Axcelis Q3/2024 Earnings Review
Mixed results for this semiconductor niche company
Axcelis is a company with high-tech products which are a bit tough to understand. If you haven’t done so, please read my deep dive to get a better understanding of the company. You will find it here
Axcelis released its Q3 earnings on the 6th of November. Let's dig in:
Management’s summary
That’s how the management described the results:
Axcelis executed well in the third quarter with results relatively in-line with our expectations. While we anticipate a near term digestion of mature node capacity through the first half of 2025, customer engagement is strong and our long-term growth opportunity remains squarely intact highlighted by attractive secular growth in silicon carbide, a cyclical recovery in our memory and general mature markets, market share gains in advanced logic and regional penetration of the Japan market.
Income Statement
Revenues were 12% lower than in Q3 of 2022 with lower gross margins. Combined with the rise in operational expenses, the overall operating income dropped by 34%. Interest and investment income are still rising due to higher cash and short-term investments. Overall net income was 32% lower.
SG&A expenses increased due to the bankruptcy of a customer which resulted in a $3.4 million bad debt expense. Without this effect, the operating expenses would have been in line with the previous quarter
While this sounds rather dramatic, it is important to have the long-term performance of Axcelis. In this yearly overview, you can clearly see how much Axcelis has been growing over the last few years. This current weak year is to be expected in a cyclical environment like the semiconductor industry.
Balance Sheet
The balance sheet is still as clean as a freshly washed car. Cash and short-term investments are growing, while there is still zero long-term debt. I like that!
Most of the money is invested in U.S. government securities.
Cash Flow Statement
Nothing special to report on the cash flow statement.
Axcelis continues to buy back shares at a stable rate and has still $145 million left in the share repurchase program. Given the current low share prices, I hope they step up the repurchase program. Since there are no large capital expenditures needed to keep the business running, the free cash flow follows the operating cash flow.
Bookings have been quite low in the recent quarters. Here is what the management said in the quarterly earnings call
bookings in the quarter were softer than we expected as we see some customers digest the investments made into global mature node capacity over the past few years
softness in general mature, power and particularly in China is, in the third quarter here, is what was driving the lower bookings rate
Further metrics
A rather unpleasant error occurred with the calculation of the backlog for Axcelis and hat to be corrected. The corrected backlog as of June 30, 2024, was $879 million instead of the previously reported $994 million. This should not happen more often since this is quite a deviance. The backlog as of September 30, 2024 was $758 million.
Shipments for silicon carbide applications moderated in the third quarter. However, on a year-to-date basis for 2024, silicon carbide has been strong, growing year-over-year, reflecting continued build-out of capacity.
No system was shipped for advanced logic and only one system was shipped in the memory segment. I hope to see more revenue in these segments in the next quarters.
Mature node continues to be week. Remember when we had chip shortages after the supply chains collapsed due to Covid? Turns out that there is still too much supply and the rebound takes longer than expected
In silicon IGBT, revenue in the third quarter was up sequentially but remained generally muted as we expected given the slow rate of recovery in the auto industry. And we anticipate demand to remain muted in the near term based on recent order trends
I really hope that the CS&I revenue with its typical higher margins picks up in the upcoming quarters. That’s an important metric to watch. You would expect a higher install base leading to growing CS&I revenues. This hasn’t been the case so far.
Product
Shipped systems by segment show a strong rebound in image sensors (mainly from Chinese customers for smartphones) and the continuous demand for silicon carbide solutions.
In general mature, revenue moderated in the third quarter, also consistent with expectations. We continue to monitor key end markets, namely auto, industrial and consumer, which are drivers of our general mature segment, which have yet to show signs of recovery in the near term. That said, upon a macroeconomic rebound in the end markets we serve, we would expect to benefit from the breadth of our customer base.
So we've kind of said that the silicon carbide customers in China are underweight relative to the opportunities for EVs. And naturally, their goal is to become a world provider of silicon carbide. So they've got a long way to go, very much in the early innings. So we still see this as a cycle on what is otherwise a strong secular growth opportunity for us.
Guidance
Revenues of approximately $245 million, and earnings per diluted share of approximately $1.25. This would lead to EPS of $5.86 for the whole year compared to $7.43 for last year. Quite underwhelming to be honest.
The management empahzied the opportunity that lies ahead.
The long-term opportunity in silicon carbide remains an important growth driver for Axcelis. [ Yale ] estimates that silicon carbide market will grow from $2.7 billion in 2023 to $9.9 billion in 2029 or a 24% CAGR. And ion implantation is one of the most critical manufacturing steps to make a silicon carbide device.
We are well positioned as the market leader in implant for silicon carbide given the breadth of our portfolio and focused investments we've made in this market for several years. We are deeply embedded in our customers' technology road maps and widely engaged with customers to help them transition from 150 millimeters to 200 millimeters wafer capacity.
In addition, we are seeing interest in our solutions to enable customers transition to trench MOSFETs. The transition to trench architecture is a tailwind for Axcelis given the need for deeper implants, which require our high-energy tools where we are the technology and market leader.
The management talked about the cyclicality of the industry that is finally (unfortunately) catching up with Axcelis. 2025 is expected to be worse than 2024.
thinking through some of the headwinds and challenges, right, the softness in that digestion, the markets, for a long time now, we've been sort of outrunning some of the cyclical downturns that other peers in our space have experienced. And as we think through 2025, barring a meaningful recovery, 2025 could be down year-over-year relative to 2024.
Summary
After reading the summary above you might wonder if there is trouble lying ahead of Axcelis. I don’t believe so. When the OG ASML already reported a slower recovery and expected another flat year in 2025 it was not surprising that niche players like Axcelis will feel similar headwinds.
With a market cap of $2.3 billion and cash and short-term investments of $579 million, Axcelis has an EV of $1.7 billion. Axcelis is still highly profitable; just a bit less than before. Axcelis is currently valued at an EV/net income of 7.8, which will likely increase to 9 with the final 2024 numbers due to a weak Q4.
If you believe in the long-term growth opportunities of Axcelis, now is a good time to increase your position. If you want to wait for a recovery in the numbers you might have to pay a higher price in the future. There is a premium for certainty in the market.
Looking at the chart gives you a good indication of the support around $50 a share. I personally will reevaluate Axcelis with the results of next quarter.
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Invest at your own risk, this is not financial advice! This is not a recommendation to buy or sell any securities discussed in the article.