European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from <a href="https://www.smartkarma.com/entities/wacker-chemie-ag" target="_blank" data-smartkarma-citation="entities:21742:1" rel="noopener">Wacker Chemie Ag (WCH GR)</a> and others for €3.8 bn.
<ul>
<li>Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.</li>
</ul>
The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.
<div>
Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)
</div>
The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).
<ul>
<li>Company's compiled consensus TP is €127.23.</li>
<li>On this basis, I doubt that GlobalWafers will raise the offer.</li>
<li>That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.</li>
</ul>
<div>
The main issues regarding the closing of the transaction will be:
<ul>
<li>Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.</li>
<li>Uncertainty regarding Covid.</li>
<li>Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).</li>
</ul>
Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.
<div>
Siltronic opened at €126.7 on 20 December.
</div>
</div>
<div>
<ul>
<li>0.2% below GlobalWafers' offer, including dividend.</li>
</ul>
Recommendation: I would wait for share price weakness to set up a position.
</div>

On 9 December, GlobalWafers GmbH, a German subsidiary of GlobalWafers, entered into a BCA to acquire Siltronic from Wacker Chemie Ag (WCH GR) and others for €3.8 bn.

Under the terms of agreement, GlobalWafers GmbH launches a tender offer to Siltronic shareholders. The largest ever deal for GlobalWafers.

The combination brings together Siltronic's technological leadership and GlobalWafers' supply chain management and competitive costs. Moreover, their product portfolios complement each other.
If this deal goes through, the market share of the top three wafer manufacturers could reach 86% from 74% currently (source: Gartner). Consolidation should bring discipline to pricing and capacity additions, which should benefit margins and price stability.

Other than higher average selling price, the acquisition of Siltronic by GlobalWafers would benefit the latter from higher exposure to 300mm wafers (with better growth prospects), with c. 65% of revenues coming from 300mm wafers (vs. 50% for GlobalWafers currently)

The offer price represents 2.7x EV/Fwd Revenue (vs. sector average of 2.6x), 8.9x EV/Fwd EBITDA and 21.6x P/Fwd E (vs. sector average 17.0x) and 4x P/20e BV (vs. sector average of 2.3x).

Company's compiled consensus TP is €127.23.
On this basis, I doubt that GlobalWafers will raise the offer.
That said, on 8 December, fund manager Argonaut Capital criticised the proposed deal for GlobalWafers to take over Siltronic, calling it inequitable to minority shareholders, an allegation Siltronic rejected as baseless.


The main issues regarding the closing of the transaction will be:

Minimum acceptance of 65%; therefore GlobalWafers needs acceptances from 52.6% of the float, not particularly demanding, in my view.
Uncertainty regarding Covid.
Antitrust, but there are limited risks, in my view. Siltronic + GlobalWafers should reach above 25% market share in 300mm wafers, behind Shin-Etsu (31%) and Sumco (around 26%).

Interloper risk seems low, this is a consolidated industry, and any of the other potential bidders would reach in combination with Siltronic a higher market share than Siltronic + GlobalWafers.

Siltronic opened at €126.7 on 20 December.




0.2% below GlobalWafers' offer, including dividend.

Recommendation: I would wait for share price weakness to set up a position.


Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1-year highs -- a positive risk-on signal. Stocks doing business in China, India, Taiwan, and South Korea continue to be a major focus when it comes to individual stock recommendations.

Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1-year highs -- a positive risk-on signal. Stocks doing business in China, India, Taiwan, and South Korea continue to be a major focus when it comes to individual stock recommendations.

