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Amtech Overview

Business Overview

Amtech was incorporated October 1981, under the name Quartz Engineering & Materials, Inc. and subsequently changed its name in 1987. Amtech conducts its operations through four wholly-owned subsidiaries: Tempress Systems, Inc., whose operations are based in The Netherlands; Hoffman Machine Products, Inc., based in Carlisle, Pennsylvania; Bruce Technologies, Inc., based in Billerica, Massachusetts; and R2D Automation SAS, located near Montpellier, France.

Amtech is global original equipment manufacturer (OEM) and a leading supplier of horizontal diffusion furnace systems, used in semiconductor and photovoltaic (PV) cell manufacturing. Amtech has provided manufacturing solutions to the semiconductor industry for over 30 years. They provide equipment to manufacturers of analog, power, automotive and microcontroller chips with geometries greater than 0.3 micron. Amtech leverages their semiconductor technology and industry presence in order to capitalize on growth opportunities in the solar industry. Within the solar industry, they provide diffusion and automation equipment to PV cell manufacturers as well as offering plasma enhanced chemical vapor deposition (PECVD) and phosphocilicate glass (PSG) equipment.

  • Under the PR Hoffman brand, Amtech is a leading supplier of insert carriers to manufacturers of silicon wafers, provides lapping and polishing consumable products as well as equipment used in various industries, including fabrication of LEDs, optics, quartz, ceramics, metal parts and medical equipment components.[1]

Industry Analysis

Macro Economic Factors

Solar

Yearly change primary energy consumption 2000-2009
Yearly change primary energy consumption 2000-2009

Over the past decade there has been an explosion in energy consumption by developing countries while energy consumption in developed nations has remained relatively flat.[2] With growing concerns over dependence on non-renewable energy sources and the increasing costs of those non-renewable sources, many governments have targeted solar power grid parity with primary energy sources - oil, natural gas, coal, nuclear and hydro - implemented incentive programs for investment in renewable energy, specifically solar energy. For example, in the United States between September 2008 and September 2009, 40 new solar incentive programs were implemented in 19 states. Across the globe countries are expanding their solar energy capacity. More than 22 GigaWatts (GW) were installed across the world by the end of 2009, provision figures show global installed capacity exceeding 37 GW by the end of 2010. At the end of 2009 Europe accounted for 79% of the PV market, with Germany accounting for 53% of the total market. Over the next several years, growth in installed capacity is expected to boom in the US, China and India.[3]

Polysilicon supply/demand forecast
Polysilicon supply/demand forecast

Polysilicon is the primary base material used to produce a solar cell. According to consulting firm Hemlock Semiconductor group, equilibrium of supply and demand for crystalline silicon will be achieved if silicon based solar modules grows by 50% per year through 2013, assuming no real increase in production of polysilicon. If growth is 30%, equilibrium will not be reached until 2014. An increase in production of solar cells by customers should bode well for further deployment of Amtech’s diffusion furnaces through at least 2013.

Semiconductor

Since the early 1990s, this industry has experienced significant growth driven by demand for personal computers, growth in the Internet, the expansion of the telecommunications industry (i.e., wireless communications), and the emergence of new applications in consumer electronics. Fueling growth over the last decade has been the rapid expansion by end-users of smaller, less expensive and better-performing electronic products. As the world economy's rebound strengthens and consumer spending returns, the semiconductor industry stands to benefit from continued growth in consumer electronics[1]

Competitors

Amtech competes in several distinct markets including semiconductor devices, semiconductor wafer, solar cell, microelectromechanical systems (MEMS) and the market for general industrial lapping and polishing machines and supplies. Each of these markets is highly competitive. Amtech's ability to compete depends on their ability to continually improve their products, processes and services, as well as develop new products to meet their customer's constantly evolving requirements. Some critical success factors are the equipment’s technical capability, productivity and cost-effectiveness, overall reliability, ease of use and maintenance, contamination and defect control and the level of technical service and support provided by the vendor. Amtech experiences price competition for wafer carriers produced by foreign manufacturers for which there is very little publicly available information.

