DSCC’s New Display Equipment Stock Index Rose 68% in 2019 Led by ICD – 25 Companies Included

Published January 10, 2020

2019 was a great year for display equipment stocks, despite declines in both the semiconductor and display equipment markets. DSCC has created a new Equipment Supplier Stock Index (ESSI) which consists of 25 equipment companies with at least 10% of their revenues from the display equipment market. It contains US, Japanese, Korean, Taiwanese and Chinese display equipment companies. The ESSI outperformed most indexes out there with 68% growth. The SMH, a concentrated semiconductor equipment and semiconductor manufacturer index also consisting of 25 companies including 4 semiconductor equipment companies, had the 2nd best performance up 62%. The XLK, a general technology ETF with 70 companies where Apple and Microsoft have the largest weightings, rose 48%. The US large cap index (SPY) rose 29% with the emerging market index up just 15%.

Why did the ESSI grow so fast when revenues were down in both display and semiconductor equipment markets? This is due to the stock market being forward looking and 2020 representing growth years for both semiconductor and display equipment stocks. It is important to include what is happening in semiconductor equipment spending as many display equipment companies also produce semiconductor equipment, and in the case of the 2 largest companies in the index, AMAT and TEL, semiconductor revenues are significantly larger. Semiconductor fab spending in 2019 is believed to have fallen 10.5% according to SEMI, while display equipment spending fell 35% according to DSCC. In 2020, semiconductor equipment spending is expected to rise 5.5% to $60.8B with record revenues predicted for 2021 of $66.8B, up 10%. Display equipment spending is expected to rise 16% in 2020 with OLED spending up 148%. This anticipated 2020 growth explains why the ESSI grew so fast. Congratulations to display equipment companies on their outperformance!

2019 Index Performance – ESSI Was #1

Which companies enjoyed the fastest growth?

  • ICD was #1 up 197%. ICD won $48M worth of dry etch business at Samsung and LGD in 2019 according to our Advanced Weekly PO and Award Database. In 2020, they will install $50M worth of business at SDC, $41M at Visionox V3 and $42M for chambers for Canon’s open mask evaporation tool, all of which are also identified in this database. Thus, their revenues should rise 177% in 2020 to $133M, so it is no surprise they had the fastest stock price growth in 2019.
  • Wonik IPS was #2, doubling its value in 2019. Wonik’s revenues are around 40 %- 45% from displays after acquiring Tera Semicon. It is likely seeing some cost savings from the Tera Semicon acquisition and is also benefiting from Samsung’s semiconductor capex. It had a very profitable Q2’19 and is seeing more design wins in 2020 from:
    • China Star for dry etch and furnaces
    • SDC for dry etch and laser drilling ($59M for laser drilling)
    • Tianma for dry etch and PI curing
    • Truly for dry etch
    • Visionox for furnaces and purifiers ($54M+)
    • However, it isn’t clear if it will enjoy much display growth in 2020 as it won most of the dry etch business at HKC H2 in 2019, resulting in display equipment revenues likely doubling from2018 to 2019. 2019’s display results may be tough to match in 2020, although there is still time to book and install more business in 2020. Its anticipated growth may also be more from the semiconductor segment in 2020.
  • TEL was #3 and AMAT was #5 on strength in semiconductor equipment. These two companies have the largest weightings in our index at 30% and 49% respectively. Strength in foundry/logic spending, 2019 NAND spending and hope for a rebound in 2020 memory spending drove these stocks to 87% and 83% growth respectively. At the same time, TEL’s display equipment revenues were down 16% for the first 3 quarters of 2019 Y/Y and we are currently projecting TEL’s revenues to fall in 2020 on a 39% decline in their LCD revenues despite a 57% increase in OLED revenues. In AMAT’s case, their display equipment revenues were down 40% Y/Y in the first 3 quarters of 2019, but we see their display equipment revenues rising in 2020 on a 284% increase in their OLED revenues offset by a 35% decline in LCD revenues, growing 22% vs. 16% for the market.
  • 2020 should be a great year for OLED equipment stocks, so it is not a surprise to see AP Systems stock up big in 2019. Their market value rose 86% in 2019 with Q1’19-Q3’19 revenues down 49%. However, in 2020, we show their display equipment revenues rising >300%.
  • The 2 companies which saw the largest declines were Charm and Nikon. Charm had a disappointing year in 2019 with Q1-Q3 revenues down over 70% Y/Y. This was due to the loss of share in both the Zap Repair and Laser CVD Repair markets in 2019 to V Technology. However, we see them regaining share in 2020, but the LCD repair market will shrink significantly in 2020. They are impacted by less repair in mobile OLEDs than in LCD TVs, which will reduce their total available market. Similarly, Nikon is also being impacted by greater focus on LCDs and a decline in the LCD litho market. However, we do see them winning the majority of litho tools at BOE B12 which should help them regain some momentum in the mobile OLED space. At the same time, Nikon’s 2nd largest business, Imaging, remains weak and is hurting their valuation which is a low $5B, trading at <1X trailing revenues or 11X trailing earnings. One would think the litho business alone is worth that much, so I guess this means the imaging business may have a negative valuation, although it generated $95M in operating profits over the past 4 quarters.

2019 Change in Display Equipment Stock Values

A little more about our Equipment Supplier Stock Index (ESSI), as mentioned there are 25 companies in total. All of these companies are generating at least 10% of their revenues from display equipment. For this reason, Canon was excluded as display equipment was in the low to mid single digits in 2019, although they should have a lot of growth in 2020. Of the 25 companies, 10 have a market cap of over $1B and 15 have a market cap of <$1B. By segmenting them this way, we can produce less crowded charts as shown below. As indicated, Wonik IPS had the best performance of the companies over $1B with 101% growth followed by TEL and AMAT. Of the companies below $1B, ICD had the best performance up 197% followed by AP Systems and KC Tech.

>$1B Market Cap ESSI Results

<$1B Market Cap ESSI Results

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Written by

Ross Young