A Market Share Winner in the Semi Supply Chain

Deep dive

The name we’re about to discuss will be a fairly straightforward investment case. We start off from the highly attractive growth of the semiconductor industry, driven by the ever expanding needs for computation in the global economy. This is a theme which is playing out both at leading edge and mature semiconductor manufacturing processes. The latest demand propellants are AI at the leading edge and increasing levels of automation and electrification in a variety of industries such as automotive, green energy, industrials and IoT at mature process nodes.

Readers will know that we tend to invest in companies that dominate their respective areas of the semiconductor supply chain to play these themes. With as examples TSMC, the practical monopolist foundry at the leading edge; Cadence and Synopsys, the duopolist semiconductor design software providers; dominant advanced semi design houses with a competitive advantage like Nvidia and Broadcom; wafer fabrication equipment providers that have a stronghold over their niches such as ASML, Lam Research and BESI; or the most advanced analog companies such as Texas Instruments and Analog Devices.

The company we’re about to dive into is no different. It has strong to dominant positions in the niches where it operates, with a clear strategy and competitive advantage to gain further market share. Additionally, its content per wafer is on the rise as the semi industry transitions to more advanced nodes, giving the company exposure to both wafer volumes and higher wafer ASPs. Finally, the company is acting as a consolidator in the space, adding specialist technologies to build out its product portfolio.

The company’s revenues are also largely recurring, being both driven by the number of wafers and the mix of these wafers. The attraction here is that it doesn’t face the same heavy cyclicality as the wafer fabrication equipment industry, also known as semicap. While semicap has its long term attractions, in the short term players in the industry regularly have to go through boom and busts in order flow. We saw this again recently with ASML, where a lack of orders caused the company to downgrade its guidance for 2025.

So overall, we have four drivers of revenue growth for our name — wafer volumes, more content per wafer, market share gains and industry consolidation — which with the help of operating leverage could easily result in an IRR of above 20%, we’ll show the math in our modelling.

Given the recurring nature of its revenues, the market will likely start to appreciate this name as a classic compounder over time, meaning that it can be held by both long-term buy-and-hold-style investors or as more of a tactical investment until the semi cycle starts to look stretched again. Either way, this is a name which can bring in an attractive alpha over the near and long term.

Besides detailing the business, we’ll also dive deep into the industry to explain the exact dynamics at play and we’ll talk to a former R&D executive from a major company in the industry, who is available via Tegus’ expert network.