Aixtron purpose of this thread

Q3 Zahlen klar enttäuschend. Vor allem bei AE hat sich das Management im Q2 Call zu weit aus dem Fenster gelehnt. Auch der Ausblick 2025 mau. Wenn ich nur aufgrund dessen meine Strategie beurteilen sollte, dann würde ich hier die Leine ziehen.
Jedoch mittel- bis langfristig hat Aixtron sehr viel Potenzial. Vor allem nach dem, was ich im Call gehört habe. Der Call gibt für mich sehr positives Bild ab 2026 / 27, wenn es denn markttechnisch wirklich so kommt, wie von Aix erwartetet.
Falls es zu Rebound die nächsten Wochen/Monate kommt, werde ich meine Position reduzieren. Wenn 2025 Ausblick schon mau ist, dann sehe ich nicht wir dich der Kurs dauerhaft erholen soll. Mir scheint, dass keiner die aktie haben will und die LV können beliebig tief den Kurs drücken.    

Hallo allerseits,
heute Infineon mit Q4 und 2025 Ausblick. Der Ausblick ist nicht gerade Sexy mit leicht rückläufigem Umsatz, vermutlich getrieben durch Automotive.
Interessant ist dagegen die Aussage zum Capex: € 2.5mrd, das ist m.E. nach flat yoy. Der Fokus des Programs ist auf die Werke in Dresden, Österreich und Kulim, insb. mit Fokus auf Ki und SIC & GAN.. das sollte nun wirklich Aixtron zu Gute kommen.. immerhin mal ein leicht positives Zeichen.

Ebenfalls sagt das Management zu den End-Märkten, dass die meisten sich "nahe des Bodens" befinden würden.. also auch da ist Upside - zumindest für das Sentiment im Chip Bereich.

Mal schauen, ob man zu SIC & GAN im Conference Call später noch mehr sagt.

Viele Grüße,
Fel

 

More nuance on the call on the 2025 capex plan, I hope I got it correctly:
€ 2.5bn in total spending, of this there is some capitalised R&D spending (or similar) and other accounting effects, so the "effective" capex spending is about € 1.5bn of those € 1.5bn roughly € 800m go towards the building (structure, cement etc) for the Dresden plant, leaving another € 700m for mainly SIC and GAN (called out as such during the call!) and some Ai investments (smart power / logic).

So in any case my take-away is that a) IFX continues to believe in the SIC and GAN market and puts money behind it ("strategic investments") and b) even though these numbers might not sound huge at first sight, SIC and GAN remain key investment areas in an overall weak Semi Capex environment. So Aixtron is relatively better positioned vs. other players.

Regards,
Fel  

Q: Ross Seymore

Hi, guys. Thanks for letting me ask a question. I guess the first one is on the silicon carbide business. I know it's not the hugest part of your total revenues, but strategically, it's incredibly important. When -- Hassane, you talked about that being up low to mid-single digits. Do you believe that is just evidence of a cyclical weakness? Or has something started to secularly change as people have gotten a little more concerned on not only the pace of EV growth, but competition coming in and commoditization and those sorts of dynamics?

A: Hassane El-Khoury

Yes, Ross. We do still believe it's cyclical. Therefore, that's why I made the comment that the long-term trend for electrification and EV in general, has not changed. And very important to note, the designs or the models that we expected to ramp did go into production, they just didn't ramp to the level that we expected, which says that it's a short-term demand, but back to the lumpiness of EV adoption and not a change in strategy or a megatrend type. Otherwise, those models will have been canceled or not even launched.

--> long term drivers in tact. However, the softness will probably persist through 2025. One crucial question is with what pace the investment win SiC capacities will continue. Will it remain flat?

@fel: thank you for the Infineon update!!  

Classical valuation of a stock is based on the total cash to be earned by the company discounted to present day.  

The classical formula of FCF= EBIT x (1-tax rate) - Capex + Depreciation - change of noncash working capital (NCWC).

NCWC = Inventory+ Account Receivable-Account Payable

Here, I am excluding other exceptional items that Aixtron includes in its FCF reports.

Lets start by looking at how much free cash Aixtron would earn in Q4'24 and therefore the whole 2024. The lower bounds of the 2024 guidance are 620m sales and 22% EBIT margin.  So, the 2024 EBIT should be at least 620m x 22% =136.4m, which means the Q4'24 sales should be 214m and the EBIT should be 70m.  Those numbers are almost the same as those from the current analysts estimates.

The Q4 CAPEX will be 32m, which brings the total 2024 CAPEX to 114m.  The depreciation in Q4 will be 4m, which brings the 2024 depreciation to 14m.

So, excluding any NCWC change, the FCF for the Q4 quarter would be (10% tax rate): 70x0.9-32+6= 37m.

The biggest unknown is the NCWC especially the inventory.  The Q3 NCWC was 504m and that
was 81% of the trailing twelve month sales which were 620m.  Just picture this, 81% of the revenue was turned into and tied up in the noncash WC!!!.  Honestly, in any other company the CFO would have been fired.

