ASMI outlook revised to positive on increased cash flow by S&P Global Ratings

Investing.com -- S&P Global Ratings has revised its outlook for ASM International N.V. (AS:ASMI), a Dutch provider of deposition equipment for semiconductor manufacturers, from stable to positive. The revision comes as ASMI shows potential for capitalizing on growth opportunities in its market, particularly as demand increases due to companies investing in AI-related semiconductor capacity.

Over the past decade, ASMI has consistently increased its scale and diversified its end-market. This has resulted in improved EBITDA margins and a rise in annual free cash flow (FOCF) beyond €500 million in 2024, which could approach €1 billion in the coming years.

The ratings agency expects ASMI to maintain a conservative financial policy, with a strong net cash position and exceptional liquidity, sustaining a cash balance of at least €600 million. The positive outlook suggests that the rating could be raised by one notch within the next 12 to 24 months, provided the company keeps its dominant position in key segments while expanding its scale and diversification.

Since 2016, ASMI has grown organically by a double-digit percentage, resulting in a larger scale and improved diversification. From 2021 to 2024, ASMI’s revenue grew by an average of 19.2% annually, outpacing major competitors such as Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX). This growth is due to ASMI’s market leadership and the increasing adoption of atomic layer deposition (ALD), a semiconductor fabrication process. ASMI holds a global market share exceeding 55% in ALD equipment supply.

ASMI is also expanding into adjacent deposition technologies, such as silicon epitaxy, and is expected to achieve a 30% global market share in this area by 2025. This expansion has opened up new end markets such as electric vehicles, leading to greater diversification.

ASMI is poised to capitalize on AI-related growth trends, supported by its expanding advanced-node technological portfolio. The transition to gate-all-around (GAA) technology nodes, which offer high capacity and low energy consumption for next-generation high-performance semiconductors, is expected to further expand ASMI’s addressable market.

Despite the downturn in the overall wafer fab equipment (WFE) market since 2020, ASMI has maintained EBITDA margins of 28%-30%. The benefits of scale and cost-reduction programs are expected to be offset by the need for ongoing investments in research and development (R&D), resulting in a stable EBITDA margin of about 30%.

ASMI has no financial debt and has maintained a cash position of over €600 million since 2023, which is expected to rise to over €1 billion as cash flow generation improves. The company continues to pay dividends and has initiated a €150 million share buyback program in April 2025.

However, the entry of new competitors and the emergence of substitute deposition technologies could hinder ASMI’s growth in the long term. In 2024, the top five customers accounted for approximately 51% of its revenue, and the potential loss of larger individual customers poses a material risk.

Uncertain macroeconomic conditions, potential tariffs, and changing trade policies could affect ASMI’s forecast. Although no new tariffs are currently imposed on ASMI’s exports to the U.S., this could change. ASMI generates about 20% of its total revenue from the U.S., but the risk of higher import tariffs is mitigated by ASMI’s ability to produce critical products in the U.S. if needed. This includes through the construction of a new facility in Scottsdale, Arizona, expected to be completed in the second half of 2026. The company is also enhancing its global supply chain flexibility by expanding manufacturing capacity in Singapore and South Korea.

The positive outlook suggests that the rating could be raised by one notch within the next 12 to 24 months, provided the company maintains its dominant position in key segments, while further expanding its scale and diversification. A conservative financial policy and a strong net cash position are also expected to be maintained by ASMI.

The outlook could be revised to stable if the company’s growth slows or its profitability weakens, leading to an inability to increase FOCF to €800 million annually. The rating could be raised if ASMI continues to diversify its revenue base and achieves double-digit growth while maintaining an EBITDA margin of approximately 30%, supporting FOCF of about €800 million annually. Additionally, leverage would need to stay below 1.5x.

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