Amtech (NASDAQ:ASYS) Q2 Sales Beat Estimates But Quarterly Guidance Underwhelms

Full Report / May 10, 2023
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Semiconductor production equipment provider Amtech Systems (NASDAQ:ASYS) reported results ahead of analyst expectations in the Q2 FY2023 quarter, with revenue up 24.8% year on year to $33.3 million. However, guidance for the next quarter was less impressive, coming in at $32 million at the midpoint, being 5.19% below analyst estimates. Amtech made a GAAP profit of $3.2 million, improving on its profit of $1.97 million, in the same quarter last year.

Amtech (ASYS) Q2 FY2023 Highlights:

  • Revenue: $33.3 million vs analyst estimates of $30.8 million (8.33% beat)
  • Revenue guidance for Q3 2023 is $32 million at the midpoint, below analyst estimates of $33.8 million
  • Free cash flow was negative $3.57 million, compared to negative free cash flow of $2.73 million in previous quarter
  • Inventory Days Outstanding: 162, down from 194 previous quarter
  • Gross Margin (GAAP): 40.4%, up from 38.6% same quarter last year

Focusing on Silicon Carbide and Power Semiconductor sectors, Amtech Systems (NASDAQ:ASYS) produces machinery and related chemicals needed for manufacturing semiconductors.

Amtech Systems was founded in 1981 by Jong S. Whang, who previously had experience in both semiconductor processing and manufacturing. The company went public in 2017.

Semiconductor manufacturing begins with a silicon wafer upon which chips are constructed through the application and manipulation of thin layers of film that act as conductors, semiconductors, or insulators. It is a complex process requiring precision tools, specific temperatures at various stages, and ideal environments. Deviations in materials, measurements, or temperatures could result in defects that cost money, time, and other resources.

Amtech's product portfolio primarily focuses on thermal systems and wafer polishing equipment. The company’s horizontal furnaces address the vital fabrication stages of diffusion, oxidation, and annealing. Diffusion is an early stage that uses heat to remove impurities from wafers, oxidation employs high temperatures to turn silicon on the wafer into silicon dioxide to produce insulation properties, and annealing involves heating wafers to change their electrical properties. Amtech's polishing products abrade wafers in a high-precision manner to ensure the flatness, parallelism, and surface finish needed for chip construction.

Companies offering competing semiconductor production equipment include Centrotherm, CVD Equipment (NASDAQ:CVV), Vitronics Soltec, and Rehm Thermal Systems.

Sales Growth

Amtech's revenue growth over the last three years has been mediocre, averaging 16% annually. But as you can see below, last year has not been especially strong, with quarterly revenue growing from $26.7 million to $33.3 million. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Amtech Total Revenue

This was a decent quarter for Amtech as revenues grew 24.8%, topping analyst estimates by 8.33%. Amtech's revenue turned from decline to growth this quarter, news that will be likely appreciated by shareholders.

Amtech's revenues returned to growth this quarter, and the company is pointing to a return to sustainable growth, with next quarter guided to 60.3% growth year on year and analysts agree, forecasting growth of 37% over the next twelve months.

Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as it reflects the capital intensity of the business and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise the company may have to downsize production.

Amtech Inventory Days Outstanding

This quarter, Amtech’s inventory days came in at 162, 16 days above the five year average, suggesting that despite the recent decrease the inventory levels are still higher than what we used to see in the past.

Pricing Power

Amtech's gross profit margin, how much the company gets to keep after paying the costs of manufacturing its products, came in at 40.4% in Q2, up 1.9 percentage points year on year.

Amtech Gross Margin (GAAP)

Amtech' gross margins have been trending down over the past year, averaging 36.8%. The weakness isn't great as Amtech's margins are already below other semiconductor companies as is, reflective of weakening pricing and cost controls.


Amtech reported an operating margin of 6.06% in Q2, down 5.3 percentage points year on year. Operating margins are one of the best measures of profitability, telling us how much the company gets to keep after paying the costs of manufacturing the product, selling and marketing it and most importantly, keeping products relevant through research and development spending.

Amtech Adjusted Operating Margin

Operating margins have been trending down over the last year, averaging -1.73%. Not a great indicator for Amtech, whose operating margins are amongst the lowest for semiconductors, caused by only a modest competitive advantage and a relatively inefficient operating model.

Earnings, Cash & Competitive Moat

Wall St analysts are expecting earnings per share to decline 61.8% over the next twelve months, although estimates are likely to change post earnings.

Earnings are important, but we believe cash is king as you cannot pay bills with accounting profits. Amtech's free cash flow came in at -$3.57 million in Q2, up 21.9% year on year.

Amtech Free Cash Flow

Amtech didn't produce any free cash flow in the last year, so shareholders will want to see that improve in the short term.

Over the last 5 years Amtech has reported an average return on invested capital (ROIC) of just 3.58%. This suggests it may struggle to find compelling reinvestment opportunities within the business.

Key Takeaways from Amtech's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Amtech’s balance sheet, but we note that with a market capitalization of $126.2 million and more than $17.7 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by the strong improvements in Amtech’s inventory levels. And we were also excited to see that it outperformed Wall St’s revenue expectations, although there was a $6.3mm revenue contribution from an acquisition. It is unclear how many sellside analysts modeled the magnitude and timing of this deal correctly, so the beat may be less impressive than the headline. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and operating margin deteriorated. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 2.04% on the results and currently trades at $9 per share.

Is Now The Time?

When considering Amtech, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We cheer for everyone who is making the lives of others easier through technology, but in the case of Amtech we will be cheering from the sidelines. Its revenue growth has been solid, and that growth rate is even expected to increase in the short term. Unfortunately, its its relatively low return on invested capital suggests suboptimal growth prospects, and its operating margins reveal subpar cost controls compared to other semiconductor businesses.

Amtech's price to earnings ratio based on the next twelve months is 14.3x. While we have no doubt one can find things to like about the company, we think there might be better opportunities in the market and at the moment don't see many reasons to get involved.

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