AIXTRON makes very specialized and high-tech equipment for the production of other high-tech products: AIXTRON lasers are used in 3D sensing for virtual and augmented reality in modern consumer electronics or as light sources for optical data transfer in IT and telecommunications. Developments such as autonomous driving will not be possible without laser, chips and LED’s which can be made with AIXTRON equipment. Moreover AIXTRON equipment is also used to make components for the power electrics industry, think of electric vehicles, charging stations and wind turbines.
However their main driver of revenue is the production of equipment for the metalorganic chemical vapor deposition of materials (MOCVD), which is used for the production of thin films which are needed in semiconductors. Semiconductors can have greater electrical conductivity than insulators but less than normal conductors, and are mostly used as a base material for microchips and other electronic devices. This is the main reason why Frits van Hout, Executive Vice President of ASML, is a member of the supervisory board of AIXTRON SE. While ASML has been thriving and has seen an increase in growth, AIXTRON has had troubles to really take off. Their stock has been slightly volatile last year, although contained by support around a price of 7.5 and resistance at 10.5, their share price is not a steady factor.
In 2017 Aixtron spun-off its OLED division to a new daughter-company named APEVA. With OVPD technology, AIXTRON has a process that can be used to produce OLED’s.
The OLED-market is emerging and is being boosted by multi-billion dollar players such as LG and Samsung. The display division of Samsung will invest $11 billion in QD-OLED facilities, to drastically reduce OLED panel production costs. This will offer a great opportunity for AIXTRON to gain even more market share in particularly Asia. With 70% of their revenue coming from Asia in the first nine months of 2019 (see figure 1), AIXTRON saw their European and American revenue drop drastically and seems particularly vulnerable for troubles in Asia. The Golden Investor is timorous on investing in Asia-dependent companies; where the financial crisis was partly resolved by an increase in orders from emerging markets in (South-Eastern) Asia. Now for the first time ever Asians take on significantly more debt, in emerging markets too. With increasing global trade uncertainty this could be a possible Achilles-heel for companies like AIXTRON.
With the trade war still not resolved the global economy and especially the Chinese economy has shown signs of slight weakness. And since China is the main driver of the world economy, this trade war can hurt the growth of new innovative technologies and thus hurt AIXTRON. However AIXTRON has good fundamentals to overcome possible setbacks. With a good cash position and a relatively low debt level AIXTRON stock seems a safe investment. N.B. AIXTRON is not known for paying dividends over their stock. While there finally seems to be a Phase I deal in the making The Golden Investor remains skeptical on further deals and with most tariffs still not off the table the manufacturing industry will need to take possible setbacks into account. Lets hope for the best in the upcoming elections, for now AIXTRON can be a good diversification for every portfolio with their future-proof and R&D-intense technologies.
Disclaimer: The writer of this article does not own AIXTRON SE (ETR:AIXA) stock, this article should not be interpreted as investment advice or anything like that.