/Q2 ist, kann der Umsatz 2025 ggf flat sein.. darin muss man jetzt Überzeugung gewinnen.

Viele Grüße,
Fel  

Q3 Zahlen klar enttäuschend. Vor allem bei AE hat sich das Management im Q2 Call zu weit aus dem Fenster gelehnt. Auch der Ausblick 2025 mau. Wenn ich nur aufgrund dessen meine Strategie beurteilen sollte, dann würde ich hier die Leine ziehen.
Jedoch mittel- bis langfristig hat Aixtron sehr viel Potenzial. Vor allem nach dem, was ich im Call gehört habe. Der Call gibt für mich sehr positives Bild ab 2026 / 27, wenn es denn markttechnisch wirklich so kommt, wie von Aix erwartetet.
Falls es zu Rebound die nächsten Wochen/Monate kommt, werde ich meine Position reduzieren. Wenn 2025 Ausblick schon mau ist, dann sehe ich nicht wir dich der Kurs dauerhaft erholen soll. Mir scheint, dass keiner die aktie haben will und die LV können beliebig tief den Kurs drücken.    

Hallo allerseits,
heute Infineon mit Q4 und 2025 Ausblick. Der Ausblick ist nicht gerade Sexy mit leicht rückläufigem Umsatz, vermutlich getrieben durch Automotive.
Interessant ist dagegen die Aussage zum Capex: ? 2.5mrd, das ist m.E. nach flat yoy. Der Fokus des Programs ist auf die Werke in Dresden, Österreich und Kulim, insb. mit Fokus auf Ki und SIC & GAN.. das sollte nun wirklich Aixtron zu Gute kommen.. immerhin mal ein leicht positives Zeichen.

Ebenfalls sagt das Management zu den End-Märkten, dass die meisten sich "nahe des Bodens" befinden würden.. also auch da ist Upside - zumindest für das Sentiment im Chip Bereich.

Mal schauen, ob man zu SIC & GAN im Conference Call später noch mehr sagt.

Viele Grüße,
Fel

 

More nuance on the call on the 2025 capex plan, I hope I got it correctly:
? 2.5bn in total spending, of this there is some capitalised R&D spending (or similar) and other accounting effects, so the "effective" capex spending is about ? 1.5bn of those ? 1.5bn roughly ? 800m go towards the building (structure, cement etc) for the Dresden plant, leaving another ? 700m for mainly SIC and GAN (called out as such during the call!) and some Ai investments (smart power / logic).

So in any case my take-away is that a) IFX continues to believe in the SIC and GAN market and puts money behind it ("strategic investments") and b) even though these numbers might not sound huge at first sight, SIC and GAN remain key investment areas in an overall weak Semi Capex environment. So Aixtron is relatively better positioned vs. other players.

Regards,
Fel  

Q: Ross Seymore

Hi, guys. Thanks for letting me ask a question. I guess the first one is on the silicon carbide business. I know it's not the hugest part of your total revenues, but strategically, it's incredibly important. When -- Hassane, you talked about that being up low to mid-single digits. Do you believe that is just evidence of a cyclical weakness? Or has something started to secularly change as people have gotten a little more concerned on not only the pace of EV growth, but competition coming in and commoditization and those sorts of dynamics?

A: Hassane El-Khoury

Yes, Ross. We do still believe it's cyclical. Therefore, that's why I made the comment that the long-term trend for electrification and EV in general, has not changed. And very important to note, the designs or the models that we expected to ramp did go into production, they just didn't ramp to the level that we expected, which says that it's a short-term demand, but back to the lumpiness of EV adoption and not a change in strategy or a megatrend type. Otherwise, those models will have been canceled or not even launched.

--> long term drivers in tact. However, the softness will probably persist through 2025. One crucial question is with what pace the investment win SiC capacities will continue. Will it remain flat?

@fel: thank you for the Infineon update!!  

Classical valuation of a stock is based on the total cash to be earned by the company discounted to present day.  

The classical formula of FCF= EBIT x (1-tax rate) - Capex + Depreciation - change of noncash working capital (NCWC).