Semiconductor & Technology Specialist, Ingenuity

William Keating

Semiconductor & Technology Specialist

Ingenuity

Our focus is exclusively on in-depth research & consulting in the broader semiconductor industry. We focus on the key players, namely Intel, Micron, Qualcomm, Apple, Samsung, NVIDIA, AMD, TSMC & Global Foundries - as well as some of the lesser known, but nonetheless critical, companies such as ASML (for EUV), Mellanox, Cavium, Xilinx etc. We specialise in their products, roadmaps, process technologies, competitive advantages & threats etc. We also help our clients understand the implications of new and emerging technologies, e.g. 3D X-Point, 3D NAND, Carbon Nanotubes, Autonomous Driving, Graphene, Silicon Photonics, Wafer-Level Optics, Artificial Intelligence, FPGA, GPU, ASIC etc. 

Semiconductor Analysis & Research

Thematic (Sector/Industry)

With all of the major silicon wafer manufacturers now having reported Q1 earnings, it's clear that the impact of COVID-19 was relatively minor as far as revenues net profits were concerned. That situation looks set to continue in the current quarter, with mostly flat to modestly higher revenue forecasts. The sector isn't COVID-19 immune however. Most manufacturers reported meaningfully higher logistics and shipping charges as freight-carrying passenger flights all but vanished during March. Furthermore, GlobalWafers reported that two of their facilities were forced to close for a month. While the bullish forecasts for the current quarter are encouraging, many believe this to be the result of inventory building in the face of the pandemic. As for the second half outlook, we were left with no actual forecasts, rather a strong sense that it all depends on the extent to which COVID-19 is demonstrably under control or not by then.Separately,  there was an important milestone during the first quarter with China's <a href="http://nsig.com/en" target="_blank" rel="noopener">National Semiconductor Industry Group</a> (NSIG) launching its IPO on the Shenzhen STAR market.

With all of the major silicon wafer manufacturers now having reported Q1 earnings, it's clear that the impact of COVID-19 was relatively minor as far as revenues net profits were concerned. That situation looks set to continue in the current quarter, with mostly flat to modestly higher revenue forecasts. The sector isn't COVID-19 immune however. Most manufacturers reported meaningfully higher logistics and shipping charges as freight-carrying passenger flights all but vanished during March. Furthermore, GlobalWafers reported that two of their facilities were forced to close for a month. While the bullish forecasts for the current quarter are encouraging, many believe this to be the result of inventory building in the face of the pandemic. As for the second half outlook, we were left with no actual forecasts, rather a strong sense that it all depends on the extent to which COVID-19 is demonstrably under control or not by then.Separately,  there was an important milestone during the first quarter with China's National Semiconductor Industry Group (NSIG) launching its IPO on the Shenzhen STAR market. 

Silicon Wafers. The Impact Of Covid-19 In Q1 And Likely Outlook For CY 2020.

During the most recent earnings season, most semiconductor companies noted only relatively minor impact to their forecasts for the current quarter. While not immune to the stock market crash back in March, there has been a general sense that semiconductor companies will be relatively less impacted by the COVID-19 pandemic. Recently though, and increasingly so as we enter the latest earnings season, many semiconductor companies are retracting guidance, freezing share buyback schemes and, in the case of <a href="https://www.smartkarma.com/entities/asml-holding-nv" target="_blank" data-smartkarma-citation="entities:21097:1" rel="noopener">ASML</a> this week, electing to provide no forward guidance whatsoever. Here's a roundup of what the major semiconductor companies have been saying in recent weeks.

During the most recent earnings season, most semiconductor companies noted only relatively minor impact to their forecasts for the current quarter. While not immune to the stock market crash back in March, there has been a general sense that semiconductor companies will be relatively less impacted by the COVID-19 pandemic. Recently though, and increasingly so as we enter the latest earnings season, many semiconductor companies are retracting guidance, freezing share buyback schemes and, in the case of ASML this week, electing to provide no forward guidance whatsoever. Here's a roundup of what the major semiconductor companies have been saying in recent weeks. 

COVID-19 & Semiconductors: Profit Warnings Piling Up Ahead Of Earnings.

