ACMR Q3 2024: Margins Set to Normalize to 40–45% from 51.6%
- Comprehensive 3D NAND Cleaning Coverage: The company’s wet cleaning tools already cover nearly 90% of the worldwide market, with only one tool pending qualification. Once fully qualified by year-end, this full coverage could unlock additional revenue opportunities.
- Innovative Product Performance and Cost Savings: The breakthrough in high‐temperature SPM and Ultra C Tahoe tools, which offer excellent particle removal (e.g., 26-nm performance with about 6 particles) and up to 75% reduction in chemical consumption, bolsters competitiveness and could drive higher customer adoption.
- Growing International Footprint: Active international engagement—evidenced by secured U.S. orders for advanced packaging tools and expansion initiatives like the new U.S. facility—supports a diversified revenue stream beyond the strong China market.
- Product Coverage Gap for 3D NAND: The company admitted it has not yet deployed its single-wafer phosphoric asset, meaning it covers only around 90% of 3D NAND wet cleaning processes, which raises concerns about potential gaps in market coverage and revenue impact.
- Uncertainty in China WFE Outlook: The executives were non-committal when discussing China WFE demand, citing difficulty in predicting next year's growth (flat to slightly up), while also noting regulatory uncertainties that could affect international trade.
- Margin Normalization Risk: Despite posting gross margins above target this quarter, management expects a reversion to the 40%-45% target range in future periods, which could pressure profitability if the product mix or external factors change unfavorably.
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China WFE Outlook
Q: Will China WFE remain high next year?
A: Management noted that China’s WFE market has grown steadily over the past four years, and while precise figures are hard to pin down amid regulatory and election uncertainties, demand remains strong with potential for slight fluctuations. -
Margin Outlook
Q: Will margins revert to target levels?
A: Management indicated that although current gross margins are 51.6%, they expect margins to normalize to their long-term target of 40–45% due to product mix adjustments and foreign exchange effects. -
Global Orders
Q: Are international orders growing outside China?
A: Management emphasized an expanding focus on global markets, noting new orders—including U.S. deliveries scheduled for early next year—and ongoing evaluations by international customers. -
3D NAND Coverage
Q: What is the 3D NAND cleaning coverage?
A: Management explained that their cleaning portfolio effectively covers nearly 90% of the 3D NAND wet process, with only one remaining single wafer phosphoric etch process yet to be fully qualified. -
Regional Prospects
Q: Which regions show near-term opportunities?
A: Management sees promising growth particularly in the U.S. for advanced packaging tools and expects similar opportunities in key Asian markets, though precise regional breakdowns were not provided. -
SPM Performance
Q: How does the high-temperature SPM tool perform?
A: Management highlighted that their high-temperature SPM tool can handle 170° higher sulfuric acid and achieves excellent particle removal—about 6 particles at a 26 nm size—improving uptime and cleaning efficiency. -
Adv Packaging Impact
Q: Will the packaging slowdown affect front-end spending?
A: Management assured that the observed slowdown in advanced packaging is temporary, with front-end spending expected to pick up in Q4 and into 2025 as overall market demand improves. -
Packaging Evolution
Q: Are Chinese packaging companies shifting strategies?
A: Management noted that some Chinese companies are moving toward high-density and panel-level packaging, signaling an evolution in their process and equipment requirements.
Research analysts covering ACM Research.