NCWC = Inventory+ Account Receivable-Account Payable

Here, I am excluding other exceptional items that Aixtron includes in its FCF reports.

Lets start by looking at how much free cash Aixtron would earn in Q4'24 and therefore the whole 2024. The lower bounds of the 2024 guidance are 620m sales and 22% EBIT margin.  So, the 2024 EBIT should be at least 620m x 22% =136.4m, which means the Q4'24 sales should be 214m and the EBIT should be 70m.  Those numbers are almost the same as those from the current analysts estimates.

The Q4 CAPEX will be 32m, which brings the total 2024 CAPEX to 114m.  The depreciation in Q4 will be 4m, which brings the 2024 depreciation to 14m.

So, excluding any NCWC change, the FCF for the Q4 quarter would be (10% tax rate): 70x0.9-32+6= 37m.

The biggest unknown is the NCWC especially the inventory.  The Q3 NCWC was 504m and that
was 81% of the trailing twelve month sales which were 620m.  Just picture this, 81% of the revenue was turned into and tied up in the noncash WC!!!.  Honestly, in any other company the CFO would have been fired.

The inventory draw from Q4's 214m sales would be 214m x 40%=86m.  The 40% is the cost of goods sold (COGS) and is the average number from Aixtron's 2023 annual report.

If there is no inventory addition in Q4 and the AP and AR stay the same as Q3, then the change of NCWC from at Q4's  would be - 86m .  As a result, the FCF generated in Q4 would be: 37m - (-86m)= 123m

Besides the inventory draw down from sales, Aixtron added inventories of 100m in Q4'23,  89m in Q1'24, 64m in Q2'24,  and 41m in Q3.  Based on that trend, I assume in Q4'24 Aixtron added 30m of inventory.  So the net inventory change would be -86m + 30m = -56m, and the FCF in Q4 would be 93m.  The inventory at the end of 2024 would become 371m.  The NCWC/sales ratio should improve to 0.72.

For 2025, current analysts estimates are 609m sales and 140m EBIT.  The capex is estimated to be 32m, and the deprecation should stay at about 14m. The  FCF excluding change of NCWC would be 140m x 0.9  -32m +14m = 108m.  The total inventory draw from the 609m sales would be 609m x 0.4= 244m.  How much Aixtron would/should replenish the inventory?  If we assume Aixtron adds back 120m inventory in 2025 (30m per Q) and no change in AP and AR, the change of of NCWC from 2024 would be -124m,and the FCF would be 108m-(-124m) = 232m.  With these assumptions, the inventory at the end of 2025 would be 247m, and the NCWC would be 324m, and and NCWC/sales ratio would further improve to 0.53.  I understand that this maybe too optimistic, but is that possible and doable?

Historically, Aixtron's NCWC/Sales ratios are 0.4-0.5 up until Q4'22.  So, asking the CFO to achieve that reasonable level is not too much.  

If Aixtron exits 2025 with a same backlog of today's 384m, the inventory/backlog ratio would be 247m/384m = 0.64.  Historically, this ratio was 0.4-0.6 up until Q4'22.  In a 2023 quarterly CC (Q2?), the CFO said a ratio of ~0.6 is the right one.  I am challenging the CFO to manage the NCWC aggressively in 2025 and keep his words.

I don't need to remind the CFO but just look at the stock price.  The only way for Aixtron's stock price to go back UP is to show a drastic improvement of FCF.

Adding the Q4'24's FCF of  93m and the hopefully doable projected 2025 FCF of 232m, Aixtron's cash position should add ~330m in addition to Q3'24's 78m.  After dividends there could be at least 350m cash.  Aixtron should use the excess cash to buy back the shares.  Don't put all of it back to WC again please.  If the customers want Aixtron to prepare for their "promised" ramp, ask them to pay the deposits first please.  I hope that there would be no same mistakes in 2025 and beyond.  

If not, the executive board should do something about the managers.
 

This chart shows that Aixtron continued to build excess inventories without customers putting down the deposits started from late 2022.  The ratio doubled in one year to > 3.5, and still rising till the last Q.





