TOKYO--Japanese semiconductor-equipment giant Tokyo Electron Ltd. (TEL) is projected to post near record results for its fourth fiscal quarter, but slowing order rates and competitive pressures could dent the bottom line, according to a new report from investment banking firm Japaninvest KK.
"Tokyo Electron, Japan's largest semiconductor production equipment (SPE) company, has seen its core SPE business skyrocket in the past quarter to near record proportions," said David Rubinstein, an analyst with Tokyo-based Japaninvest, in the report. "We believe the company's fundamentals will approach the second highest cyclical peak of 1996-1998, which suggests a higher valuation as the up cycle continues into FY3/05."
TEL--the world's second largest fab-tool vendor, next to Applied Materials Inc.--is also expected to report stellar results for its fourth fiscal quarter, due to strong demand for its core diffusion furnace, etch, and wafer track products, Rubinstein said. On Friday (April 30), TEL is expected to report its fourth fiscal quarter ended March 31.
Indeed, the company is flying high after the past downturn, which caused losses for TEL and its rivals. "TEL's recovery is right in line with other SPE companies, like Applied, Nikon and Dainippon Screen," he said. "Demand for TEL's products is strong across the board," he said in an interview with Silicon Strategies.
"There are also some seasonal effects in the fourth quarter," he said. "Fourth-quarter sales will be much stronger (for Japanese companies like TEL.) A lot of companies scramble and book orders at the end of the year."
For the year, TEL is expected to post sales of 531 billion Yen (US$5 billion), up 15 percent from the previous year, according to Japaninvest. It is expected to report a net income of 8.3 billion Yen (US$79 million), compared to a massive loss of 41.5 billion Yen (US$395 million) a year ago, according to Japaninvest.
TEL is also projected to report sales of 189 billion Yen (US$1.8 billion) in its fourth fiscal quarter, ended March 31, up 35 percent from the like period a year ago, according to Japaninvest. This compares to sales of 121 billion Yen (US$1.15 billion) in the third fiscal quarter of this year.
The company is also expected to post a net income of 5.3 billion Yen (US$146 million), compared to a huge loss of 39 billion Yen (US$371 million) in the like period a year ago, according to Japaninvest. In the previous quarter, TEL reported a net of 2.8 billion Yen (US$27 million).
Orders are expected to hit 150 billion Yen (US$1.36 billion) in Q4, up 128 percent over the like period a year ago. But after a spike in the third fiscal quarter, TEL's orders are expected to "fall off somewhat sequentially" in the fourth quarter, according to Japaninvest.
"Orders could fall off in Q4 of FY3/04 and Q1of FY3/05 as the Q3 high level was achieved by a sharp spike in orders from Korea and China," according to the report. "However, TEL is looking to maintain strong order flow in FY3/05, owing to resilient demand from DRAM makers, flash memory makers, and Japanese chip makers."
Indeed, continuing on the comeback trail, Japan's semiconductor industry is projected to see another boom in IC capital spending this year--a trend that is expected to propel some chip-equipment vendors, including TEL (see April 7 story).
Extended lead times have already impacted TEL's bottom line, which should see some relief in the fourth quarter and beyond. "Despite the sharp rise in orders by 189 percent year-over-year in Q3, revenue only rose by 25 percent year-over-year, owing to the long 5-6 month lead times for TEL's main SPE products," he said. "We anticipate sharp rises in revenues in the following quarters as backlogs increased from 172 billion Yen (US$1.56 billion) to 268 billion Yen (US$2.43 billion) for SPE in Q3 over Q2."
It's also a mixed bag on TEL's product front. "Wafer track is the company's flagship product and it is growing very fast. They have 80 percent market share. They are expected to get 80 percent of the 300-mm business," he said. "Etch is a little tougher. They are getting competition from Applied and Lam."
Lam is reportedly taking share away from both TEL and Applied in the etch business, according to analysts. Meanwhile, TEL is also entering new and exploding markets, reportedly including a move to develop a tool for atomic layer deposition (ALD) applications.
Recently, it has begun selling an ion implanter from San Jose-based Advanced Ion Beam Technology Inc. (AIBT). The machine, dubbed iStar, is a low-energy, high-current batch tool for ultra shallow junction applications. Its tall-beam design is said to be a breakthrough technology that achieves high beam current (2mA) at extremely low energy (~100eV) without sacrificing throughput, according to TEL.
Earlier this month, TEL and Mattson Technology Inc. announced a strategic technology development partnership and the successful integration of Mattson's rapid thermal processing (RTP) technology with TEL's advanced gate dielectric technology. The collaboration combines TEL's Trias SPA Plasma Processing system with Mattson's single-wafer, RTP, low-pressure annealing (LPA) module.