Centrotherm PV, headquartered in Germany, is the world's leading provider of technology and equipment to the photovoltaic industry. They provide equipment and services to produce solar silicon and solar cells. Centrotherm operating business has 3 divisions: Silicon & Wafer, Solar Cell & Module, and Thin Flim Module. Centrotherm competes with Amtech under their Solar Cell & Module division. This division develops and sells turnkey production lines, horizontal and vertical furnaces, and vacuum soldering systems.[4]

CVD Equipment CVD designs, develops and manufactures a broad range of chemical vapor deposition, gas control and other equipment used to research, design and manufacture semiconductors, solar cells, smart glass, carbon nanotubes, nanowires, LEDs, MEMS and industrial coatings, as well as equipment for surface mounting of components onto printed circuit boards. CVD has operating business has 3 division: CVD/First Nano, Stainless Design Concept (SDC) and Conceptronic. The CVD/First Nano division is a supplier chemical vapor deposition systems used in the research, development and manufacturing of semiconductors, LEDs, carbon nanotubes, nanowires, solar cells and a number of industrial applications. The SDC division designs and manufactures gas and chemical delivery control systems for semiconductor fabrication processes, solar cells, LEDs, carbon nanotubes, nanowires, and a number of industrial applications. The Conceptronic division designs and manufactures reflow ovens and rework stations for the printed circuit board assembly and semi-conductor packaging industries.[5]

Veeco Instruments designs, manufactures and markets equipment to make LEDs, solar panels, hard-disk drives and other devices. Veeco has 2 operating segments: LED & Solar and Data Storage. Veeco primarily competes with Amtech in the LED & Solar segment. This segment designs and manufactures metal organic chemical vapor deposition (MOCVD) systems; molecular beam epitaxy (MBE) systems; Copper, Indium, Gallium, Selenide (CIGS) deposition systems; and thermal deposition sources.[6]

Threat of New Entrants

The threat of new entrants to the OEM for solar and semiconductor equipment is medium. Amtech has several competitive advantages in place to protect its profitability.[1]

  • Amtech has provided horizontal diffusion furnaces and polishing supplies and equipment to their customers for over 30 years, with which they have strong long-standing relationships with many of their top customers. Amtech has sold and installed horizontal furnaces worldwide and benefit from what they believe to be the largest installed customer base in the semiconductor industry.
  • Amtech's highly trained and experienced engineers possess core competencies in product applications and support systems, automation, sophisticated controls, chemical vapor deposition, diffusion and pyrogenic processes, robotics, vacuum systems, ultra clean applications and software driven control packages that allow Amtech to operate highly efficiently.
  • Amtech has warehouses and manufacturing facilities across the globe and has been investing in them to support its rapidly growing revenue. The has for economies of scale, as evidenced in Amtech's margins, and allowed for better distribution.
  • Amtech has a number of patented processes and products (below)
Amtech's Patents FY2010
Amtech's Patents FY2010

Buyer Power

During 2010, Amtech's largest customer accounted for approximately 28% of their net revenue and their top 10 customers collectively represented approximately 72% of their net revenue. In fiscal 2009, Amtech's largest customer accounted for approximately 16% of their net revenue, and their top 10 customers collectively represented approximately 62% of their net revenue. In fiscal 2008, Amtech's largest customer accounted for approximately 20% of their net revenue, and their top 10 customers collectively represented approximately 62% of our net revenue. Yingli Green Energy accounted for 28%, 4% and 20% of our net revenue in fiscal 2010, 2009 and 2008, respectively. Yingli accounts for 25% of Amtech's accounts receivable balance as of September 30, 2010. Amtech's customer base is somewhat diverse with one or two large customers. The increase in customer concentration over the past several year has to with the increase in Amtech's revenue from solar customers. Individual customer do not appear to have any power over pricing specifically, however price is a key factor in attracting customers because the PV and semiconductor industries are commodities businesses. Overall, buyer power is medium.[1]

