What’s New
The market reacted negatively to Intel’s 3Q21 results (Intel is AEM’s key customer, accounting for >90% of its revenue), sending its share price down c.9% post-market.

  • Intel’s 3Q21 revenue came in at US$19.2bn (+5% y-o-y) and EPS rose to US$1.67 (+64% y-o-y)
  • The negativity centered around its overall revenue and data-center revenue falling short of expectations and amidst mediocre earnings and margins forecast despite strong earnings beat
  • Excluding its divested memory business, 3Q21 revenue came in at US$18.09bn, falling short of analysts’ expectations of US$18.24bn; Analysts also expected adjusted EPS of US$1.11

Our Thoughts
Developments that could bode well for AEM:

  • Intel’s CEO shared his view that semiconductors are expected to remain high in demand as the industry experiences structural tailwinds led by four superpowers (AI, pervasive connectivity, cloud-to-edge infrastructure, and ubiquitous computing). He believes that the industry market size could double from the current c.US$500bn to US$1 trillion by 2030.
  • Within the PC space, he noted that PC demand remains very strong and TAM is expected to continue to grow into 2022 even after double digit growth in 2021.
  • It also re-iterated its goal of becoming a “world-class” foundry.
  • Intel’s construction of its new fabs are on or ahead of schedule – Its two new fabs in Arizona are three months ahead of schedule.

We believe that any dip presents a buying opportunity for AEM.

  • Expecting slight q-o-q growth in AEM’s revenue in 3Q21. In the nearer term, we are expecting a slight q-o-q growth in AEM’s revenue in 3Q21 due to the slightly higher volumes from Intel and an expected ramp up of its next generation of handlers from late-3Q21.
  • Structural tailwinds in the industry to drive growth over the next few years. 
  • Intel’s transition to a “world-class” foundry. This would mean chips will be produced by Intel and translate to more testing which is an opportunity for AEM to significantly increase its revenue over the next few years as Intel makes its transition
  • We believe that any dip presents a buying opportunity for AEM as it continues to trade at a very attractive valuation of 10.8x FY22F PE with potential for significant revenue increase in the next few years, driven by structural tailwinds in the industry and Intel’s venture into the foundry space.