The inventory draw from Q4's 214m sales would be 214m x 40%=86m.  The 40% is the cost of goods sold (COGS) and is the average number from Aixtron's 2023 annual report.

If there is no inventory addition in Q4 and the AP and AR stay the same as Q3, then the change of NCWC from at Q4's  would be - 86m .  As a result, the FCF generated in Q4 would be: 37m - (-86m)= 123m

Besides the inventory draw down from sales, Aixtron added inventories of 100m in Q4'23,  89m in Q1'24, 64m in Q2'24,  and 41m in Q3.  Based on that trend, I assume in Q4'24 Aixtron added 30m of inventory.  So the net inventory change would be -86m + 30m = -56m, and the FCF in Q4 would be 93m.  The inventory at the end of 2024 would become 371m.  The NCWC/sales ratio should improve to 0.72.

For 2025, current analysts estimates are 609m sales and 140m EBIT.  The capex is estimated to be 32m, and the deprecation should stay at about 14m. The  FCF excluding change of NCWC would be 140m x 0.9  -32m +14m = 108m.  The total inventory draw from the 609m sales would be 609m x 0.4= 244m.  How much Aixtron would/should replenish the inventory?  If we assume Aixtron adds back 120m inventory in 2025 (30m per Q) and no change in AP and AR, the change of of NCWC from 2024 would be -124m,and the FCF would be 108m-(-124m) = 232m.  With these assumptions, the inventory at the end of 2025 would be 247m, and the NCWC would be 324m, and and NCWC/sales ratio would further improve to 0.53.  I understand that this maybe too optimistic, but is that possible and doable?

Historically, Aixtron's NCWC/Sales ratios are 0.4-0.5 up until Q4'22.  So, asking the CFO to achieve that reasonable level is not too much.  

If Aixtron exits 2025 with a same backlog of today's 384m, the inventory/backlog ratio would be 247m/384m = 0.64.  Historically, this ratio was 0.4-0.6 up until Q4'22.  In a 2023 quarterly CC (Q2?), the CFO said a ratio of ~0.6 is the right one.  I am challenging the CFO to manage the NCWC aggressively in 2025 and keep his words.

I don't need to remind the CFO but just look at the stock price.  The only way for Aixtron's stock price to go back UP is to show a drastic improvement of FCF.

Adding the Q4'24's FCF of  93m and the hopefully doable projected 2025 FCF of 232m, Aixtron's cash position should add ~330m in addition to Q3'24's 78m.  After dividends there could be at least 350m cash.  Aixtron should use the excess cash to buy back the shares.  Don't put all of it back to WC again please.  If the customers want Aixtron to prepare for their "promised" ramp, ask them to pay the deposits first please.  I hope that there would be no same mistakes in 2025 and beyond.  

If not, the executive board should do something about the managers.
 

This chart shows that Aixtron continued to build excess inventories without customers putting down the deposits started from late 2022.  The ratio doubled in one year to > 3.5, and still rising till the last Q.





 

This chart shows that started in early 2023 Aixtron adds inventories without firm orders (=backlogs) from its customers.  This ratio should go back to ~0.6 by the end of 2025.
 

This ratio hopefully could go back to <0.5.


 

From the Q2'24 CC:

Michael Kuhn

... you mentioned some measures only taking effect into '25, maybe also a rough outlook on '25 and what level of inventories you would feel comfortable with over the upcoming quarters? ...

Felix Grawert

...So by the middle of '25, we want to be back to normal. So when we talk in 12 months from now, we want to be back to a normal level... And you will see a gradual digression by the Q3, not too much, don't over expect. And then you will see a digression of the inventories Q4, Q1, Q2 and by the middle of next year, we should be back to normal . It really follows from our strategy.

Michael Kuhn

And could you quantify it back to normal?

Christian Danninger

I would consider normal levels of 60%, 70% of order backlog with some further optimization of our internal processes, maybe we can get down even further but that would be my best guess right now.

.............................

From the horse's month, back to 60-70% of inventory/backlog ratio by the middle of 2025. My post in #1855 on 2025 FCF assumes the ratio would drop to 0.64 by the end of 2025

 

What you list as inventory is machines ready built plus also materials on stock for building machines, correct? I think Aixtron management has clearly missed to anticipate the dip in silicon carbide market in time. They hired aggressively and bought a new factory... probably both an over-investment from ex-post perspective. But what do you do now, that you have lots of new people on board? If you trust in the market mid-term, you will keep them. While I believe initially they were mainly stockpiling materials with alle the supply chain issues during/after covid (which they did in a brilliant way, as they never reported significant supply chain problems), today I think it is mainly keeping all those people busy by letting them build machines for delivery in better times. But I agree with you, that inventory needs to come down, not only to save money on storage/depreciation/captial cost, but also I had the feeling, that net cash got a little low recently. And I want a nice dividend! Q4 with super revenue announced will be an opportunity to reduce inventory, but thereafter it might be slower.