What happened
Shares of Axcelis Technologies (ACLS 3.09%) rallied 37.7% in November, according to data from S&P Global Market Intelligence.
The semiconductor equipment stock rode high on the back of a solid earnings report, and perhaps investors coming around to the fact that it is exposed to one of the more attractive parts of the semiconductor market.
While the chip sector had sold off rather hard this year on fears of a chip downturn, Axcelis' exposure to lagging-edge power chips is a big benefit, as that industry's strong growth prospects appear to be greater than the current cyclical headwinds.
NASDAQ: ACLS
Key Data Points
So what
Axcelis makes semiconductor equipment for ion implantation, a process whereby ions of certain elements are implanted into a silicon wafer, thereby changing its properties to improve conductivity.
The process is primarily used in mature-node power chips and image sensors used in electric vehicles and autonomous applications, as well as the industrial Internet of Things. Ion implantation also occurs in memory chip production, but that is a smaller part of the ion implantation market -- only about 20%.
While the memory segment is no doubt going into a downturn at the end of this year, mature node chips are still in growth mode due to the EV transition and the modernization of the electric grid. The ion implantation market has more than doubled since 2018 on the back of this mature node production growth, which accounts for 60% of the market. Advanced logic is another 20%. However, Axcelis is especially exposed to mature-node chips, as it got an outsized 82% of 2021 revenue from this attractive subsegment.
On its third-quarter earnings release, Axcelis exceeded expectations and gave better-than-expected guidance. Revenue for the third quarter rose 29.7%, ahead of estimates, and earnings per share of $1.21 also beat expectations by $0.08.
On the conference call, management noted:
The industry expects total wafer fab equipment to decline significantly in 2023. This is a result of a reduction in memory spending, slowing consumer electronics demand, deteriorating economic conditions, and newly imposed restrictions on certain customers in China. The ion implantation TAM, which has doubled over the last few years to approximately $2.25 billion, is not expected to suffer the same decline, primarily driven by growth in the implant intensive power device market.
Now what
Given the ongoing electrification and automation of vehicles and industrial machines, Axcelis could be an interesting pick. Unlike virtually all other semiconductor stocks, Axcelis has managed a 4.7% gain on the year and trades only at 15.9 times earnings.
That's a solid valuation for a company expected to grow nicely in the decade ahead.
