ICHR Q3 2024: 5% WFE Outperformance Driven by 25% Product Margins
- Robust proprietary product pipeline: The management highlighted significant progress in ramping up its proprietary content—such as qualifying new gas panel components (fittings, valves, substrates)—which is expected to deliver incremental gross margin improvements and bolster profitability.
- Early signs of NAND recovery: Executives noted that NAND-related spending is beginning earlier than anticipated, with gas panels already reflecting this uptick, suggesting potential for revenue growth and increased operating leverage as recovery gains momentum.
- Outperformance relative to industry growth: The discussion indicated confidence in outgrowing overall wafer fab equipment (WFE) growth by roughly 5%, signaling strong market share gains and resilient demand dynamics relative to the broader industry.
- Delayed Component Ramp: Some components, particularly weldments, are showing only muted growth, suggesting that their ramp-up might lag behind expectations, which could pressure overall revenue growth.
- Uncertainty in NAND Recovery: Despite early signs of improved NAND demand, there is concern over a lingering inventory overhang that may mute revenue impact for the next 3–5 months, leaving uncertainty over when true demand pull-through will emerge.
- Extended Evaluation Periods for New Gas Panels: The new gas panels, with evaluations taking about 9 months to complete, may delay revenue recognition and the realization of anticipated gross margin improvements.
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Margin Outlook
Q: Is 25% incremental margin guidance valid?
A: Management expects a consistent 25% flow‐through improvement from proprietary products, underscoring stable margin progression into 2025. -
WFE Outperformance
Q: Will ICHR outgrow overall WFE by 5%?
A: They are confident in outperforming overall WFE growth by roughly 5%, targeting modest yet solid market outperformance. -
NAND Dynamics
Q: Is NAND investment recovery ahead of schedule?
A: Management noted that NAND investments are beginning earlier than previously anticipated, boosting second‐half revenue growth while maintaining a strong DRAM outlook. -
Proprietary Content Impact
Q: How will new products boost margins?
A: The push in proprietary gas panels and components is expected to steadily improve gross margins, adding incremental share gains without altering ASPs. -
Inventory Normalization
Q: Is inventory burn-off aiding demand pull-through?
A: For gas panels, there is little lag in demand, though some component areas may experience a modest delay in inventory normalization. -
China Revenue Influence
Q: Does China affect Q1 revenue levels materially?
A: The outlook reflects a rebalancing, with muted direct impact from China as shifts in demand stabilize overall revenue levels. -
DRAM Stability
Q: Will DRAM remain a solid revenue driver?
A: There is an expectation for steady performance in DRAM, driven by high-bandwidth memory demand and robust fundamentals in the market. -
Flow Controllers & Quals
Q: What is the progress on longer lead time products?
A: Evaluations for flow controllers and other lengthy qualification items are progressing well, with initial feedback expected late in Q4 due to standard 9‑month cycles. -
Proprietary Pipeline Schedule
Q: Are new gas panel applications on track?
A: Management confirmed that additional qualifying applications for next‑generation gas panels are proceeding on schedule, reinforcing future margin improvements. -
300 Layer Transition
Q: Will 300‑layer transition and moly replacement affect sales?
A: The impact is expected to be minimal; the company’s longstanding position in moly remains solid despite the transition. -
Competitive Share Gains
Q: Will new panels secure additional market share?
A: The new gas panels are set to deliver incremental share gains with negligible changes to existing ASPs, offering a modest competitive advantage.
Research analysts covering ICHOR HOLDINGS.