Since the launch of China's ‘Made in China 2025’ strategic plan in 2015, billions of dollars have been invested to bolster the country's self-sufficiency in ten key technology sectors. Five years on, we review the accomplishments, challenges and, in some cases, downright failures from the perspective of the semiconductor industry. We examine in particular China's efforts to develop their own supply of DRAM and NAND chips and opine on both their progress and the risks they pose to the leading incumbents.
While China's memory ambitions attract the lion's share of the limelight, we think it's important to look at the broader semiconductor ecosystem. To that end, we examine China's progress terms of silicon wafer manufacturing, foundry and semiconductor equipment manufacturing. 
Our conclusion is that the the best investment opportunities relating to China's semiconductor push may be found in lower-profile, less glamorous segments of the broader ecosystem. Here's where we think they might be. 
Note: This Smartkarma Original is a collaboration between <a href="https://www.smartkarma.com/profiles/jim-handy" target="_blank" data-smartkarma-citation="accounts:2578" rel="noopener">Jim Handy</a> and <a href="https://www.smartkarma.com/profiles/william-keating" target="_blank" data-smartkarma-citation="accounts:1806" rel="noopener">William Keating.</a> Jim contributed the initial sections on the background to China's semiconductor investment plans, DRAM, NAND and their impact on the incumbents while the remaining sections were contributed by William.

Since the launch of China's ‘Made in China 2025’ strategic plan in 2015, billions of dollars have been invested to bolster the country's self-sufficiency in ten key technology sectors. Five years on, we review the accomplishments, challenges and, in some cases, downright failures from the perspective of the semiconductor industry. We examine in particular China's efforts to develop their own supply of DRAM and NAND chips and opine on both their progress and the risks they pose to the leading incumbents.
While China's memory ambitions attract the lion's share of the limelight, we think it's important to look at the broader semiconductor ecosystem. To that end, we examine China's progress terms of silicon wafer manufacturing, foundry and semiconductor equipment manufacturing. 
Our conclusion is that the the best investment opportunities relating to China's semiconductor push may be found in lower-profile, less glamorous segments of the broader ecosystem. Here's where we think they might be. 
Note: This Smartkarma Original is a collaboration between Jim Handy and William Keating. Jim contributed the initial sections on the background to China's semiconductor investment plans, DRAM, NAND and their impact on the incumbents while the remaining sections were contributed by William.

China Semiconductor Progress & Opportunities Review 2020

Taiwan

eMemory Technology, Inc. develops and provides logic non-volatile memory (LogicNVM) technology. The company licenses its intellectual property to semiconductor foundries, integrated devices manufacturers (IDMs), and fabless design houses around the world.

Nanya Technology Corp. manufactures and markets dynamic random access memories (DRAMs).  The Company sells its products in Taiwan and exports worldwide.

Realtek Semiconductor Corp. designs, tests, and distributes integrated circuits which are used in consumer electronics, computer systems and peripherals, and communication network hardware.  The Company also provides technical counseling and systems software services.

Global Unichip Corporation designs and produces a wide variety of silicon chips.

Novatek Microelectronics Corporation designs, manufactures, and markets integrated circuits (ICs).  The Company's products are used in telecommunication, computer peripherals, and LCD (liquid crystal display) drivers.

ASPEED Technology Inc. is a fabless IC-design house that specializes in server management, PC/AV extensions solution, desktop virtualization and security enhancement. The Company's products range from silicon chips, IPs to software products that enable sophisticated SOC- centric multimedia, praphics and new work applications.

Vanguard International Semiconductor Corporation offers integrated circuit foundry services.  The Company manufactures 0.18um logic, mixed-signal, analog, high voltage, low power, CMOS RF, flash, embedded memory, and bipolar CMOS DMOS semiconductors.

Alchip Technologies Ltd. provides silicon design and manufacturing services. The Company offers a range of system on chip (SoC) design solutions for low power, high performance, and cost considerations. Alchip produces SoC solutions for products including consumer electronics, optical networking, and medical imaging equipment. Alchip serves customers worldwide.

Faraday Technology Corp. designs and manufactures application specific integrated circuits (ASICs) and wafers.