Supplier Power

Nearly all of Amtech's fabricated parts for solar and semiconductor equipment are purchased from local suppliers. These supplier have low power over pricing. However, suppliers for Amtech's manufacturing activities in the polishing supplies and equipment business have high power. Amtech's polishing supplies business relies on key suppliers for certain materials, including two steel mills in Germany and Japan, an injection molder, a single-sourced pad supplier from Japan and an adhesive manufacturer. Luckily, the polishing supplies segment only accounts for 17.51% revenue (for 2010).[1]

Substitutes

Photovoltaic Cell Manufacturing Process
Photovoltaic Cell Manufacturing Process

Amtech sell equipment for the manufacturing of PV cells and semiconductors as well as polishing supplies. Because of the complex process used to create PV cells and semiconductors their aren't many substitutes for the equipment use to produce these products. There is a trend in the semiconductor industry, related to the trend to produce smaller chips on larger wafers, towards the use in semiconductor manufacturing facilities of newer technology, such as vertical diffusion furnaces. Also, while many of today's solar panels are based upon silicon technologies, thin film CIGS solar cells offer the potential for lower manufacturing costs, and have the highest efficiency of the thin film technologies. Overall, the threat of substitutes is low/medium.

Company Analysis

Strategy

Amtech's main focus is capitalizing on the growth in the solar industry. They have had success penetrating the solar market through their focused process and product development and marketing efforts, leveraging their semiconductor technology and industry presence, and overall growth in demand from the solar industry. Amtech had a record first quarter in 2011 with $127 million orders for solar diffusion and automation systems. Solar orders totaled $161.5 million, $21.8 million and $73.3 million in 2010, 2009 and 2008, respectively.[1] Amtech plans on adhering to their strategy by pursuing strategic acquisitions that complement their strong platform and accelerating new product and technology development.

  • In February 2011, announced the acquisition of 55% of Kingstone Semiconductor, a Chinese-based technology company, specializing in ion implant solutions for the solar and semiconductor industry.[7]
  • Continued progress with Amtech's high-efficiency N-type products and they continue to selectively introduce and promote the competitive advantage of this new technology with the key potential customers on an ongoing basis.
Amtech's Orders
Amtech's Orders

Critical Risk and Success Factors

There are 3 critical situation, listed in no particular order, that will determine Amtech's success or failure:

  1. Managing Growth: Amtech’s operations have expanded over the past 3 years and future expansion may place a strain on management, personnel, systems, and resources. Failure to manage growth and the resources needed to expand operations could negatively impact future operations.[1]
  2. The Solar Industry: is subject to risks relating to industry shortages of polysilicon, having government’s worldwide incentives continue, the availability of specialized capital equipment, global energy prices, and rapidly changing technologies offering alternative energy sources. If the demand for solar industry products declines, the demand by the solar industry for Amtech’s products would also decline.[1]
  3. Customer Constration: On December 31, 2010, two customers accounted for 44% of the company’s total order backlog. Accounts receivable from one customer in 1Q11 accounted for 13% of total receivables. A concentration of sales and receivables from one or a small number of major customers could have an adverse affect on operations, if they were to switch suppliers or default on their payments.[1]

Risks

  • Foreign Exchange Rate: Over 93% of Amtech's revenue come from outside of North America and a substantial portion of their revenue is denominated in euros. They recorded foreign currency transaction losses of $0.4 million during fiscal 2010. In 2009 and 2008, foreign currency transaction gains and losses were less than $0.1 million.[1]
  • Acquisition Execution: Strategic acquisitions are part of a growth strategy. Potential integration issues such as differing corporate cultures, customer relationships, and management styles, may reduce synergies and the ability to execute stated goals and financial objectives.[1]
  • Warranty Claims: 'The manufacture and sale its products involve the use of toxic materials, which could lead to product liability claims. In addition, a failure of one of the company’s products at a customer site could interrupt the business operations of the customer. Amtech’s existing insurance coverage limits may not be adequate to protect it from all liabilities that might be incurred.[1]
  • Solar and Semiconductor Cyclicality: The solar and semiconductor equipment industries are highly cyclical. The demand for and the profitability of Amtech can change significantly from period to period as a result of numerous factors.[1]

