|Shares Out. (in M):||108||P/E||0.0x||0.0x|
|Market Cap (in $M):||124||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-94||EBIT||0||0|
|Subject||a couple of points I forgot to mention|
|Entry||11/29/2011 05:34 PM|
Sumitomo and TPG bid $6.00 per share for the company in 2008. ACLS' board rejected the offer. Also the company has well over $200m of NOLs. Finally, since the company has increased gross marigns significantly, the cash burn in this downcycle should be much better than the last downcycle. You can decide how bad you think the economy and semiconductor capex will be but I think even if the industry has a very large decline of 50% (most on the street are expecting a decline between about 10-20% next year) and the company burns a decent chunk of its cash, I don't see how liquidation value is lower than than the current stock price. I also apologize for the typos in the writeup. Next time I will make sure to actually use the preview function.
|Subject||RE: a couple of points I forgot to mention|
|Entry||11/29/2011 06:34 PM|
Thanks for the idea, I actually looked at ACLS this spring but couldn't get there on higher prices.
First, do you have any specific examples of them winning back share from Varian and/or any advantages over Varian for their newest products? When I did the work before I couldn't find any industry sources that were telling me they were really improving their competitive position.
Any opinion on management or when the board might make a change? I was floored when I learned that Mary Puma had been CEO since January 2002 and President before that. Her tenure has been an utter disaster for the business and for shareholders. How does she still have a job? This seems like a potential activist situation.
Assuming a down 20% year for semi capex, any idea how much of the cash they would burn?
It does seem like the company is trading well below liquidation value, but not sure how practical a liquidation would actually be. After all, there is not a lot of demand for the inventory or PP&E of a defunct semi capital equipment supplier.
|Subject||RE: a couple of points I forgot to mention|
|Entry||11/29/2011 08:03 PM|
Thanks specialk, I had forgotten about these guys. I did an analysis back in 07 and they were still getting their clocks cleaned by the other guys. I'll have to go back and look at this again and see if I see the same technical advances and market share stuff you do. I worked in the field for years as an engineer in my prior life, it would be nice for that to be useful on an investment some day :)
|Subject||RE: RE: a couple of points I forgot to mention|
|Entry||11/29/2011 08:22 PM|
thanks for the questions.
First, I have done several channel checks and believe ACLS is getting much more exposure to clients than they have in a long time. The evidence is also there in reported numbers. ACLS claims several technology advantages but my channel checks indicate that the company's increased traction is mainly because ACLS has just more or less caught up and customers prefer another source especially after AMAT acquired VSEA. Customers also generally do not like the customer service of AMAT. JNK securities, who has an analyst that came from industry, has also written about some recent wins ACLS has had.
Regarding cash burn, I think incremental fall through of lost revenue would be close to 50% assuming slight gross margin detioration and relatively fixed operating expenses. The service and spare parts business should be more resilient and not decline as much as the equipment business (it also doesn't increase as much in up years). I therefore think the cash burn in a -20% capex year would be around $15m or less than 14c per share.
I agree with you on the CEO although the company does appear to be finally on the right track. The board not accepting the buyout offer at $6 per share in March, 2008 seems moronic in hindsight. I am impressed with the CFO who joined the company just this year. He has been better with guidance. The company has executed on improving gross margins and the sale lease back was a good move. I think if they get confident regarding an upturn, they would also be willing to buy back some stock.
regarding liquidation value - PPE is a relatively minor part of book value especially after the sale lease back. most of the liquidation value actually comes from cash, recievables and inventory and most of the inventory is for product that has already been ordered. The patents and NOLs would also be valuable to any acquiror in the industry.
|Subject||RE: RE: RE: a couple of points I forgot to mention|
|Entry||11/29/2011 08:25 PM|
sorry when i say evidence is there in reported numbers i mean that ACLS will have revenue grow 18% this year when most in the industry have declining revenue. Credit Suisse is expecting industry capex to be down 10% this year.
|Subject||RE: Revenue growth and market share|
|Entry||11/29/2011 08:58 PM|
Maybe you can help me see the gains you're seeing. I updated my previous look at this just now and pulled VSEA data until the very end. I'm pasting in a table here of market split by revenue for VSEA and ACLS from 2000 when they were evenly split until Q3 2011 when VSEA vanished into AMAT. ACLS loses market share right up until the very end, with the most recent data the worst for ACLS.
