The dark recession clouds that are gathering over the economy are causing downright bad stock market sentiment these weeks. Even the prices of companies in the chip industry – really the rock stars of the AEX last year – have to suffer. Chip machine makers ASML and ASMI, for example, have both seen their share price fall by about 30 percent since March.
The price of the much smaller BE Semiconductor Industries from Duiven peaked in March at 85 euros. Since then, the stock has lost nearly 50 percent of its value. The exchange rate is now 48 euros.
Unlike ASML and ASMI, Besi, as the company abbreviates the name, does not make machines that produce chips. The company sells chips finishing machines. The latest product in Besi’s portfolio is a machine that ingeniously links different chips together. Hybrid bond it’s called in technical terms.
Next Thursday, Besi will present the results of the second quarter. “The figures will be good,” says Michael Roeg, analyst at Degroof Petercam, “but that is not of much use to us on the stock exchange. Investors look ahead and see end markets that are stagnating.” He is referring to the demand for consumer electronics such as mobile telephones and laptops.
“Globally about a quarter of the semiconductors produced goes to smartphones, for Besi that is even 40 percent,” says ING analyst Marc Hesselink. “If consumers buy fewer phones because of inflation, that demand will immediately fall.” Now it is not the case that Besi customers cancel their machines, says Hesselink, but they may postpone the purchase of a new machine for a while.
Order book
More important than the current turnover and profit figures on Thursday is therefore the information about the order book of Besi. “For four quarters in a row, the order intake had a value of around 200 million euros,” says Roeg. “Maybe now suddenly it’s only 50 million, or even 300 million. That is what the price will react to.” He has no expectations, according to him it can go either way.
Hesselink expects to see that the order intake has decreased. “The only question is, how bad is it? And more importantly: has this reached the bottom or will the coming quarters get even worse? That is of course difficult to predict.”
There is no real cause for concern, both analysts agree on that. The chip industry is pre-eminently a cyclical market. Recession or no recession, exchange rate fluctuations are part of it. And that is not a risk to the continuity of the company, says Roeg, because even with a sharp decline in turnover, Besi remains a profitable company.
Moreover, with hybrid bonding, Besi has “gold in its hands for the future”, according to Hesselink. There is ultimately a limit to making chips even smaller, which is why it will become more important to connect chips in an increasingly compact way: through hybrid bonding. Besi has a significant lead over competitors in this segment. Hesselink: “If you consider how the company will look in a few years’ time, the risk-return ratio with the current price is therefore attractive.”
The machine with the new technology has just entered the market and so far has generated only a small part of the turnover. Roeg: “It would be nice if the hybrid bonding branch would grow countercyclically, thus compensating for any drop in turnover.” But the looming recession of the moment probably comes too early for that.
A version of this article also appeared in the newspaper of July 18, 2022