Marketing and Distribution

Because of the highly technical nature of Amtech's products, they market primarily by direct customer contact through their sales personnel and through a network of domestic and international independent sales representatives and distributors that specialize in semiconductor equipment and supplies. Amtech's promotional activities include direct sales contacts, participation in trade shows, an Internet website, advertising in trade magazines and the distribution of product brochures.

Sales to distributors are generally on terms comparable to sales to end user customers because the distributors generally quote their customers after first obtaining a quote from Amtech and have an order from the end-user before placing an order. Sales to distributors are not contingent on their future sales and do not include a general right of return.[1]

Profitability & Risk

Recent Operational Results

Amtech reported first quarter revenue of nearly $53.7 million is up 18%, sequentially, and up 248% year-over-year - Amtech earned more revenue in this quarter than they did in all of 2009. This increase was driven primarily by higher different shipments to customers in the solar industry. Amtech's book-to-bill is 2.3, with solar at 2.5 and semiconductors at 1.2.The first quarter orders were a record $137 million; including $127 million in solar orders, up 176% from the preceding quarter. Total order backlog on December 31, 2010, was a record $173 million, which includes $162 million in solar orders. - nearly doubling their backlog of $94 million on September 30, 2010. Net income for the first quarter of 2011 was $5 million or $0.52 per diluted share, compared to net income of $5.4 million or $0.58 per diluted share the preceding quarter, and a net income of $80,000 or $0.01 per share in the first quarter last year. Total revenue, by geographic region, for the first quarter was: Asia Pacific region 81%, Europe 12% and North America 7%.

Profitability

Amtech's ROA & ROE decompostition
Amtech's ROA & ROE decompostition

Looking at some key metrics of profitability for Amtech over the past 5 year, except for the global crisis in 2009, Amtech has been increasing it profitability through margin expansion. This expansion has come from higher volume resulting in more efficient capacity utilization. Amtech has been investing in its production facilities to keep up with increasing demand for its horizontal diffusion furnaces and automation products. By increasing capacity and output, Amtech is able to increase revenue without increases expense.

Amtech vs. Competitors ROA
Amtech vs. Competitors ROA
Amtech vs Competitors ROCE
Amtech vs Competitors ROCE

Looking at Amtech's competitors' profitiability metrics, Amtech seems to be relatively in-line with the industry average, with the exception of Veeco. The reason Veeco's metrics are much more volatile compared with Amtech and its other competitors is because of Veeco's size. In 2010, Veeco report annual revenue of less than $1 million. CVD is also a smaller company, reporting revenue of over $16 million in 2010. Most of Amtech's competitors are subsidiaries of larger companies or public or private foreign companies making it hard to gather a large industry sample.

Solvency

Amtech solvency ratios
Amtech solvency ratios

Amtech has a fairly conservative balance sheet. However, this provides them with flexibility during their rapid growth. They have also filed for a shelf registration of $60 million - giving them access to capital in order to keep up with their rapid growth. One of the major issues in rapidly growing companies is cash to keep up with production. By finance their growth from working capital and equity, a company isn't restricted by interest payments and covenants that come with the use of debt. With essentially no interest-bearing liabilities, Amtech will have no problem meeting its obligations and flexibility if it does require extra capital in the future.

References

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 Amtech 10K Y2010
  2. BP Statistical Review of World Energy 2010
  3. EPIA Solar Industry Report
  4. Centrotherm Annual Report 2010
  5. CVD Equipment 10K Y2010
  6. Veeco Instruments 10K Y2010
  7. Amtech acquires Kingstone Semiconductor
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