Sino-American Silicon Products Inc. supplies silicon-based products, including silicon lapped wafer, silicon diffusion wafer, silicon ingot, silicon diffused diode chip, and automobile rectifier.  The Company sells its products worldwide.

SUMCO Corporation manufactures silicon wafers for the semiconductor industry. The Company produces silicon wafers used to produce solar batteries as well as ultra-high purity quartz used to produce vessels for silicon manufacturing process. SUMCO markets its products worldwide.

MA-COM Technology Solutions Holdings Inc. provides high performance analog semiconductor solutions. The Company supplies semiconductors, active and passive components, and sub-assemblies for use in radio frequency, microwave, and millimeter wave applications. MA-COM Technology Solutions serves customers throughout the United States.

ROHM COMPANY LIMITED manufactures custom linear integrated circuits and semiconductor devices for use primarily in consumer electronics.  The Company has plants and sales offices worldwide.  Rohm's subsidiaries include Wako Electric and Apollo Electronics.

Sanan Optoelectronics Co., Ltd. operates in the business of researching, producing and selling of LED epitaxial wafers and wafers.

SCREEN Holdings Co Ltd.  manufactures and sell semiconductors, FPD devices, commercial printing and printed circuit boards(PCB). The company also provides additional services for its products.

MKS Instruments, Inc. develops, manufactures, and supplies instruments and components used to control and analyze gases in semiconductor manufacturing and similar industrial manufacturing processes. The Company's products are used to manufacture flat panel displays, magnetic and optical storage devices and media, solar cells, fiber optic cables, and diamond thin films.

Tianjin Zhonghuan Semiconductor Co., Ltd. manufactures discrete semiconductor devices. The Company's main products are High Voltage Diode, Silicon Rectifier Diode, Silicon Bridge Rectifier, MWO High Voltage Silicon Diode and special High Voltage Silicon Diode .

Tianjin Zhonghuan Semiconductor (002129 CH)

Hua Hong Semiconductor Limited manufactures semiconductors on 200mm wafers for specialty applications. The Company's products are used in the consumer electronic, communication, computing and industrial, and automotive industries.

Rambus Inc. designs, develops, licenses, and markets high-speed chip-to-chip interface technology to enhance the performance and cost-effectiveness of consumer electronics, computer systems, and other electronic systems.  The Company licenses semiconductor companies to manufacture and sell memory and logic ICs incorporating Rambus interface technology.

TongFu Microelectronics Co., Ltd. manufactures integrated chips. The Company provides assembling and testing service for memory, microprocessor, micro-controller, hybrid circuit, analog circuit, and other related services throughout China.

Globalwafers Co., Ltd. specializes in silicon wafer manufacturing and also provides solar wafers and crystal rods. The Company possesses a complete production line from ingot growth, slicing, etching, diffusion, polishing to epitaxy. Their products include Epi wafers, polished wafers, etched wafers, ultra thin wafers and deep diffusion wafers.

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Globalwafers (6488 TT)

GlobalWafers Cash Offer

The deal should benefit pricing power. I doubt that the offer will be raised. Siltronic trades 0.2% below the offer, including dividend. Wait for...

Jesus Rodriguez Aguilar

Emerging Markets Breaking Out

Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1...

Vermilion Research

Silicon Wafers. The Impact Of Covid-19 In Q1 And Likely Outlook For CY 2020.

With all of the major silicon wafer manufacturers now having reported Q1 earnings, it's clear that the impact of COVID-19 was relatively minor as...

William Keating

COVID-19 & Semiconductors: Profit Warnings Piling Up Ahead Of Earnings.

During the most recent earnings season, most semiconductor companies noted only relatively minor impact to their forecasts for the current quarter....

William Keating

China Semiconductor Progress & Opportunities Review 2020

Since the launch of China's ‘Made in China 2025’ strategic plan in 2015, billions of dollars have been invested to bolster the country's...

William Keating

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