 

This chart shows that started in early 2023 Aixtron adds inventories without firm orders (=backlogs) from its customers.  This ratio should go back to ~0.6 by the end of 2025.
 

This ratio hopefully could go back to <0.5.


 

From the Q2'24 CC:

Michael Kuhn

... you mentioned some measures only taking effect into '25, maybe also a rough outlook on '25 and what level of inventories you would feel comfortable with over the upcoming quarters? ...

Felix Grawert

...So by the middle of '25, we want to be back to normal. So when we talk in 12 months from now, we want to be back to a normal level... And you will see a gradual digression by the Q3, not too much, don't over expect. And then you will see a digression of the inventories Q4, Q1, Q2 and by the middle of next year, we should be back to normal . It really follows from our strategy.

Michael Kuhn

And could you quantify it back to normal?

Christian Danninger

I would consider normal levels of 60%, 70% of order backlog with some further optimization of our internal processes, maybe we can get down even further but that would be my best guess right now.

.............................

From the horse's month, back to 60-70% of inventory/backlog ratio by the middle of 2025. My post in #1855 on 2025 FCF assumes the ratio would drop to 0.64 by the end of 2025

 

What you list as inventory is machines ready built plus also materials on stock for building machines, correct? I think Aixtron management has clearly missed to anticipate the dip in silicon carbide market in time. They hired aggressively and bought a new factory... probably both an over-investment from ex-post perspective. But what do you do now, that you have lots of new people on board? If you trust in the market mid-term, you will keep them. While I believe initially they were mainly stockpiling materials with alle the supply chain issues during/after covid (which they did in a brilliant way, as they never reported significant supply chain problems), today I think it is mainly keeping all those people busy by letting them build machines for delivery in better times. But I agree with you, that inventory needs to come down, not only to save money on storage/depreciation/captial cost, but also I had the feeling, that net cash got a little low recently. And I want a nice dividend! Q4 with super revenue announced will be an opportunity to reduce inventory, but thereafter it might be slower.  

On December 18, Innoscience announced a global offering notice on its official website, planning to offer 45.364 million H shares globally, with an offering price range of HK$30.86 to HK$33.66 per share, and a maximum fundraising of approximately HK$1.53 billion ( approximately RMB 1.377 billion ). The IPO period is from December 18 to December 23, 2024, and is expected to be officially listed on December 30 .

Innoscience disclosed that the net proceeds from the fundraising will be used to expand production capacity, product portfolio and other purposes. Specifically:

60% of the funds will be used to expand the production capacity of 8-inch gallium nitride wafers from 12,500 wafers per month as of June 30, 2024 to 70,000 wafers per month in the next five years . It is also planned to purchase and upgrade equipment and machines to expand the production line of the production base...  

The GaN factory has been completed and will mass produce 8-inch 1200V products

On December 16, according to local news from North Gyeongsang Province, South Korea's Apro Semicon has completed construction of a new gallium nitride factory in the High-Tech Valley National Industrial Zone in Gumi City .

According to data, Apro Semicon was established in July 2020 and has been committed to the development of GaN since its establishment. In December last year, Apro Semicon signed a memorandum of understanding for an investment of 60 billion won ( about 305 million yuan ) to invest in the construction of a GaN power semiconductor factory in the Gumi High-Tech Valley National Industrial Park, mainly producing GaN epitaxial wafers; the epitaxial wafers produced in the factory will cooperate with foundries such as DB HiTek to manufacture GaN chips.

------------------------
Apro is a customer of Aixtron  

https://compoundsemiconductor.net/article/120810/...for_GlobalWafers_

Globitech is a subsidiary of GlobalWafers and a SiC customer of Aixtron.  

they ordered from Veeco.
They used to be Aixtron customers.
Or are that two different tools?


 

The investigation will look into China?s ?acts, policies, and practices on the production of silicon carbide substrates or other wafers used as inputs into semiconductor fabrication.?

https://www.cnbc.com/2024/12/23/...obe-into-legacy-chinese-chips.html