Yes, ACLS did rebound in 2010 as the implanter market shot up over 100%, but VSEA picked up more growth than ACLS and took away a few more percent of market share. Full spreadsheet is here for you: http://goo.gl/9k6Lx , please do let me know if I pulled some wrong data or something. It looks to me like the profitability and COGS for ACLS is still bouncing around within historic ranges and their market share is the worst it's been and in a continuing downward trend. I don't think you can compare ACLS growth to general semiconductor tooling market and say ACLS is taking share in their market, the competition is between ACLS and VSEA.
|Subject||RE: RE: Revenue growth and market share|
|Entry||11/29/2011 08:59 PM|
Okay, my table gets cut off unless you extend the browser several screen-widths, but the excel should work :)
|Subject||RE: RE: Revenue growth and market share|
|Entry||11/29/2011 10:04 PM|
first, VSEA's fiscal year ended in september and ACLS' fiscal year is december and given the fact that the industry can have high quarter to quarter volatility, this comparison is not accurate. for example, your numbers actually show a decent amount of market share gain in 2009 for ACLS which I don't think is reflective of their competive position at that time. 2nd, your quarterly analysis is off by 1 Q for VSEA. What you put for Q3 for VSEA is actually calendar q2. Using your own numbers appropriately shifted by a Q, I actually show ACLS gaining about 4 points of share vs VSEA in calendar q2. AMAT acquired VSEA during calendar q3. Third, ACLS always had higher relative exposure to the memory sector which underperformed other areas of semis like foundry this year in capex. My checks indicate that several customers who previously would not give ACLS the time of day are now talking to them. The quarter to quarter or even annual numbers will be lumpy however depending on which customers do the ordering in any given time period. Finally, these total sales numbers incorporate services revenue which has a lag effect on market share gains.
regarding gross margins, the only other times ACLS gross margins were above 40% like they were last Q was when the revenue run-rate was well above $400m. Revenue was 72.5m last Q or less than $290m annualized and ACLS was still able to get a 40%+ gm which indicates structural improvement to me.
|Subject||RE: RE: RE: Revenue growth and market share|
|Entry||11/30/2011 11:18 AM|
Thanks for the feedback, I really would like to find this is a good place to invest.
I did the calendar-wise adjustment you suggested and it does improve the ACLS market share 4 percent from the initial analysis. That market share is still lower than the previous year and the year before. Essentially it looks a few points better because we now are not analyzing the latest ACLS quarter which dropped substantially, yet it still shows YoY and longer term decreases.
I did notice the gross margin change, and as you say, things are very volatile qtr-to-qtr. Notably the net receivables are also down a ton for the qtr. If you've walked through the accounting to figure out what's going on that is a lot more useful to hear than just that you think this metric that is up while others are down is significant. It looks like revenue and accounts payable is also down and overall cash conversion cycle is up (very rough metric there, I'm not fixated on it).
With the above this basically come down to whether they are getting more market traction, I don't suppose your sources are something you can cite like industry articles or interviews? I'm sure you understand that I wouldn't invest based on unsourced rumors :)
Good discussion, thanks
|Subject||RE: RE: RE: RE: Revenue growth and market share|
|Entry||11/30/2011 09:36 PM|
|Note that like all semi equipment companies, working capital is a source of cash during the down cycle and a use of cash during an up cycle. Regarding sources, one person I can refer you too is the jnk securities analyst who comes from industry. He is talking about a couple of recent wins acls has with Samsung and global foundries for example.|
|Subject||RE: Sumitomo and TPG bid|
|Entry||11/30/2011 09:39 PM|
|Thanks. I forgot about that. I still think the company has strategic value however.|
|Entry||08/15/2012 03:03 PM|
Seems like an attractively priced option. Any update on ACLS ability to increase market share? Thanks.
|Entry||08/16/2012 09:18 AM|
Hi wains21, market share gains have been slower to materialize than I originally expected. This is partially because the customers that acls is more exposed to (memory and non Japanese companies) have underperformed with respect to spending this year. I expect this to reverse next year given the number of nand based tablets expected to be sold in q4 and 2013. A big market share change won't happen until the 450mm transition in a few years. The 300mm transition several years ago resulted in varian's share going from 30% to 80%. Given that varian is now a division in a large company and acls' future depends on the transition and given that customers fear becoming overly reliant on amat, I think acls has a good chance to boost its market share. While that catalyst is a few years off, I still think acls is a cheap option with several ways to win in the medium term. First, the stock should at least get above liquidation value once it has little more cash on the balance sheet and is cash flow positive. The company is guiding for being cash flow positive this q. The company is also still exploring the sale lease back which would add at least 40m to the balance sheet. 2nd, the stock will do well whenever the industry upturn starts. Amat guided down last night but said that this q will be the bottom and that is consistent with what other companies like Asml are saying. The main weakness this year has come from memory and if the recent performance of SNDK and MU is any indication, it would imply a stronger year next year from this segment. Third, the company talked on their last conf call about how they are open to being consolidated. The semi equpiment industry is consolidating. VSEA and nvls were acquired in the last year. Consolidation will continue and development costs for the 450m transition will be the motivation to sell. Synergies are very high since they all sell to the same customers and combination can yield more services revenue.
|Subject||RE: RE: Update?|
|Entry||08/20/2012 01:23 PM|
Thanks for the comprehensive response Mason.